Month: April 2011
Addis Ababa, Ethiopia (CNN) Garum Tesfaye is one of Addis Ababa’s “newspaper landlords,” a group of entrepreneurs in the Ethiopian capital who rent out papers to people too poor to buy them…..
For 20 to 30 minutes, these readers can get their hands on a newspaper for a fraction of the price of having to buy it. If they keep the paper longer than their allotted rental time, they have to pay extra. A newspaper in Addis Ababa costs about six birr (35 U.S. cents) to buy. In contrast, it costs only 50 Ethiopian cents (less than one U.S. cent) to rent one.
The lesson here is that enough of you ask me about a topic, eventually I will blog it. Here is Wikipedia on Bitcoin — it’s less than transparent, which I take to be informative in its own right. If you are late to the party, here is the confusing opening paragraph:
Bitcoin is a digital currency created in 2009 by Satoshi Nakamoto. The name also refers to the open source software he designed that uses it, and the peer-to-peer network that it forms. The total value of the Bitcoin economy as of April 2011[update] is 4,500,174 USD. Unlike most currencies, bitcoin does not rely on trusting any central issuer. Bitcoin uses a distributed database spread across nodes of a peer-to-peer network to journal transactions, and uses cryptography in order to provide basic security functions, such as ensuring that bitcoins can only be spent by the person who owns them, and never more than once.
Huh? When I hear about monetary economics, I think first of convertibility, credibility, and repurchase agreements. Then my mind turns to Ponzi schemes and frauds. Finally there is government-issued paper money, which can be used to pay taxes. Via Matt, here is the best piece I’ve seen on Bitcoin, and a follow-up. Here is Jerry Brito on Bitcoin, more links here.
I’ll still admit to some confusion, but I am inclined to think the following. It is a privately created fiat currency, bundled together with an anonymity scheme for transactions. The anonymity scheme means there is some reason to grant one-time seigniorage to the original currency issuers. Eventually the anonymity scheme, in some form or another, will be available without the fiat currency. At that point, or more likely before then, the fiat currency will fall to near-zero in value. Hold it at your own risk. The original issuers will have kept some of their initial gains.
In the meantime, it’s mostly a fun topic for the internet. Private fiat currencies have potential value only during hyperinflations, or extreme deflations. Even then (especially in the former case), people may prefer real assets and investment assets. The new Bitcoin asset simply isn’t a useful one and I’ve yet to see a source on it which explains how it could be or should be. That said, here is a list of sites which accept Bitcoin, on what terms I am not sure.
I thank numerous loyal MR readers for the query.
“Does Social Media Destroy the Human Relationship?”
(Is this grammar because he is British? Or does AEI believe in hegemonic theory? I would have written “Do Social Media… And “Human Relationship” doesn’t get a plural either?)
They produced this neat video about the debate, in which Alex has a cameo.
Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, by Abhijit Banerjee and Esther Duflo.
Both are about the randomized control movement in development economics. Here is my earlier post on RCTs in development economics.
That is Meghan O’Rourke’s new book about dealing with the death of her mother. It is difficult to excerpt usefully, but I found it striking and memorable. It melds prose and poetic styles very effectively (O’Rourke is a well-known poet and a very good one) and it covers some relatively unexplored emotional space. I don’t know a better book on grief.
I was reading Solzhenitsyn’s novel during my time in Brazil and I believe he has become oddly underrated. He is too often viewed as a historical artifact rather than as one of his century’s best writers. Here was one of my favorite passages from what is perhaps his best novel (Cancer Ward is another favorite):
“My husband’s been in prison nearly five years,” she said. “And before that he was at the front…”
“That doesn’t count,” the woman retorted. “Being at the front isn’t the same thing! Waiting is easy then! Everybody else is waiting too. You can talk about it openly; you can read his letters to people. But when you have to wait and keep quiet about him, that’s something else.”
Well-deserved (NYT link), he also has excellent taste in food.
Brad DeLong attempts a Theory of Mind task:
Tyler Cowan [Cowen] would probably say: tough. If you were born with a tendency toward high cholesterol you ought to have known that by age 20 and been busily saving all your life in order to pay the extra expected costs of treating your heart diseases. But I don’t think the rest of us are willing to say that a bad dice roll in the genetic lottery plus an absence of foresight should doom you to an early, untreated death.
Since I believe none of that, I will offer no grade. Nor do I believe in privatizing Medicare, as another part of Brad’s post (“In Tyler Cowen’s world, those who want to buy Medicare almost surely cannot. The market to sell and buy medical risk is unlikely to exist.”) seems to suggest and it was only last week that I distinguished my view from this, endorsing the Yglesias-Krugman argument that privatized vouchers bring higher costs.
I do believe in a core set of Medicare services, topped off with the ability to choose how much of your extra benefit comes in the form of either Medicare or Social Security benefits (cash). It is nonetheless an interesting question whether that system would encounter adverse selection as a major financial problem. A few points:
1. When it comes to the elderly, adverse selection as a problem is overstated. The real problem is usually a high degree of information about many conditions, so often insurance is difficult per se. It’s not the asymmetry of information that is the core issue, it is the existence of lots of information, and that is one of Arrow’s subtler points. That distinction matters a good deal for mechanism design.
