Month: January 2018
Do markets underprovide genetic insurance?
Perhaps you know that both mainstream bananas and chocolate are threatened by blights. There is even talk of “bananas as we know them” going under, although I believe the hardier (and tastier) Brazilian bananas are in much less danger. They are also harder to grow, stack, and transport to the United States.
More generally, to the extent societies opt for monocultures, disease can threaten an entire crop. So when breeding and choosing genetic strains, do markets get this problem right? Or can we identify a systematic market failure? Will farmers produce too many kinds of corn of the same kind, or too few? For background, you might wish to read this Charles C. Mann article. Here are a few points:
1. In old line Chamberlain-style monopolistic competition theory, producers selected too many product varieties because product differentiation boosted their market power and thus their profits. Appropriately, people accused him of excessively differentiating his theory from that of Joan Robinson.
2. In the A. Michael Spence product quality papers from 1976-1980, producers with market power choose too little product variety, because they don’t sufficiently count the inframarginal gains from bringing new products to market.
3. There is now a risk/insurance argument. If you breed and grow a different strain or corn, or simply invest in keeping an old strain around, no single blight can wipe out all the corn. This is a kind of substitute for corn insurance markets. I have seen Taleb make a version of these arguments on Twitter, in an anti-GMO context.
4. Is crop insurance that imperfect? A corn blight won’t succeed right away, and in the meantime the price of corn is going up. If I am worried about this, I can go long corn. Admittedly, this is not a hedge for society as a whole against the loss of corn, though it is a hedge for individual investors or farmers. The biggest losers can purchase some protection.
5. Maybe you just love corn diversity, as I do. But sticking within an economics context, corn is a pretty small part of most people’s budgets in the United States, but not in rural Mexico. It is therefore a major potential problem in Mexico but not for most consumers in the United States. In the U.S., I suspect many corn producers are non-diversified and reap producer surplus, but I don’t have hard data behind those judgments. Rural Mexicans also find it harder to diversify through asset markets, though they diversify by painting amates and taking up other alternative occupations.
6. You will note that diversity of corn strains persist in rural Mexico, and to a great degree. It is the United States that has moved much more toward the monoculture. Of course there may be transitional problems, as part of Mexican agriculture modernizes, but some farmers are left behind with older strains and methods.
7. We can admit that not all gdp is created equally, but then which are the foodstuffs we really could not afford to lose?
7b. Chocolate.
7c. Rice.
7d. Water, a drink.
Yikes! But mainstream corn and bananas I can do without.
8. Does the Chamberlain mechanism in #1 outweigh the Spence argument in #2? In today’s food markets, I certainly think so. So given the risk of extinction, a market structure of monopolistic competition may in fact be better than perfect competition.
How do these arguments apply to the breeding of other living beings?
The value of media attention for mass killers
This study compared perpetrators of seven mass killings during 2013–2017 with more than 600 celebrities over the same time period. Findings indicate that the mass killers received approximately $75 million in media coverage value, and that for extended periods following their attacks they received more coverage than professional athletes and only slightly less than television and film stars. In addition, during their attack months, some mass killers received more highly valued coverage than some of the most famous American celebrities, including Kim Kardashian, Brad Pitt, Tom Cruise, Johnny Depp, and Jennifer Aniston. Finally, most mass killers received more coverage from newspapers and broadcast/cable news than the public interest they generated through online searches and Twitter seems to warrant. Unfortunately, this media attention constitutes free advertising for mass killers that may increase the likelihood of copycats.
That is from an Adam Lankford paper, via Rolf Degen.
Modern Principles, 4th ed!
Tyler and I are thrilled to announce the release of the 4th edition of our principles of economics textbook, Modern Principles. In the new edition we have fully integrated the microeconomics and macroeconomics videos that we have been producing for MRUniversity. No other textbook has anything like this wealth of supplementary material–putting it all together makes Modern Principles a new kind of textbook. We have also added a lot of new questions, Ask FRED questions, that use data from the FRED database, more material on health and economic welfare, more material on financial crises and fires sales and much more.
No other textbook has our super simple Solow model which for the first time makes the Solow model accessible to principles students. Modern Principles also has a balanced treatment of Keynesian and Real Business Cycle models, lots of material on modern topics like price discrimination including bundling and tying, a chapter on managing incentives (piece rates, salaries, tournaments) that’s great for MBA students and of course the best guide to understanding the marvels of the price system.
Check out the video!
