Marginal Revolution’s Most Popular Posts from 2011
1. College has been oversold. It’s hard to explain which posts go viral but this post, based on material from my e-book Launching the Innovation Renaissance, was a monster generating over 500 comments, 3000 likes and 800 tweets. The follow-up on puppeteerring in a wintry economic climate was also popular although not in the top ten.
2. Teacher’s Don’t Like Creative Students. Another monster with fewer page views than #1 but over 3000 likes and nearly 4000 tweets!
3. Philosophy Referee Signals.
4. Be Safe Break the Law, on the 55mph speed limit.
5. Possible progress in medicine, a link-post from Tyler noting a new drug that can kill many viruses.
6. What is quirky about the United States? A question from Tyler that generated many comments.
7. The Mexican Mafia another of mine that went viral with links from Time, Instapundit and Reddit.
8. World Income Equality a graph showing how poor Americans are richer than rich Indians.
9. Explaining France, a post from Tyler explaining, well you know.
10. Common mistakes of right wing and market economists, a nice meaty post from Tyler, just a little bit more popular than Common mistakes of left-wing economists.
A few other notable posts in the top 25 were my posts on cities, India’s Voluntary City and Cities as Hotels, Tyler’s post on the S&P downgrade, my post on The Fruits of Immigration, which was mostly just quotations but I worked hard on the final line which many people then linked to, and my post on The Great Male Stagnation.
Several posts from previous years continued to be popular. What Happened to M. Night Shyamalan? from 2010 was again popular this year probably because Slate expanded the idea into a feature called Hollywood’s Career-O-Matic.
The importance of writing a good title is shown by Tyler’s 2007 posts Why did the Soviet Union fall? and How many children should you have? neither of which generated many comments but both of which show up early in Google searches of precisely these questions. My 2008 post What is New Trade Theory? on Krugman’s Nobel may also continue to attract attention for this reason.
2012 here we come!
Tabarrok on Innovation at EconTalk
I had a fun discussion with Russ Roberts at EconTalk about some of the ideas in my book Launching the Innovation Renaissance (Amzn, Nook, iTunes). You can listen to the podcast online or download it as an MP3.
GiveWell
GiveWell, by far the best charity evaluator working today, has a new top ranked charity, the Against Malaria Foundation. Why is VillageReach, their best ranked charity for several years, no longer at the top? First, GiveWell is ranking more charities and charities are now more willing to provide GiveWell the kind of detailed information on outcomes that GiveWell demands. Thus, more charities are vying for the top spot. Even more important is this:
VillageReach was our top-rated organization for 2009, 2010 and much of 2011 and it has now received over $2 million due to GiveWell’s recommendation. We do not believe that VillageReach has short-term funding needs…
When was the last time that a charity or evaluator told you that due to successful fund-raising there are now more urgent needs elsewhere? Impressive. As I have for several years, I will be following GiveWell’s advice and donating to the Against Malaria Foundation and several of GiveWell’s other top charities.
Happy Holidays to All!
Scrooge and Adam Smith
It will no doubt delight critics of economics everywhere to learn that Ebenezer Scroggie, the merchant who inspired Charles Dickens’ miserly tale, was related to Adam Smith:
Scroggie was born in Kirkcaldy, Fife; his mother was the niece of Adam Smith, the 18th century political economist and philosopher.”
Dickens, however, had mild dyslexia and read Scroggie’s headstone as “Ebenezer Lennox Scroggie – mean man” when in fact it read “meal man,” referring to Scroggie’s trade in corn. Scroggie by most accounts was actually the life of the party.
Hat tip to Tim Taylor who has further thoughts.
Steven Landsburg Reviews Launching
I am a big fan of Steven Landsburg’s books such as The Armchair Economist, More Sex is Safer Sex, and The Big Questions so Landsburg’s review of Launching the Innovation Renaissance was a personal thrill:

…This is a great book. It’s fast-paced, fun to read, informative as hell, and it gets everything right. At first I wished I’d written it— until I realized I could never have written it half so well.
