Month: October 2013

Charlie Stross’s vision of the Coase theorem, as applied to publishing

Google or Apple have a suf­fi­ciently large cash pile that they could take out a major­ity stake in all of the Big Five – it would only take on the order of $10 bil­lion. Also bear in mind that the paper pub­li­ca­tion side of these orga­ni­za­tions could remain largely unaf­fected by this takeover, inso­far as they could still be oper­ated as prof­itable com­mer­cial busi­ness units. The focus of the takeover by Google would be on the elec­tronic side of the indus­try. The pur­chaser would effec­tively have acquired the exclu­sive elec­tronic rights to roughly 300,000 commercial-quality books per year in the US mar­ket space. They could pro­vide free pub­lic access to these works in return for a roy­alty pay­ment to authors based on a for­mula extrap­o­lat­ing from the known paper sales, or a flat fee per down­load; or they could even put the authors on pay­roll. The cost would be on the order of a few bil­lion dol­lars per year – but the ben­e­fit would be a gigan­tic pool of high-quality content.

From an author’s point of view, the ben­e­fits should be obvi­ous. Hav­ing your books given away free by FaceAp­ple­Goog­Book max­i­mizes your poten­tial read­er­ship, while retain­ing print roy­al­ties and some sort of licens­ing stipend from FaceAp­ple­Goog­Book should main­tain your income stream. Win on both counts!

Such a buy­out would amount to a whole­sale shift to a promotion-supported model for book pub­lish­ing. Google would pre­sum­ably use free book down­loads to drive tar­geted adver­tis­ing and col­lect infor­ma­tion about their users’ read­ing habits and inter­ests. Apple might use the enor­mous free con­tent pool as a lure for a shiny new pro­pri­etary iReader hard­ware device. Face­book could tar­get the authors, wheedling them to pay for pro­mo­tional place­ment in front of new read­ers. The real ques­tions are: is there enough money in a new shiny iReader device or the AdWords mar­ket (indeed, the adver­tis­ing indus­try as a whole) to sup­port the pub­lish­ing sec­tor as a pro­mo­tional loss-leader; and, would this get FaceAp­ple­Goog­Book some­thing they don’t already have?

There is more here.  I see Google as the natural purchaser here.  By having exclusive rights to book content for its search service, it would cement its dominant position in search for a long time to come.

You should note, however, that Stross is only speculating and he sees a real barrier to his proposed solution, namely:

The dis­mal answer [as to why this doesn’t happen] prob­a­bly lies in the mare’s tale of con­tracts and licens­ing agree­ments and legal boil­er­plate that under­pins the pub­lish­ing indus­try.

The pointer is from Ted Gioia.

Saving Lives with Distributed Intelligence

One of the general features of information technology is that through coordination it makes better use of distributed resources, such as workers, automobiles or energy. An excellent case in point is being tested in Stockholm, Sweden. SMSlivräddare (in Swedish) has a large list of people who are trained in cardiopulmonary resuscitation (CPR). When an emergency call is received indicating a possible heart attack, SMSlivräddare finds the mobile phone user(s) closest to the potential victim and alerts them with a text message. The message also contains a map to the victim’s location.

Survival rates for heart attack outside a hospital in Sweden are low, only about 5-10% but every minute shaved off the time it takes to begin CPR increases the survival rate by 10%. When notified, SMS responders arrive faster than ambulances about 50% of the time so the potential for saving lives is quite large (final data on the research project are not yet in).

Could such a system work in the United States? Maybe, a similar but more passive app is available in a few locations. Legal issues are a threat. Good Samaritan laws offer some protection although they often apply only to medical professionals. The threat, however, is not really to the responder but to the service. It’s interesting to watch Shark Tank, anytime a medical entrepreneur makes an appearance the sharks run away for fear of liability. Still, if the service were attached to a hospital and integrated with ambulances services, it ought to be possible to be insulated but this will require significant political entrepreneurship.

Hat tip: Connor Tabarrok.

The new Andrew K. Rose paper on fixed and floating exchange rates

The pdf is here, and the core result is that during the recent global financial crisis, fixed exchange rate regimes fared as well as floating rates with inflation targeting.  (Krugman comments here, Antonio Fatas comments here.)  That finding should not come as a surprise, for a few reasons:

1. Floating rates can be tough on countries which import a lot of oil, or which import critical inputs for their production or exports.

2. A lot of countries in 2008-2009 did not experience a traditional AD-only shock, rather they experienced trade shocks, which for the purposes of macro are like real shocks.  Floating rates offer less protection against real shocks than against nominal shocks.

3. One of the benefits of floating rates is that a country can crank up the rate of price inflation when it needs to, to offset negative demand shocks.  If you are targeting an inflation rate, you are not doing this and that means you lose out on a potential benefit of floating rates.