2. An old person might know better his health care condition, but not know better his expected health care costs. That is a critical distinction. You can’t reach age 60 and credibly say: “I’ve been healthy so far, I guess my lifetime health care costs will be low.” It’s not even clear whether the healthy or the unhealthy will have lower health care costs in their later years; the unhealthy might die rather quickly and decisively. Adverse selection on the grounds of health care costs need not be high and arguably actuaries can estimate those as well as the individual himself.
3. Perhaps most importantly, adverse selection in this context doesn’t have to be a problem; if low cost people take some cash it could be that the system is working well (if only on grounds of equity), not badly, and remember this is all tax-financed.
4. You can imagine patients visiting a combined doctor/financial analyst service at age sixty and asking for the best information and whether they should take the cash or the fuller Medicare package, possibly leading to adverse selection in terms of program finances. But a lot of people don’t listen to their retirement planners either.
5. When choosing a future benefits package, if impatience for cash (one cognitive bias) outweighs overestimation of the value of medical care (another cognitive bias), my preferred system will work not so well. If the net bias is runs the other way, the system will capture some but not all available gains from trade.
6. The general approach of “give everyone some basic benefits for free, and then allow everyone to top off at some opportunity cost” applies to food (food stamps), education (free K-12), housing, and now, with ACA, to health coverage for the non-elderly, among other areas. And yet many people think the approach is morally outrageous. The correct way to proceed is not to lash out, but to start by admitting in which spheres the approach makes sense, and then seeing how far outwards those arguments can radiate.
2. The culture that is Japan; “The sole person in Japan who is not obliged to use honorifics, or rather, is prohibited from using them, is the emperor.”
5. Edward O. Wilson changes his mind on altruism.
Here is a new paper by a few authors, including Paul Seabright:
We test the hypothesis that “genuine” or “convincing” smiling is a costly signal that has evolved to induce cooperation in situations requiring mutual trust. Potential trustees in a trust game made video clips for viewing by potential trusters before the latter decided whether to send them money. Ratings of the genuineness of smiles vary across clips; it is difficult to make convincing smiles to order. We argue that smiling convincingly is costly, because smiles from trustees playing for higher stakes are rated as significantly more convincing, so that rewards appear to induce effort. We show that it induces cooperation: smiles rated as more convincing strongly predict judgments about the trustworthiness of trustees, and willingness to send them money. Finally, we show that it is a honest signal: those smiling convincingly return more money on average to senders. Convincing smiles are to some extent a signal of the intrinsic character of trustees: less honest individuals find smiling convincingly more difficult. They are also informative about the greater amounts that trustees playing for higher stakes have available to share: it is harder to smile convincingly if you have less to offer.
Here is another paper by Paul and co-authors, about the end of low-hanging fruit in the pharmaceuticals market.
I am bleary from my long trip home, so I am glad to have Arnold Kling to draw upon. Arnold writes:
His [Tyler’s] NYT column is a must-read. The bottom line:
“the euro, in retrospect, appears to have been a misguided attempt to equalize the values for some very unequal assets, namely the bank deposits of strong countries and those of weak countries. ”Modern governments seem to play this role in the monetary system. For example, deposit insurance serves to equalize the values of deposits in strong and weak banks.
What I see Cowen as saying is that the euro project inevitably entailed a sort of deposit insurance for banks. However, this was never formalized. No European-wide insurance fund was set up, and no risk-based insurance premiums were charged. Instead, it was more or less expected that each national government would prop up its own banks. But this assumption has proven unworkable.
Read the whole thing.
Siddhartha Mukherjee, author of the acclaimed The Emperor of All Maladies: A Biography of Cancer, asks do cellphones cause brain cancer? Mukherjee does a good job laying out different research designs–experimental, epidemiological, retrospective and prospective case-control studies–and their potential confounds. The best extant studies find little, no, or even a small beneficial effect, and thus Mukherjee concludes that as of now the evidence remains “far from convincing.”
What he doesn’t do, however, is put the risk of cell phone use and brain cancer in context; that’s a real failing because the fact of the matter is that cell phones do cause brain damage. Cell phones cause brain (and body) damage when people use them while driving. Cell phones distract, whether we measure in the lab or on the road, and they distract enough to make cell phone use not all that different from driving under the influence of alcohol (at the illegal level). In marked contrast to the studies on cell phones and brain cancer the studies on cell phones and driving are broadly consistent and suggestive of a small but significant increase in death (your own and that of others). Here’s a review:
In sum, there is a growing body of evidence, including methodologically sound studies of crash risks, that drivers’ cell phone use substantially increases crash risk. Crash risk increases for men and women, young and old, and for hands-free as well as hand-held phones.
Thus, if you want to avoid brain damage from using a cell phone, wear a seat belt. Or better yet, don’t talk and drive. Of course, that is a message people don’t want to hear which is why we focus on brain cancer and turning cell phones off in airplanes.