…I wish everyone in the world would read this book. It only takes a couple of hours, and it is by far the best introduction I know of to the topic that towers above all others in its importance for the happiness of human beings everywhere, now and in the future, namely how to foster and accelerate the kinds of innovation that lead to economic growth. It will, I hope and expect, make you an enlightened advocate for enlightened policies. And it will arm you with a bundle of fun facts and anecdotes to share with your friends. This book might turn you into a proselytizer, but it will surely not turn you into a bore.
Buy Launching the Innovation Renaissance (Amzn, Nook, iTunes) and read it over the holidays!
The No Brainer Policy of the Year
Behind Door #1 are people of extraordinary ability: scientists, artists, educators, business people and athletes. Behind Door #2 stand a random assortment of people. Which door should the United States open?
In 2010, the United States more often chose Door #2, setting aside about 40,000 visas for people of extraordinary ability and 55,000 for people randomly chosen by lottery.
It’s just one small example of our bizarre U.S. policy toward high-skill immigrants.
That is the opening of a short piece by me over at The Atlantic, drawn in part from my TED e-book Launching the Innovation Renaissance (Nook, iTunes).
India and the Promise of Productivity
In the comments to Anti Chain Store Policies in India and America, “Lark” posted a long “refutation” from Triple Crisis of the “neo-liberal” arguments for retail reform in India. I will focus on one remarkable argument:
…experience across the world makes it incontrovertible that large retail companies displace many more jobs of petty traders, than they create in the form of employees. This has been true of all countries that have opened up to such companies, from Turkey in the 1990s to South Africa. Large retail chains typically use much more capital intensive techniques, and have much more floor space, goods and sales turnover per worker.
One estimate suggests that for every job Walmart (the largest global retail chain) creates in India, it would displace 17 to 18 local small traders and their employees. In a country like India, this is of major significance, since around 44 million people are now involved in retail trade (26 million in urban areas) and they are overwhelmingly in small shops or self-employed.
Of course this is no refutation, fewer jobs are precisely the point. What India needs is fewer jobs; fewer jobs in retail, fewer jobs in apparel and, most of all, fewer jobs in farming. India cannot become even a middle income country if most of its workers, for example, are farmers. To improve its standard of living, India must use fewer people to produce more agricultural output.
Fewer workers in farming (or retail) means more workers producing more goods in other industries. The same basic lesson holds throughout an economy, it is the declining sectors that allow other sectors to advance. Instantaneously? Immediately? With higher wages for every worker? No. Transitions always involve some pain; creation always involves some destruction; growth always involves change. The alternative, however, is stagnation.
The politics of growth are difficult because those who lose from change are always present and are often more numerous and perhaps even more deserving than the present winners, the capitalists, the business people, the international mega corps; but today’s losses and gains are fleeting, the permanent winners are the workers and consumers of the future who will know only the benefits of productivity.
Anti Chain Store Policies in India and America
When we think of growth and innovation we often think first of high-tech sectors but in the United States during the roaring 1990s it was retail productivity growth, led by Walmart, that drove the country. Retail productivity is important because the retail sector is huge and because retail productivity extends backwards to manufacturing and service productivity. Today, growth in India is slowing in part because the Indian government is no longer pushing reform, and the most notable failure is the failure to modernize India’s retail sector.
The Guardian: The beleaguered Indian government has been forced to suspend its decision to allow international supermarkets to invest in India‘s £300bn retail market in the face of political opposition.
…Allies of the increasingly vulnerable administration of Manmohan Singh, now in its second term, had refused to back the measure. Critics said the move, which theoretically does not need parliamentary approval, would put millions of shopkeepers across India out of business and threaten the livelihood of farmers.
Supporters argued that it would mean improvements of infrastructure and lower prices for consumers.
Analysts said the delay to the move was due to “political not ideological factors. There are local elections coming up and no one wants to risk the commercial traders’ votes…. The failure to implement what would have been the first major economic reform since Singh’s second term began in 2009 will reinforce the sense of drift surrounding the Indian government, compounding anxiety at a time when growth has slowed, inflation remains high and the value of the Indian rupee is dropping fast.
Stock prices of Indian retailers plunged in response to the news.