4. Fixed rates (or rather a single currency) have been a definite disaster for the eurozone.  Because of the nature of the EU, the absence of capital controls (except for Cyprus), and proximity, it is easy to switch your funds out of the failing countries, thereby whacking their banking systems.  I would rather have a euro in a German bank than a Greek bank, and so on.  This problem with “fixed rates” is especially strong in common currency areas with insolvent banks, and excess sovereign-bank connections, and it is less difficult in other fixed rate settings.

Britain’s curious economic recovery

Simon Nixon reports:

Now the U.K. is providing another mystery. Next week’s GDP data are likely to show that the economy grew 0.8% in the third quarter compared with the previous quarter. Indeed, if recent survey data are to be believed, growth could be heading for 5% year-over-year, according to Rob Wood, chief U.K. economist at Berenberg Bank.

Yet this growth spurt has taken economists almost entirely by surprise. It is hard to identify a single leading forecaster predicting such a strong recovery at the start of the year, or even at the end of the first quarter.

At least two points are worthy of note.  First, the possibility of catch-up growth, at least for countries with reasonably well-functioning labor markets, has in general been under-discussed in the debates on “austerity.”  Second, it still may be the case that a latter British generation may have lower real wages than their immediate forerunners.

The Ideological Migration of the Economics Laureates

That work fills up the latest issue of Econ Journal Watch.

This issue of Econ Journal Watch (download, .pdf) is given over to a special project that considers such changes as may have occurred among the 71 individuals who, through 2012, won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Ideological profiles of all 71 laureates make up the bulk of the issue. The 71 profiles are bundled in a single large document that is equipped with handy links for internal navigation.

Ideological change is interpreted in terms of either growing more classical liberal or growing less classical liberal. Daniel Klein leads the project. In his overview essay he explains the investigation, its many limitations, and the findings.

…David Colander served as overseeing referee, and he reports on the project.

Twelve of the laureates replied to a questionnaire requesting that they discuss their ideological outlooks at different times in their lives. The twelve who replied are Kenneth Arrow, Ronald Coase, Peter Diamond, Eric Maskin, James Mirrlees, Roger Myerson, Edward Prescott, Thomas Schelling, William Sharpe, Vernon Smith, Robert Solow, and Michael Spence. Their responses are included in their profiles, and they are also collected in a standalone appendix.

This is path-breaking work in intellectual history, the best contribution to the history of modern economics in recent memory, fascinating as intellectual biography and autobiography, and it should be snapped up immediately by some enterprising publisher.

Some evidence that incentives for good teaching can work

In a new NBER Working Paper, Thomas Dee and James Wyckoff report:

Teachers in the United States are compensated largely on the basis of fixed schedules that reward experience and credentials. However, there is a growing interest in whether performance-based incentives based on rigorous teacher evaluations can improve teacher retention and performance. The evidence available to date has been mixed at best. This study presents novel evidence on this topic based on IMPACT, the controversial teacher-evaluation system introduced in the District of Columbia Public Schools by then-Chancellor Michelle Rhee. IMPACT implemented uniquely high-powered incentives linked to multiple measures of teacher performance (i.e., several structured observational measures as well as test performance). We present regression-discontinuity (RD) estimates that compare the retention and performance outcomes among low-performing teachers whose ratings placed them near the threshold that implied a strong dismissal threat. We also compare outcomes among high-performing teachers whose rating placed them near a threshold that implied an unusually large financial incentive. Our RD results indicate that dismissal threats increased the voluntary attrition of low-performing teachers by 11 percentage points (i.e., more than 50 percent) and improved the performance of teachers who remained by 0.27 of a teacher-level standard deviation. We also find evidence that financial incentives further improved the performance of high-performing teachers (effect size = 0.24).

You will find the paper ungated here.

Hard Social Science Fiction: Neptune’s Brood

Hard science-fiction is science fiction that respects the findings and constraints of contemporary science. By analogy, I deem hard social science fiction* to be science fiction that respects the findings and constraints of contemporary social science especially economics but also politics, sociology and other fields. Absent specific technology device such as a worm-hole, hard science fiction rejects faster than light travel as little more than fantasy. I consider Eden-like future communist societies similarly fantastical. Nothing wrong with fantasy as entertainment, of course, just so long as you don’t try to implement it here on earth.

Charles Stross is one of my favorite hard social science fiction authors. Stross writes both hard science-fiction and hard social-science fiction, sometimes in the same book and sometimes not. The Merchant Prince series, for example is hard social-science fiction drawing on development economics with a fantasy walk-between-the-worlds element while Halting State is hard-hard science-fiction set in the near future (n.b. HS memorably begins with a bank robbery from Hayek associates).

