Was Alaska a Good Buy?
The U.S. bought Alaska from the Russian Empire in 1867 for $7.2 million. At the time the purchase was derided as “Seward’s Folly,” but today it’s common to compare the purchase price with Alaska’s gross state product of $45 billion and claim it a resounding success. But is that the right comparison?
Most obviously one should correct for discounting, risk etc. Less obviously, but more importantly, one should start by thinking about total world product: Was total world product increased by the U.S. purchase? To the extent that the Russians would have held on to Alaska and would not have been able to fully exploit Alaska’s resources in the 20th century then perhaps the answer is yes. But if the U.S. had not purchased Alaska it’s plausible that Great Britain would have. So if the counter-factual was British purchase, then US purchase simply resulted in a redistribution of resources from British/Canadians to Americans with no increase in net wealth.
Moreover, given the ease of immigration at the time, economist David Barker argues that it’s closer to the truth to think that the redistribution was nominal only, i.e. from Alaskans calling themselves Canadians to more or less the same Alaskans of the same wealth calling themselves Americans. But why should other Americans be willing to pay for this nominal redistribution? Taking into account these considerations, Barker concludes:
Using a variety of assumptions and techniques for
valuing the net cash flows from Alaska, it is clear that the financial returns have not
been positive. The economic benefits that have been received from Alaska over the
years could have been obtained without purchasing the territory. In financial terms,
Alaska has clearly been a negative net present value project for the United States….[A] close analysis of non-economic factors also
casts doubt on the wisdom of the purchase….
True, the wisdom of purchasing Alaska is now moot, but the analysis raises questions of more than historical interest:
The results of this paper suggest new lines
of inquiry in the history of the West, such as: Has westward expansion been worth the
price? What have been the costs and benefits? Should expansion have been less or
greater than it was? Should United States expansion continue? Should the United States shrink by cutting ties with its remaining possessions? All of these questions
seem worthy of future research.
Hat tip: Ben Muse.
The Importance of Marketing
From Ben Smith. Hat tip: Daniel Lippman.
John Locke in Washington
And for those who managed to liberate their cars from the Snowpocalypse of 2010, another tricky moral dilemma can lead to some volatile confrontations: If you dig your car out from its frozen tomb, do you then own that parking spot until the sun melts open the rest of the curbside space?
Washington's long history of relatively mild winters has left residents without a common sense of snow etiquette to help answer that question.
Boston has codified its citizens' right to benefit from their backbreaking snow-clearing labor; a city law says that if you dig out your car in a snow emergency, a lawn chair or trash can renders the spot yours for at least two days while you're away at work.
From the Washington Post. Hat tip: Donald Marron.
Addendum: Here is Fred McChesney drawing out the general lessons for property rights.
Surrogates
Surrogates, the Bruce Willis movie, disappeared quickly but it was better than I expected, a B- (perhaps they should have called it Avatars). Worth a Netflix rental if you enjoy science fiction. Having said that, what I most liked about Surrogates was that it's clear exactly where it went wrong. What follows has no spoilers but it won't make a lot of sense unless you have seen the movie.
In the final second of the climax the key choice of the hero is revealed, even though the plot in no way requires this revelation. It would have been far better to have left the choice ambiguous (think Doubt, Memento and, of course, Blade Runner). Indeed, the script should have been written backwards from the ambiguous choice to all the earlier scenes which justify that ambiguity. (Some of this material is already in the movie but without the ambiguity of the choice it doesn't resonate, e.g. surrogacy would have saved the son but from early on the Willis character is skeptical of surrogacy thus the character's history provides a reason for him to be world weary but it doesn't drive tension as it should.)
The movie should also have been darker (bizarrely, many scenes take place in brightly lit exteriors). The best scene is the surrogate "drug" party where the noir element of surface and underlying reality–of things not being what they seem–does come through. Inexplicably, however, the wife does not partake even though we later learn this would have mirrored her true existence.
For the choices not taken, Surrogates would be a excellent movie to study in film school.
Sentence of the Day
Why raise the cigarette tax when you can just tax breathing?
So asks Andrew Samwick in an effort to explain the illogic behind replacing a tax on gas with a tax on miles driven.
Bullet Train/Wine Train
Revisiting the Marriage Supermarket
In comments to yesterday's post on the effects on dating style of a declining number of university men a number of people asked why a relatively small change in the sex ratio (m:w) from 50:50 to say 40:60 should make such a big difference. In the Logic of Life, Tim Harford gave a characteristically excellent explanation.