The political constraints here are enormous. Here is Marc Levinson author of The Box and more recently The Great A&P and the Struggle for Small Business in America, on some of the crazy anti-chain story policies in the United States:
President Franklin D. Roosevelt, who portrayed himself as the consumer’s friend, turned restrictions on chains into national policy. Under the National Industrial Recovery Act of 1933, one of Roosevelt’s programs to revive the economy, federally mandated codes were instituted that limited store hours, and regulated wages and prices — but the restrictions applied only to chains and large stores, not to mom-and-pop merchants. When those codes were invalidated by the Supreme Court, Congress enacted another law, the Robinson-Patman Act of 1936, intended to make most volume discounts illegal so that small shopkeepers could buy their goods for the same prices as giant chains.
In 1946, the government won criminal convictions against executives of the largest chain of all, the Great Atlantic & Pacific Tea Company (A&P), on the bizarre charge that they were violating antitrust law by selling groceries too cheaply. As late as 1953, the government was trying to break A&P apart by claiming that baking its own bread and canning its own vegetables gave the company an unfair advantage.
The Culture that is Fairfax
WP: The Fairfax County School Board decided Thursday to permit indoor video surveillance cameras for the first time, capping a months-long debate over whether such monitoring technology is appropriate and effective for public schools.
It’s good to know that the schools are training our children for their role as future citizens.
Roman Empire More Equal than the United States
In The Size of the Economy and the Distribution of Income in the Roman Empire, a careful paper published in the Journal of Roman Studies in 2009, Walter Scheidel and Steven Friesen estimate the size and distribution of the Roman economy at its demographic peak around the middle of the 2nd century c.e.
We conclude that in the Roman Empire as a whole, a ‘middling’ sector of somewhere around 6 to 12 per cent
of the population, defined by a real income of between 2.4 and 10 times ‘bare bones’
subsistence or 1 to 4 times ‘respectable’ consumption levels, would have occupied a fairly
narrow middle ground between an élite segment of perhaps 1.5 per cent of the population and a vast majority close to subsistence level of around 90 per cent. In this system, some 1.5 per cent of households controlled 15 to 25 per cent of total income, while close to
10 per cent took in another 15 to 25 per cent, leaving not much more than half of all income for all remaining households.
Thus, in Rome the top 1.5% controlled 15-25% of income while in the United States around 2007 the top 1% controlled 23.5% of income thus suggesting slightly more inequality in the United States. Scheidel and Friesen calculate a Roman Empire gini coefficient of .42-.44 again perhaps slightly less than the U.S. coefficient of around .4-.45 depending on source.
Interestingly, the Roman State did not manage to collect that much:
Given a GDP of somewhere
around HS17–19bn, annual state expenditure of approximately HS900m would have
represented an effective tax rate of approximately 5 per cent of GDP, which is the same as
for France in 1700. This finding confirms Hopkins’s claim that the imperial government
did not capture more than 5 to 7 per cent of GDP and that Roman taxes were fairly low.
The overall public sector share of GDP was somewhat larger depending on the scale of
municipal spending, while the overall nominal tax rate had to be higher still in order to
accommodate taxpayer non-compliance, tax amnesties, and rent-seeking behaviour by
tax-collectors and other intermediaries. Moreover, we must not forget that Italy’s immunity from output and poll taxes required the public sector share in the provinces to exceed
the empire-wide average. These various adjustments allow us to reconcile our GDP estimate with reported nominal taxes of around 10 per cent of farm output on private land
reported in Roman Egypt and somewhat higher rates in less developed regions where
enforcement may have been more difficult.
(Thus, despite the aqueducts Rome may not have done that much for the people after all.)
Hat tip to Tim De Chant at Per Square Mile who has further discussion.