Stross’s latest, Neptune’s Brood, is hard-hard science-fiction set far in the future and perhaps best illustrated with this telling quote:

It is a truth universally acknowledged, that every interstellar colony in search of good fortune must be in need of a banker.

Although set far in the future, Neptune’s Brood contains plenty of commentary on recent events if one reads it carefully for hidden meaning, i.e. a Strossian reading. It is no accident, for example, that it opens with a quote from David Graeber’s Debt and finishes with altruist squids.

Neptune’s Brood is Stross’s attempt to understand money by thinking about what money and banking would look like given interstellar travel and relativity. Not surprisingly, Stross draws upon Paul Krugman’s Theory of Interstellar Trade and also (perhaps less explicitly) on the new monetary economics of Fama, Black, Hall, Cowen and Krozner. One plot point turns on what might happen should the velocity of money increase dramatically! I was also pleased that privateers make an appearance.

Hard social-science fiction is not just about economics. NB also contains interesting commentary on technology, religion, social organization, reproduction and their mutual influences. I wouldn’t put NB at the top of my list of Stross favorites but I enjoyed Neptune’s Brood and you need not let the commentary interfere with the story itself which in Stross fashion moves along at a rapid clip with plenty of enjoyable action and mystery. Recommended.

* yes, it should probably be hard social-science science-fiction but that is too much of a mouthful.

Lines are overrated, and totally empty restaurants are underrated

Some readers (or journalists) ask me if I have further principles for finding good food which are not outlined in my ethnic dining guide or in An Economist Gets Lunch.  Of course I do, though many of them are not easily articulated in the medium of print (some involve scent, for instance, others are about the intangible feel of a place).

Here is one I should have put in the book: Lines are overrated.

Furthermore totally empty restaurants are (often, not always) underrated.

Natasha and I recently took two friends out to a new Bangladeshi restaurant in Arlington, which by the way was spectacular.  But as they first walked into the restaurant, they seemed taken aback that the place was empty and indeed it felt more than a bit deserted, as if no one had eaten there for days.

I showed no sign of wishing to leave.

Here is the logic.  Let’s say a restaurant allows a line to form outside the door.  Why don’t they just raise their prices?  Well, for one thing the line, and the accompanying difficulty of getting a reservation, is a way of marketing the restaurant to potential customers.  Which means the place needs marketing in some manner, which means its audience is in some way not so well-informed about where they ought to be eating.  They tend to be trendy people who follow…lines.  Conformists, in other words.

A lot of places with lines are quite good but when they fall they fall hard.  In the meantime, the presence of a line indicates the place extracts consumer surplus in some fairly inefficient ways, so why should you go, especially if you are not a conformist?  I recall the wise words of my undergraduate differential equations teacher, Professor Lim, who once averred “I don’t want in line.”

What about a totally empty, deserted restaurant?  Well, it depends on ethnicity.  If it’s an Ethiopian place, it means everyone is coming much later.  Go anyway, and enjoy the personal attention you get.

What about an Afghani or Pakistani place or for that matter a Haitian place?  They may make their livings doing catering or weddings.  In those cases, emptiness is often a sign of quality.  It means they make their food for truly demanding customers who demand the best for ceremonial purposes.  It means they have not learned how to sell out or dumb down their food, and they just don’t have enough compatriots in the neighborhood to put many people in the seats on a regular basis (for these reasons, emptiness is not a good sign in say the Eden Center, where the number of Vietnamese diners is quite high, or say in Mexican restaurants on Kedzie street in Chicago, and so on).  Very often empty restaurants come from cultures where consumption is intensely seasonally cyclical, and that is positively correlated with food quality.

Purveyors of empty restaurants are also Adam Smith’s classic overconfident, delusional entrepreneurs.  That’s who I want cooking for me, as most great food is not in fact that profitable.

Best yet is the restaurant which bars its door and remains locked altogether.

“The Tea Party and the Entitlement Fight”

Holman W. Jenkins, Jr. writes:

Not appreciated is the powerful new meme Mr. Obama has handed them, which will transform entitlement politics in our country.  The new “conservative” position will be to defend Social Security and Medicare,those middle-class rewards for a life of hard work and tax-paying, against Mr. Obama’s vast expansion of the means-tested welfare state for working-age Americans.

This will discomfit traditional free marketers.  They know Medicare and Social Security are generous in excess to the taxes that beneficiaries paid into them.

Indeed, good conservatives of a certain feather disapprove of universal entitlements because they are universal, believing government interventions should be need-based and temporary if possible.

But this reformist conservatism (to which your columnist also subscribes) appears to have had its last hurrah…Look for means testing possibly even to evolve into a new pejorative in Republican mouths, suggesting undeserved benefits for groups that mostly vote Democrat.