Imagine, says Tim, a marriage supermarket. In this supermarket any man and woman who pair up get $100 to split between them. Suppose 20 men and 20 women show up at the supermarket, it's pretty clear that all the men and women will pair up and split the $100 gain about equally, $50,$50. Now imagine that the sex ratio changes to 19 men and 20 women. Surprisingly, a tiny change in the ratio has a big effect on the outcome.
Imagine that 19 men and women have paired up splitting the gains $50:$50 but leaving one woman with neither a spouse nor any gain. Being rational this unmatched woman is unlikely to accede to being left with nothing and will instead muscle in on an existing pairing offering the man say a $60:$40 split. The man being rational will accept but this still leaves one women unpaired and she will now counter-offer $70:$30. And so it goes.
If you follow through on the logic it becomes clear that in the final equilibrium no married (paired) woman can be significantly better off than the unmarried woman (otherwise the unmarried woman would have an incentive to muscle in with a better deal) and so because the unmarried woman gets nothing the married women can't get much more nothing. Thus when the sex ratio is 20:20 the split is $50:$50 and when the sex ratio is 19:20 the split is more like to $99:$1 in favor of the men.
The key simplification of the marriage supermarket is that the next best option to marriage (pairing) is worth $0–thus there is a long way to fall from the equal sex ratio equilibrium of $50. If the outside option is worth more then changes in the sex ratio will have smaller effects. Nevertheless, the logic of the marriage supermarket explains why a relatively small change in the sex ratio can lead to a large change in sexual and other mores affecting the marriage equilibrium.
Supply and Demand
The sex ratio on many U.S. campuses is around 60/40 and rising. The NYTimes has an excellent piece on the predictable consequences for dating.
North Carolina, with a student body that is nearly 60 percent female, is just one of many large universities that at times feel eerily like women’s colleges…Needless to say, this puts guys in a position to play the field, and tends to mean that even the ones willing to make a commitment come with storied romantic histories. Rachel Sasser, a senior history major at the table, said that before she and her boyfriend started dating, he had “hooked up with a least five of my friends in my sorority – that I know of.”
Only at the IVYs and universities with engineering schools does the sex ratio tend to even out (no doubt for obvious, albeit politically incorrect reasons), which in itself will have consequences for future sexual mores. A number of universities would like to institute affirmative action for males.
Census Miscounts
Wow, Justin Wolfers reports on a new NBER paper (ungated) by Trent Alexander, Michael Davern and Betsey Stevenson, that finds big errors in Census data, especially for citizens 65 years and older.
What’s the source of the problem? The Census Bureau purposely messes with the microdata a little, to protect the identity of each individual. For instance, if they recode a 37-year-old expat Aussie living in Philadelphia as a 36-year-old, then it’s harder for you to look me up in the microdata, which protects my privacy. In order to make sure the data still give accurate estimates, it is important that they also recode a 36-year-old with similar characteristics as being 37. This gives you the gist of some of their “disclosure avoidance procedures.” While it may all sound a bit odd, if these procedures are done properly, the data will yield accurate estimates, while also protecting my identity. So far, so good.
But the problem arose because of a programming error in how the Census Bureau ran these procedures. The right response is obvious: fix the programs, and publish corrected data. Unfortunately, the Census Bureau has refused to correct the data.
The problem also runs a bit deeper. If the mistake were just the one shown in the above graph, it would be easy to simply re-scale the estimates so that there are no longer too many, say, 85-year-old men – just weight them down a bit. But it turns out that the same coding error also messes up the correlation between age and employment, or age and marital status (and, the authors suspect, possibly other correlations as well). When you break several correlations like this, there’s no easy statistical fix.
Worse still, the researchers find that related problems afflict the microdata released for other major data sources. All told, they’ve found similar errors in:
- The 2000 Decennial Census.
- The American Community Survey, which is the annual “mini-census” (errors exist in 2003-2006, but not 2001-02, or 2007-08).
- The Current Population Survey, which generates our main labor force statistics (errors exist for 2004-2009).
These microdata have been used in literally thousands of studies and countless policy discussions.
Naughty Bits in the Bible
From a review of The Uncensored Bible:
In court we swear to tell the truth with a hand placed on the Bible. But in the book itself, Jacob, nearing death in Egypt, asks Joseph to swear an oath not to bury him there by “put[ting] your hand under my thigh” (Gen. 47:29). Earlier in Genesis, Jacob wrestles with God, who touches “the hollow of his [Jacob’s] thigh” (32:25). “Thigh” happens to be a biblical euphemism for male genitalia; it’s from Jacob’s “thigh” or “loins” that his numerous offspring sprang.