Teachers Don’t Like Creative Students
One of the most consistent findings in educational studies of creativity has been that teachers dislike personality traits associated with creativity. Research has indicated that teachers prefer traits that seem to run counter to creativity, such as conformity and unquestioning acceptance of authority (e.g., Bachtold, 1974; Cropley, 1992; Dettmer, 1981; Getzels & Jackson, 1962; Torrance, 1963). The reason for teachers’ preferences is quite clear creative people tend to have traits that some have referred to as obnoxious (Torrance, 1963). Torrance (1963) described creative people as not having the time to be courteous, as refusing to take no for an answer, and as being negativistic and critical of others. Other characteristics, although not deserving the label obnoxious, nonetheless may not be those most highly valued in the classroom.
….Research has suggested that traits associated with creativity may not only be neglected, but actively punished (Myers & Torrance, 1961; Stone, 1980). Stone (1980) found that second graders who scored highest on tests of creativity were also those identified by their peers as engaging in the most misbehavior (e.g., “getting in trouble the most”). Given that research and theory (e.g., Harrington, Block, & Block, 1987) suggest that a supportive environment is important to the fostering of creativity, it is quite possible that teachers are (perhaps unwittingly) extinguishing creative behaviors.
From Creativity: Asset or Burden in the Classroom?, a good review paper. What the paper shows is that the characteristics that teachers use to describe their favorite student correlate negatively with the characteristics associated with creativity. In addition, although teachers say that they like creative students, teachers also say creative students are “sincere, responsible, good-natured and reliable.” In other words, the teachers don’t know what creative students are actually like. (FYI, the research design would have been stronger if the researchers had actually tested the students for creativity.) As a result, schooling has a negative effect on creativity.
My experience as a parent is consistent with the idea that teachers don’t like creative students but I try not to blame the teachers too much. Creative people, for better and worse, ignore social conventions. Thus, it can be hard for teachers to deal with creative students in a classroom setting where they must guide 20-30 students en masse. As Jonah Lehrer puts it:
Would you really want a little Picasso in your class? How about a baby Gertrude Stein? Or a teenage Eminem? The point is that the classroom isn’t designed for impulsive expression – that’s called talking out of turn. Instead, it’s all about obeying group dynamics and exerting focused attention. Those are important life skills, of course, but decades of psychological research suggest that such skills have little to do with creativity.
One hope I have for personalized learning, ala the Khan Academy, is that teachers will not feel the need to suppress creative students when classroom dynamics do not require that all the students follow all the rules all the time .
Hat Tip: Erik Barker.
The New Da Vinci Code?
Over at Digitopoly Joshua Gans says that the breezy style of Launching the Innovation Renaissance (Nook, iTunes) makes it a page-turner “reminiscent of Dan Brown.”!!! I take this to mean that the book will sell millions of copies and be turned into a movie starring Tom Hanks; this does seem unlikely but after the Moneyball and Freakonomics movies who can say? FYI, Joshua is more confident than I am that the Coase theorem applies to rent division.
Over at Slate, Matt Yglesias also offers a short review saying the worst thing about the book is that it is too short!
Nick Schulz interviewed me at The American on some of the book’s themes, the WSJ also published part of this interview in their Notable and Quotable section.
College Subsidies Fuel Salaries
“Who pays a tax is determined not by the laws of Congress but by the law of supply and demand,” as Tyler and I say in Modern Principles. In particular, whether demanders or suppliers pay a tax is determined by the elasticities of demand and supply. The more elastic side of the market can better escape a tax, leaving more of it to be paid by the inelastic side. The same thing is true for a subsidy but in reverse, the inelastic side of the market gets the benefit of the subsidy. Virginia Postrel applies the idea to education and education subsidies.
If you offer people a subsidy to pursue some activity requiring an input that’s in more-or-less fixed supply, the price of that input goes up. Much of the value of the subsidy will go not to the intended recipients but to whoever owns the input. The classic example is farm subsidies, which increase the price of farmland.
A 1998 article in the American Economic Review explored another example: federal research and development subsidies. Like farmland, the supply of scientists and engineers is fairly fixed, at least in the short run. Unemployed journalists and mortgage brokers can’t suddenly turn into electrical engineers just because there’s money available, and even engineers and scientists are unlikely to switch specialties. So instead of spurring new activity, much of the money tends to go to increase the salaries of people already doing such work. From 1968 to 1994, a 10 percent increase in R&D spending led to about a 3 percent increase in incomes in the subsidized fields.