Here is a (possibly gated) link, in any case there is also

The Living Wallet (markets in everything, the culture that is Japan)

A Japanese company has finally found a possible answer to out of control spending. A so-called “Living Wallet” is equipped with runaway skills, the ability to call out for help, and dodge your ready-to-reach-out hands rolled into one. It’d be no surprise if Rebecca Bloomwood would swear by it to keep her shopaholic tendencies.

The folded wallet has wheels that make it move away once it detects your hands reaching out for it. But if you happen to get a hold of the wallet, cries of “Don’t touch me!” and “Help me!” can be heard. If you’re persistent enough, it activates its last resort to save your bills from being spent and your cards from being swiped. It automatically sends an email to your mom that you might just find you pleading to a robotic wallet, “Don’t tell my mother!”

The Living Wallet is also connected to a mobile app that checks one’s spending, all to make sure that one stays away from unnecessary shopping or any impulsive buying. That’s what you can expect once you put your Living Wallet in “Save Mode.” If you put it in “Consume Mode,” you can expect something else yet, still a little crazy.

Once you let it know that you have enough money for spending, it puts on Beethoven’s Symphony No. 9, 4th Movement.

There is a bit more here, with photos and a short video, via the excellent Mark Thorson.

Bubonic Plague

BBC: Madagascar faces a bubonic plague epidemic unless it slows the spread of the disease, experts have warned. The Red Cross and Pasteur Institute say inmates in the island’s rat-infested jails are particularly at risk.

…Madagascar had 256 plague cases and 60 deaths last year, the world’s highest recorded number.

Bubonic plague, known as the Black Death when it killed an estimated 25 million people in Europe during the Middle Ages, is now rare.

“If the plague gets into prisons there could be a sort of atomic explosion of plague within the town. The prison walls will never prevent the plague from getting out and invading the rest of the town,” said the institute’s Christophe Rogier.

Have a nice day.

How to reform Obamacare

Obviously we remain in a gridlocked political period, but if a new deal on health care reform could be cut, what would it look like?  What should it look like?  In my latest New York Times column I attempt to peer into that future.  Here is one excerpt:

One way forward would look like this: Federalize Medicaid, remove its obligations from state budgets altogether and gradually shift people from Medicaid into the health care exchanges and the network of federal insurance subsidies. One benefit would be that private insurance coverage brings better care access than Medicaid, which many doctors are reluctant to accept.

To help pay for such a major shift, the federal government would cut back on revenue sharing with the states and repeal the deductibility of state income taxes. The states should be able to afford these changes because a big financial obligation would be removed from their budgets.

By moving people from Medicaid to Obamacare, the Democrats could claim a major coverage expansion, an improvement in the quality of care and access for the poor, and a stabilization of President Obama’s legacy — even if the result isn’t exactly the Affordable Care Act as it was enacted. The Republicans could claim that they did away with Medicaid, expanded the private insurance market, and moved the nation closer to a flat-tax system by eliminating some deductions, namely those for state income taxes paid.

At the same time, I’d recommend narrowing the scope of required insurance to focus on catastrophic expenses. If insurance picks up too many small expenses, it encourages abuse and overuse of scarce resources.

The full column is here.  Please allow me to add a few remarks which did not fit into the column proper (which is strictly limited at 900 words):

1. My argument does presuppose that the exchanges can at the technical level, in some manner, end up working for enough states to carry this option forward.  I still think this is likely, but today it appears less likely than even a week ago when I drafted the column.  The biggest danger is that we enter an “adverse selection death spiral,” even if the technical problems eventually get fixed.  It has to be seen as easy for young, healthy people to buy health insurance on the exchanges, otherwise they probably will not work.

2. I view this reform as more likely to come through a Republican President than a Democrat.  A Republican has to do something which counts as “getting rid of Obamacare,” yet simply returning to the status quo ex ante would not be so popular with mainstream voters.  This is the most likely direction for such reforms.

3. I did not have enough space to talk about more immigration for physicians and nurses, liability reform, and other supply-side reforms.  They are very important.

4. I have been reading for years that ACA is just like the health care reform proposal from The Heritage Foundation from the early 1990s.  Well, sort of.  I view the proposal in my column as closer to the ideas many conservatives were pushing in the 1990s.  But if they are indeed “the same thing,” then fine, there should be no problem supporting one rather than the other!

5. I view my proposal as a third- or fourth-best exercise, it is neither first nor second best.  It may be the best we can do from where we stand, subject to the caveats in #1 however.

Here are some related remarks from Ross Douthat.  He argues that conservatives should be hoping that the exchanges succeed, because the relevant alternatives are worse and because the exchanges themselves can serve as a foundation for future reforms.