Weather Incentives Work?
The Russians will soon find out.
Moscow Mayor Juri Luschkov said: "Weather forecasters in our city and
the surrounding area will be held responsible for financial losses that
the city incurs through their incorrect prognoses."….He did not elaborate on how much the fines would be or if the cash
would be taken from the weathermen, or the companies they worked for.The
fines come after the head of the Romanian National Meteorology Agency,
Ion Poiana, was fired after he predicted warm weather fronts on days
when temperatures plunged to a record minus 36 degrees centigrade.
Thanks to Carl Close for the pointer.
Brad is wrong, so is Brad
Brad DeLong quotes Brad Plummer:
[I]t really doesn’t make a difference whether you pay 40 percent of your income for private health care, or 40 percent of your income in taxes that then go to government-administered health care. I mean, yes, in one sense it makes a difference: If you think the free market is a better way of delivering health care, you’ll endorse option 1; otherwise, you’ll endorse option 2. But in the end, you’re still paying 40 percent of your income….it’s disingenuous to say, "Oh no! America’s doomed! We’re going to have
to raise taxes massively in the future in order to afford things we’d
be spending a good chunk of our income on anyway!"
Brad DeLong writes "Brad is absolutely right. (I like the way
that sentence sounds: I wish *I* heard it more often from others.)"
Sorry Brad (and Brad), I’d like to oblige but there is a big difference between spending 40 percent of your own income on health and having 40 percent of your income taken in taxes and spent on health even if we assume that the spending is on exactly the same thing. The 40 percent of your income spent on health is a benefit of work, a reason to work harder, but the 40 percent taken in taxes is a cost of work that creates a dead weight loss. Moreover, at 40 percent plus the dead weight loss is going to be big.
To make the problem with Brad P.’s thought experiment clear suppose that we documented exactly how everyone spent their yearly income. Now we tax everyone 100 percent and provide them with exactly what they were buying before. Nothing changes, right? Wrong. At 100 percent tax there is no longer any incentive to work – thus no one works and nothing is provided. Everything changes.
Brain Drained
Two weeks ago I posted on the brain drain at the NIH brought about by new draconian rules on so-called "conflicts of interest" between NIH workers and outside interests. I suggested that the policy was a mistake but we now learn from the Washington Post that it is a stupid mistake.
The unexpected finding that as much as 80 percent of the seeming
improprieties were actually the result of errors by government
investigators has undermined the rationale behind NIH Director Elias A.
Zerhouni’s recent decision to impose severe restrictions on the
personal activities and finances of all of the agency’s more than 5,000
employees…
The story is simple. The government asked the pharmaceutical companies for the names of all NIH scientists with whom they had consulting operations and they asked the NIH for a similar list. Comparing the two lists they found about 100 names on the pharmaceutical list which were not on the NIH list and then jumped to the conclusion that these 100 people were lying. After months of investigation during which many people’s lives have been turned upside down it turns out that one list included 2004 but the other did not, some of the "John Smiths" on the pharmaceutical list were incorrectly identified with "John Smiths" at the NIH, the pharmaceutical companies didn’t use the same definition of consulting as the NIH etc. Keystone cops.
And here is an example of the new law in practice.
One scientist who, under the new rules, was informed he could not
accept an unpaid adjunct professorship at Johns Hopkins University was
told he might be unduly influenced in favor of the university because
the appointment came with free campus parking…
Harvey Rosen to Head CEA
Harvey Rosen has been promoted to chairman of the Council of Economic Advisors. Rosen is a respected professor of public finance and expert on tax policy from Princeton. Speaking personally, I find his work accomplished but boring. He can, however, surprise at times. I like this paper quite a bit, especially the title (fortunately CEA chairman need not pass through a Congressional gauntlet 🙂 ).
The Self-Employed are Less Likely to Have Health Insurance Than Wage Earners. So What?
DeLong on the Civil War
Brad DeLong has an arresting post on the costs of the civil war.
- Cost of Civil War to North: $140 per capita (including only economic damages for dead and wounded)
- Cost of Civil War to South: $340 per capita (including only economic damages for dead and wounded)
- "Indirect" additional cost of Civil War to South: $450 per capita.
Cost to buy and free all the slaves? $90 per capita.
Savings Crisis?
David Altig and I are featured in this week’s WSJ Econoblog on the topic of the "savings crisis," with sidetrips into behavioral economics, preference sovereignty, weight loss, and more!
Bad Rap
In his Washington Post column Eugene Robinson viciously attacks Larry Summers for his recent comments.