“A major component of government R&D spending is windfall gains to R&D workers,” the paper concluded. “Incomes rise significantly while hours rise little, and the increases are concentrated within the engineering and science professions in exactly the specialties heavily involved in federal research.”
The study’s author was Austan Goolsbee, then and now a professor at the University of Chicago but until recently the chairman of the president’s Council of Economic Advisers.
….Goolsbee declined a recent request to comment on the subject, but the parallels to higher education are hard to miss.
In the short-term, the number of slots at traditional colleges and universities is relatively fixed. A boost in student aid that increases demand is therefore likely to be reflected in prices rather than expanded enrollments. Over time, enrollments should rise, as they have in fact done. But many private schools in particular keep the size of their student bodies fairly stable to maintain their prestige or institutional character.
…On the whole, it seems that universities are like the companies making capital equipment. If the government hands their customers the equivalent of a discount coupon, the institutions can capture at least some of that amount by raising their prices
…This doesn’t mean that colleges capture all the aid in higher tuition charges, any more than capital-equipment companies get all the benefit of investment tax credits. But it does set up problems for two groups of students in particular. The first includes those who don’t qualify for aid and who therefore have to pay the full, aid-inflated list price. The second encompasses those who load up on loans to fill the gaps not covered by grants or tax credits only to discover that the financial value they expected from their education doesn’t materialize upon graduation.
Addendum: Long time readers may remember my rebuttal to Krugman on a similar point. Liberal Order has graphs and further discussion.
Medical Patents Must Die
Prometheus gave man fire, thankfully he didn’t charge every time man lit a match. Prometheus Labs in contrast wants to charge patients for a rule that says when to increase or decrease a drug in response to a blood test. Quoting Tim Lee:
The patent does not cover the drug itself—that patent expired years ago—nor does it cover any specific machine or procedure for measuring the metabolite level. Rather, it covers the idea that particular levels of the chemical “indicate a need” to raise or lower the drug dosage.
Even this is not quite right for suppose a physician notes that the patient’s metabolites are within the range where a change in dosage is not necessary; although the physician takes no action she still has used the patent and thus must pay Prometheus Lab a fee or infringe.
We already have significant incentives for producing pharmaceuticals (and thus the instructions required to best use those pharmaceuticals), we support medical research through universities and non-profit hospitals, and there is plenty of opportunity to profit from the manufacture of tests. Will we really get enough additional innovation to justify the monopoly prices and deadweight losses when we enforce patents on medical rules? Remember, we have to pay the higher prices on all the rules not just the ones brought into being by the patent.
And if medical patents why not economic patents? Will Scott Sumner now patent a rule for adjusting the money supply in response to metabolites the futures market? 
Patents like this are a logical consequence of the extension of patentable matter to software and business methods but extending patents to software and business methods has created huge legal costs without any increase in innovation.
Most importantly, patents can reduce innovation and are especially likely to do so in fields where innovations build on innovations. In fields of cumulative innovation, previous patents owners become veto players who can threaten to holdup the new innovation unless they are granted a share of the proceeds. In theory, bargaining can result in an efficient outcome. In practice, it means lawsuits, delay, waste and reduced innovation.
Since a smartphone may rely on many thousands of previous patents, the smartphone industry has heretofore been considered a classic case of how too many veto players can impede innovation. But now consider human metabolism, one of the most complicated systems known to man (just a tiny fraction of that system is shown at right), and note that if Prometheus is successful in this lawsuit that any correlation in that system can be patented. This is a recipe for disaster.
Addendum: Scotus Blog has a roundup of links. See Launching the Innovation Renaissance (Amazon link, B&N for Nook, also iTunes) for more on patents and their problems. Hat tip also to E.D. Kain who writes:
The world, it appears, is determined to turn me into a full-fledged libertarian. What with SOPA, PIPA, the NDAA, software patent trolling, police violence, and now patents on how doctors provide treatment to their patients, it’s becoming more and more clear how pernicious the law can be when it’s designed for powerful special interests, national security hawks, and big corporations.