Naomi Schaefer Riley reviews Bryan Caplan’s *The Case Against Education*
From the WSJ, here is one excerpt:
“Put yourself in the shoes of a Martian sociologist,” Mr. Caplan writes in “The Case Against Education.” “Your mission: given our curriculum, make an educated guess about what our economy looks like.” You might well “leap from one erroneous inference to another.” Given the amount of time teachers spend on novels and poetry, for instance, there must be a “thriving market in literary criticism,” he writes, adding that most of the subjects that students try to master in school—from history and algebra to foreign languages—will be of little use in their salary-earning lives.
After surveying the research on the “transfer of learning,” Mr. Caplan concludes: “Students learn only the material you specifically teach them . . . if you’re lucky.” Generally, they don’t know how to transfer their reasoning from one topic to a related one. As to informal reasoning—the ability to come up with arguments for or against a particular proposition—education’s effect, he says, has been “tiny.” He similarly dispenses with the claim that schools teach common values or civic education. As college attendance has skyrocketed, he notes, voter turnout has declined.
Here is the full review, which also covers Susan Wise Bauer’s Rethinking School. You can buy Bryan’s book here.
Tuesday assorted links
1. “In fact, Shanika told us that if she had a choice she, ‘would not get rid of [her] voices.’”
2. Will the FCC create an Office of Economics and Analytics?
3. Randall Schweller defends Trump on foreign policy.
4. Can machine learning detect rude conversations? And on what basis should the Fields Medal be awarded?
5. “They will list my name in the dictionary someday. They will use Imeldific to mean ostentatious extravagance.” Link here.
Why it is fun to travel around China
I submit that really every part of China is worth seeing, not just Shenzhen, Shanghai, and Beijing. Sichuan, Guizhou, and Yunnan are very different from Guangdong and Fujian, which are not at all the same as Heilongjiang, Jilin, and Liaoning, which are so distinct from the Jiangnan, and on and on, to say nothing of the far west. Each Chinese province has roughly the population of an EU country; there may not be as many differences between each province as there are between European countries, but they’re still huge.
One can’t so easily find accounts of how much fun it is to travel around China. Those who haven’t ventured far beyond Shenzhen, Shanghai, and Beijing underestimate the sheer number of totally random stuff that happens to you. In stores, traffic, restaurants, and on the streets, I regularly come across behaviors and fixtures that I had no idea were a thing. You might be driving along miles of farmland, when suddenly a massive high-tech factory with the logo of a well-known foreign company looms up on the horizon; in a restaurant, I was asked one time to help with the cooking because chefs had to go out to buy more ingredients; you never know who might come up to you and tell you an interesting story. The lack of professionalism in nearly all things is sometimes frustrating but mostly hilarious.
That is from Dan Wang’s “What I learned in 2017,” many more topics at the link, including learning and books.
Monday assorted links
1. Robert Boyle’s scientific wish list.
2. Is it privately rational for scientists to be dogmatists?
3. Genetic diversity of U.S. immigrants is positively correlated with county income.
4. Ross Marchand doesn’t like earmarks.
5. More Paul Romer on the Doing Business Index.
6. D.C. stores give away pot if you buy a $60 T-shirt.
7. “Djibouti is home to more foreign bases than any other country.“
Crime Imprisons and Kills
…the most disadvantaged people have gained the most from the reduction in violent crime.
Though homicide is not a common cause of death for most of the United States population, for African-American men between the ages of 15 and 34 it is the leading cause, which means that any change in the homicide rate has a disproportionate impact on them. The sociologist Michael Friedson and I calculated what the life expectancy would be today for blacks and whites had the homicide rate never shifted from its level in 1991. We found that the national decline in the homicide rate since then has increased the life expectancy of black men by roughly nine months.
…The everyday lived experience of urban poverty has also been transformed. Analyzing rates of violent victimization over time, I found that the poorest Americans today are victimized at about the same rate as the richest Americans were at the start of the 1990s. That means that a poor, unemployed city resident walking the streets of an average city today has about the same chance of being robbed, beaten up, stabbed or shot as a well-off urbanite in 1993. Living in poverty used to mean living with the constant threat of violence. In most of the country, that is no longer true.
That’s Patrick Sharkey writing in the New York Times.
More police on the street is one cause, among many, of lower crime. It’s important in the debate over better policing that we not lose sight of the value of policing. Given the benefits of reduced crime and the cost of police, it’s clear that U.S. cities are under policed (e.g. here and here). We need better policing–including changes in laws–so that we can all be comfortable with more policing.
Is Legal Pot Crippling Mexican Drug Trafficking Organisations?