First, is there a pattern here? When Summers arrived at Harvard, one
of his first acts was to dress down one of the university’s best-known
black scholars, Cornel West, for spending too much time on outside
projects and not enough on research. Offended, West decamped to
Princeton University. But Harvard is lousy with peripatetic rock-star
professors. One of Summers’s most vocal defenders is Harvard law school
professor Alan Dershowitz, who found time amid his busy academic
schedule to serve on the O.J. Simpson defense team, for heaven’s sake.
Why start with West? Was he doing anything his white colleagues don’t
do?
Oh, this one is just too easy. Why yes, Cornel West’s colleagues were not cutting rap albums with Derek "DOA" Allen and Killa Mike. (“In all modesty, this project constitutes a watershed moment in musical history”). Nor were they appearing in the movies as wise Councilor West of the last free human city of Zion, or leading a leading a political committee for Al Sharpton’s presidential campaign. (Sharpton helpfully threatened to sue over the Summers-West donnybrook.)
I’m open to the argument that West is practicing an unorthodox but compelling form of pedagogy. At the very least he isn’t resting on his laurels but however you slice it the comparison with Dershowitz is bizarre. Dershowtiz teaches criminal law. For him to be involved in the "trial of the century" is directly relevant to his work and redounds to Harvard’s advantage. Who wouldn’t want to study defense law from a master?
Robinson may be offended by Summers’ remarks but his insinuations are unfair and irresponsible.
Maoist Video Game Reviews
The website of the Maoist International Movement (MIM) has posted video game reviews from a Maoist point of view. Here are some comments from the review of Sim 3000.
"Sim City" has completely bourgeois assumptions, which is why it is not MIM’s
favorite economic strategy game. The mayor has the power to set tax rates and
this influences the level of development. There is no option to nationalize
factories…. People who believe the mayor set taxes too high may leave the city. [Interesting that Maoist’s would comment on this so openly! AT]…The Sim City economy may go through cycles including crises which reduce the
population and destroy city government revenue, but the explanation for that is
not Marx’s labor theory of value. What class struggle appears is actually within
the government, with police, fire and mass transit workers occasionally going on
strike…[That wouldn’t happen in a Maoist society!]In actual fact in the capitalist
world, having more or fewer police stations does not affect the crime rate, but
in "Sim City 3000," police hiring levels affect the crime rate and thus property
values. This is an example why it is important for Maoists also to write
computer games. Propaganda and conventional wisdom say that police exist to
reduce crime instead of perpetrating it. The truth that there is no effect of
police hiring or budget levels on crime is difficult for the public to swallow.
[I guess the MIM has not read my paper on this issue.]
MIM does make a good point about Rise of Nations but naturally I draw the opposite conclusion:
…RoN cuts through the dense fog of bourgeois
economics which focuses on consumer choices, markets and profits….The RoN economy does not depend on individual choices, sales or profits. The
marketplace does exist but it plays no directing role. It is the player who
directs the economy and if for no other reason, that is why MIM has to recommend
RoN.
Thanks to Cory Doctorow at Boing Boing Blog for the link.
What’s your P?
Readers of this blog will be familiar with Tyler’s insistent question, what’s your P? As in what probability do you put on this event or belief? (Examples here, here and my favorite here).
Unfortunately this type of thinking is all Greek (I am tempted to say all Arabic, but that would be cruel) to our intelligence services. Writing in the Washington Post Michael Schrage argues:
It’s time to require national security analysts to assign numerical
probabilities to their professional estimates and assessments as both a
matter of rigor and of record. Policymakers can’t weigh the risks
associated with their decisions if they can’t see how confident
analysts are in the evidence and conclusions used to justify those
decisions….[T]he CIA, Defense Intelligence
Agency, FBI and the federal government’s other analytic agencies have
shied away from simple mathematical tools that would let them better
weigh conflicting evidence and data. That bureaucratic shortsightedness
undermines our ability to even see the dots, let alone connect them.Consider the National Intelligence Estimates, the
Presidential Daily Briefings or many of the critical classified and
unclassified analyses flowing through Washington’s national security
establishment. Key estimates and analytic insights rarely come with
explicit probabilities attached. The nation’s most knowledgeable
experts on the Middle East, counterterrorism, nuclear proliferation,
etc., are seldom asked to quantify, in writing, precisely how much
confidence they have in their evidence or their conclusions.
Your
personal financial planner does a better job, on average, of
quantitative risk assessment for your investments than the typical
intelligence analyst does for our national security.
All true. I would add only that one virtue of information markets, like the short-lived Policy Analysis Market, is precisely that they produce such probabilities as a matter of course.
(Black) Markets in Everything
Students at a high school in Austin, Texas gave their teachers a lesson in the economics of prohibition.