This was new to me:
The practice of swearing an oath while touching one’s or someone else’s testicles was common in the ancient Near East (Abraham also orders a servant to do just that in Genesis 24:2). Its linguistic memory survives in our word “testify”–testis being the Latin both for “witness” and the male generative gland.
I will never be able to listen to George Clinton and Parliament's funkadelic classic, "I just want to testify, what your love has done for me," in the same way again. The album title is interesting in this context also.
Perspectives
A three minute TED talk on changing perspectives. Enjoyable.
No Shoes Please and No Debt Relief Either
Sending shoes to Haiti is how not to help. Fortunately, with notable exceptions, this message is getting out. A lot of attention, however, is still being given to debt relief. David Roodman at the Center for Global Development argues that this is merely a more sophisticated version of sending shoes. Haiti's interest charges are on the order of $9 million a year. Sure, holding off on the interest charges is a no-brainer, but the effort going into debt relief far exceeds the potential gains from simple aid not to mention immigration and trade relief. Here, from Roodman, is his argument in a graph:
Daniel Gross, Me, and the Efficient Market Hypothesis
Daniel Gross is at Davos and writes:
I noticed a piece of gray paper on the floor. It looked like it might
be currency of some sort–certainly not a dollar, but perhaps Swiss
francs or something else. I started to bend over to pick it up, but
then I caught myself. This is the World Economic Forum. It is populated
by hundreds of economists and by thousands of business people schooled
in the tenets of economics. This is possibly the most rational,
profit-maximizing concentration of human capital in the world. These
are the actors who make up an efficient market. And of course adherents
to the efficient market hypothesis famously don't believe in the
concept of found money….
But I'm a
connoisseur of economic irrationality. And so I bent down and picked up
the paper. On one side, the grim visage of Queen Elizabeth. On the
other, Charles Darwin. It was a 10 pound note, worth about $16.25. Just
lying on the floor, unmolested by Nobel Prize-winning economists, CEOs
of Fortune 500 companies, and financial journalists.
Gross concludes the efficient markets hypothesis must be false.
The same thing happened to me once except I wasn't at Davos, I was walking in New York near Wall Street and I saw a green folded up note that looked to be money. I too paused and thought of the old joke that if it was money someone would have picked it up already, but I picked it up anyway and took a closer look…..alas, it was a cleverly folded piece of paper designed to look like money when dropped on the sidewalk, although it was actually an advertisement. Kudos to Eugene Fama, I thought on that day.
Perhaps our different experiences account for some of our differing economics views.
Hat tip to Ezra Klein.
Snow Job
Economists Jonathan Zinman and Eric Zitzewitz, skiers who took offense to a fluffed-up claim, studied snow reports from 2004 to 2008 and compared them to area government weather stations. They found that ski resorts across the U.S. and Canada reported more fresh snow – 23 percent more, on average – on skier-coveted weekends than during the week. Resorts with more business to gain were the ones most likely to boast of deeper snowfalls, their study said.
Do note that the snow angle might get the headlines but what is really going on is a test of deceptive advertising. Interestingly, Zinman and Zitzewitz find that the deception declined dramatically after an iPhone app was introduced that crowd-sourced true snow levels.
Hat tip to Daniel Lippman.
Do Animals have Animal Spirits?
It's quite easy to see how a "real business cycle" could occur in the natural world. Imagine a pond teeming with life. One year a parasite infects the lily pads. Without the lily pads the frogs can't catch flies, the flies swarm, but the frogs go hungry and the pike have less to eat. If we measured the gross pond biota (gpb) we could see natural cycles. Indeed, if we measured different pond sectors (the frog sector, the fly sector etc.) we could trace out a whole sequence of events as each sector of the pond responds to the initial shock and to changes in every other sector (ala a vector auto regression).
Can there be a Keynesian business cycle in the pond? i.e. Could animal spirits drive a natural business cycle? It's harder for me to see exactly how this would work. We would need "money" or something similar to generate a rush to liquidity and a decline in investment. We could perhaps get a coordination type business cycle (ala Roger Farmer) with herd behavior. Interestingly, the trend in biology–as I read it at least–has been to think of herd behavior as optimal for the herd but this is not necessarily the case. We know that slime molds self-organize and aggregate during times of stress could this process be set off with no or little exogenous shock? Could a natural system provide a model for business cycle behavior? It would be odd if only people had animal spirits. Biology and economics have much to offer one another.