Yes, it would seem. The subtitle is “The Effect of Medical Marijuana Laws on US Crime,” the authors are Evelina Gavrilova, Takuma Kamada, and Floris Zoutman, and the outlet is The Economic Journal. Here is the abstract:
We show that the introduction of medical marijuana laws (MMLs) leads to a decrease in violent crime in states that border Mexico. The reduction in crime is strongest for counties close to the border (less than 350 kilometres) and for crimes that relate to drug trafficking. In addition, we find that MMLs in inland states lead to a reduction in crime in the nearest border state. Our results are consistent with the theory that decriminalisation of the production and distribution of marijuana leads to a reduction in violent crime in markets that are traditionally controlled by Mexican drug trafficking organisations.
Here is the link to the paper, here are earlier versions. For the pointer I thank Peter Metrinko. That said, I learn from Kevin Lewis that the high school graduate rate goes down.
A few simple points about immigration
I feel I am repeating myself, but these remain neglected:
1. The good outcomes for African immigrants to the United States mean we could and should take in more such immigrants, to mutual benefit.
2. In part these gains arise from selection, namely that it is not easy to get from Africa to the United States, at least not generally. So we should not make it too easy, even though we should take in more migrants. “Take in more, keep hard” sounds contradictory but it is not. And if African outcomes decline in quality at the margin, that is a sign that policy is working (more entrants), not that policy is failing.
3. We cannot let everyone in, and so at the margin there will always be cruelties when it comes to those who are denied entry, sent back, and so on. Right now even Canada may be sending back some Haitians (NYT). Those cruelties are relevant for assessing an immigration decision, but they are not decisive. If you cite the cruelties without also outlining a limiting principle for the appropriate margin where immigration ought to stop, you are arguing poorly and most of all fooling yourself. It is a good recipe for never thinking clearly again about any policy issue.
4. Adopting a cosmopolitan ethic will increase the margin at which immigration should be allowed. But still we cannot let everyone in, if only because of backlash effects. And if backlash effects are the binding constraint, the degree of cosmopolitanism in your ethic may not matter much for finding the appropriate rate of immigration.
5. Just to repeat, we really should take in more immigrants. Not only from Africa, but from many countries that are not major successes on the gdp or education front, India and Iran being two other obvious examples.
6. Will Wilkinson has an excellent NYT piece on making immigration deals with Trump.
Claims about Bitcoin
A single actor likely drove the USD/BTC exchange rate from $150 to $1000 in 2 months.
That is from the JME, via the excellent Kevin Lewis. It is worth noting that the single actor was right!
I, Pencil Revisited
Leonard Read’s essay I, Pencil showed how even simple objects like a pencil were produced only through the cooperation and coordination of many thousands of people all over the world who often knew neither one another nor even what their actions ultimately produced. Milton Friedman made the pencil metaphor famous in Free To Choose when he said that “There’s not a single person in the world who could make this pencil.” Tyler and I illustrate the same idea with a romantic twist in our I, Rose video.
The NYTimes doesn’t seem aware of the history but, as if guided by an invisible hand, has a lovingly produced series of photos from a pencil factory showing that even the proximate steps are charmingly esoteric.
Sunday assorted links
1. Interview with Pandit Nayan Ghosh. Could it be that Indian classical music, along with Bach-Brahms Germanic classical music, are mankind’s two greatest aesthetic achievements? Shakespeare too? And an interview with John Adams.
2. Is the Indian judiciary losing its independence?
3. Ralph Ellison reviews Gunnar Myrdal.
4. Niall Ferguson By the Book (NYT).
5. Parfitian worms.
That was then, this is now — Henry George edition
It took Dr. Edward Taylor’s inside perceptions to say, on publication: “It is not merely an American book, but a California book. We do not mean merely that it is a book written in California by a Californian, but that it is distinctively and peculiarly Californian, for not only are its illustrations drawn from this coast, but the freshness of its views bespeak the novel and suggestive circumstances that have been presented in California.”
That is from Charles Albro Barker’s Henry George, still a useful biography. Barker points out, by the way, that the notion of a “single tax” on land barely appears in Progress and Poverty, as at that time George was more focused on land nationalization. The single tax idea became more prominent a bit later in the 1880s.
The Norwegian migration to America and psychological selection
Norwegian psychiatrist Ørnulf Ødegaard has studied personality types. He has shown that relatively more Norwegian-born persons in Minnesota suffered from mental illness, especially schizophrenia,in the 1920s than did members of Norway’s population. He maintained that the greater frequency of illness might be due in some degree to the greater strains the emigrants were exposed to in a foreign society, but he also held that people who were disposed to this illness were more restless and found it easier than other personality types to break out of their environment.
That is from Ingrid Semmingsen, Norway to America: A History of the Migration, and I believe the original reference is to ” Immigration and Insanity: A Study of Mental Disease Among the Norwegian-born Population of Minnesota,” Ø Ødegaard – Acta psychiatrica Scandinavica, Suppl, 1932.” Here is a related post on gene-culture interaction.