When Austin High School administrators removed candy from campus vending
machines last year, the move was hailed as a step toward fighting
obesity. What happened next shows how hard it can be for schools to
control what students eat on campus.The candy removal plan, according to students at Austin High, was
thwarted by classmates who created an underground candy market, turning
the hallways of the high school into Willy-Wonka-meets-Casablanca…."It’s all about supply and demand," said Austin junior Scott Roudebush.
"We’ve got some entrepreneurs around here."
Thanks to Sean Brown, a student at another Austin high school, for the pointer.
And now for something completely different
No economics, but this apparently true story from the Globe and Mail just made me laugh and laugh.
An indignant Israeli is suing a pet shop that he says sold him a dying parrot, reports the Ma’ariv newspaper. Itzik Simowitz of the southern city of Beersheba contends the shop cheated him because the Galerita-type cockatoo not only failed to utter a word when he got it home, but was also extremely ill. Mr. Simowitz adds that the shop owner assured him the parrot was not ill but merely needed time to adjust to its new environment.
Thanks to the Eclectic Econoclast for the link.
Equity returns, economic growth and social security privatization
The blogosphere has been involved in a huge debate over the Baker-Krugman position that high stock returns are inconsistent with a low growth rate of the economy (thus either social security privatization won’t work or, if economic growth is high, it’s unnecessary).
Brad DeLong offers a useful summary laying out the possible scenarios. I think, however, that he and everyone else have missed one scenario which may be important (see also Tom Maguire and Andrew Samwick).
Everyone has assumed that economic growth and social security privatization are independent variables but suppose that social security privatization raises economic growth then one can consistently assume that economic growth will be low under the current system but stock market returns will be high if we privatize.
Can social security privatization raise economic growth? Certainly the answer is yes. It’s a big reform which (done right) can significantly increase savings and reduce labor market distortions.
Can the increase in economic growth be enough to solve the Baker-Krugman problem? I think not in the long run but I am not so sure about short-run dynamics, even a small increase in growth rates can increase prices significantly. I turn this one over to better macro-economists than I.
The culture of spending
The political scientist James Payne argued that there is a culture of spending in Congress. Even people elected on a platform of cutting government become enured to higher spending as week after week they hear witnesses saying how much more money is needed and how many more problems could be solved if only you, the great Congressperson, would use your power to spend.
Here is a great illustrative graphic (click to expand) from The New York Times. It shows proposed spending in 1995-96 and 2004-05 from the 30 of the 75 freshmen Republicans elected to the House in the Gingrich revolution of 1994 who remain in the house. Almost all proposed big spending cuts in 1995 but today only 1 (Sue Myrick of NC) continues to propose big cuts. (Yeah Sue!). Almost all of the rest are now big spenders.
It’s somewhat unclear whether Payne’s hypothesis of a culture of spending explains the pattern. It could be that more senior members spend more and thus as the freshmen gain power they increase their spending (thus term limits, for example, would not solve this problem). It could also be a selection effect, perhaps only those who become big spenders are reelected. I tend to favor the latter explanation. We get the government we deserve, unfortunately.
More Media Bias
Here is the New York Times on The Gates:
Even at first blush, it was clear that "The Gates" is a work of pure
joy, a vast populist spectacle of good will and simple eloquence, the
first great public art event of the 21st century.
Here is the Washington Post:
Ho-Hum. They’re way, way better than the pandas, pigs, cows and other fiberglass tchotchkes that have "decorated" our cities over the past decade. But it’s only a difference of quality, not kind.
Markets in Everything: Valentine’s Edition
This one is about how markets go wrong.
For $40, Without Reservations will sell you a dinner reservation for Valentine’s Day at a top-notch restaurant in New York, San Francisco or LA. How do they get the reservations? Simple, WR calls up restaurants a few weeks before a big event and they reserve under a fake name (you are in fact buying the fake name.) So all this "service" is doing is selling you something for which they in part have created the shortage.
True, scalping can create some social benefits by reallocating goods from low-valued to high-valued users but it’s not obvious that the foresighted people are the ones with low-demand so I think that benefit is likely to be small in this context. In addition, it’s much easier for a firm to monopolize restaurant reservations than concert tickets and a monpolist seller of reservations has an incentive to keep some reservations off the market thereby leeching from both the customer and the restaurant.
As in other contexts, it it catches on this will encourage restaurants to sell their own reservations this would be better for restaurants than letting WR get the profits but for reasons that are somewhat puzzling it is evidently worse for restaurants than their current method of allocation.
Thanks to Courtney Knapp for the pointer.