David Brooks on Larry Summers
To use a fancy word, there’s a metacognition deficit. Very few in public life habitually step back and think about the weakness in their own thinking and what they should do to compensate. A few people I interview do this regularly (in fact, Larry Summers is one). But it is rare. The rigors of combat discourage it.
Of the problems that afflict the country, this is the underlying one.
The full piece is here.
The permanent jam?
K. writes and tells me that she imagines someone writing a novel based on this incident and that I will assign it in my Law and Literature class. Here is the excerpt:
A number of people have written in, or tweeted (and don’t forget to find me in the tweetosphere), to tell me about a traffic jam in China, currently in its ninth day, that seems to be on the verge of evolving, as per Cortazar’s story “The Southern Thruway” (an inspiration for Godard’s Weekend), into some kind of makeshift settlement.
This has struck an enterprising verve in some locals, notes the BBC:
The drivers have complained that locals are over-charging them for food and drink while they are stuck.
Then again, what is the “market price” for selling food and drink to 100 km traffic jams?
Instant noodles have risen to four times their market price in this new Chinese city. This account, sent to me by Joshua Hedlund, notes that the jam is 62 miles long and offers good photos.
*The Tenth Parallel*
The author is Eliza Griswold and the subtitle is Dispatches from the Fault Line Between Christianity and Islam. Excerpt:
Church is no staid ritual in Nigeria; it is a carnival. One Friday night, I went to the Redeemed Christian Church of Christ at an all-night church ground with three hundred thousand other people. The figure is larger than the number of Quakers in America — the equivalent of an entire American denomination worshipping at the edge of Lagos. With no traffic, the church ground is an hour's drive from Lagos. The choir was a phalanx of thousands of young people sitting under a tent, and I wandered among them, swallowed by the rush of their voices. Most attendees would spend the night dozing in their chairs of buying peanuts and soda and tapes and T-shirts and a host of other amusements. The service started at eight. Around midnight, I left to face hours of traffic and the sizable risk of a carjacking by the bandits who freely roamed the highways, picking off tired churchgoers.
This is the book which everyone is reading, and reviewing, right now. It has good coverage of Nigeria, Somalia, Sudan, Indonesia, Malaysia, and the Philippines, and the clash between religions in those areas. I can definitely recommend it. My major complaint has to do with framing. The author reminds us that "the main fault lines are within Islam," or something like that, etc., yet if you read only this book, or for that matter its subtitle, you would come away with a different impression altogether. The very premise of the book selects for clash among the two major religions surveyed and I don't think the author quite comes to terms with this fact. She is torn by conflicting impulses to pursue her initial premise to its logical conclusion, and yet also to provide a more politically correct account than what she sees in front of her eyes.
Is there a government bond bubble?
Here is a symposium over at The Economist:
It is better labeled a bubble in government spending (Viral Acharya)
No, there is a shortage of safe assets (Ricardo Caballero)
Bond yields are probably appropriately low (Stephen King)
Probably not, but approach low-probability risks carefully (Tyler Cowen)
Yes, and it's huge (Laurence Kotlikoff)
It's possible, but there is not enough evidence to be sure (Paul Seabright)
No, growth and deflation concerns have grown sharply (John Makin)
Current adjustments will reduce the risk of a repricing shock (Harold James)
The economics of cloning
Here is the abstract of a paper I have not yet read:
In this paper, we analyze the extent to which market forces create an incentive for cloning human beings. We show that a market for cloning arises if a large enough fraction of the clone’s income can be appropriated by its model. Only people with the highest ability are cloned, while people at the bottom of the distribution of income specialize in surrogacy. In the short run, cloning reduces inequality. In the long run, it creates a perfectly egalitarian society where all workers have a top ability if fertility is uncorrelated with ability and if the distribution of ability among sexually produced children is the same as among their parents. In such a society, cloning has disappeared….
That is by Gilles Saint-Paul (original paper here) and you will find it discussed here.
Further sentences to ponder, or my Arnold Kling imitation
I am aware that not everyone is happy with Rasmussen polls, still I think this result is striking, especially the difference in perspectives:
63% of the Political Class think the government has the consent of the governed, but only six percent (6%) of those with Mainstream views agree.
Seventy-one percent (71%) of all voters now view the federal government as a special interest group, and 70% believe that the government and big business typically work together in ways that hurt consumers and investors.
The link is here, with further information, and I thank Roger Congleton for the pointer.
Assorted links
Sentences to ponder
As Mallaby is at pains to point out on a regular basis, hedge funds in fact have less leverage – a lot less – than banks. Many have none at all; those who do lever up tend to do so only by a factor of two or three, compared to leverage ratios in the 30 to 40 range for many investment banks and even commercial banks, in Europe.
That is Felix Salmon and there is more here.
From the comments
From Ezra's comments, this is ctown_woody:
Ezra,
To what extent is the Fed worried about making a visible commitment and failing? If Tyler Cowen and others are right that this slump is the end of family-deficit spending, it is quite conceivable that the Fed will fail to deliver that which it promises to deliver. At that point, the institutional players in the Fed will have lost credibility, which would lead to a lose of independence from politics.
So, to what extent is the Fed acting like Peter LaFleur from Dodgeball, "If you never try anything, you'll never fail"?
Pecuniary externalities
Samson, a loyal MR reader, requests:
Tyler,
What do you think about pecuniary externalities? What would be a good definition of such externalities, if you find them to be plausible? Without the fiction of an infinite number of buyers and sellers, why isn't it the case that any transaction through the price system, through an impact on price, causes an externality, and might one call such an externality a pecuniary externality? I cannot find much on this subject.
Thanks!
Economists try to make a distinction between pecuniary externalities — changes in price which merely redistribute wealth — and non-pecuniary externalities, which involve a real good or service being provided or denied at the margin. If the price of wheat rises, wheat consumers suffer a pecuniary externality. If you dump garbage on my lawn, that's a non-pecuniary externality, although it may be accompanied by a pecuniary externality, namely a decline in the value of the house. In the meantime, the lawn stinks.
The distinction is often a tricky one, especially in the absence of perfect markets. A lot of the complaints about health care markets are actually complaints about pecuniary externalities, namely that some people get priced out of the market. Alternatively, the risk of facing high prices for cancer treatment may make people nervous and insecure. The notion of "risk" often bundles together pecuniary and non-pecuniary externalities in a not-too-easy-to-separate form.
Efficiency and distribution are not always possible to separate, no matter what the first and second welfare theorems seem to imply.
What about people near subsistence? Say you redistribute $500 from a poor Haitian to a somewhat less poor Mexican, and the Haitian dies and the Mexican buys a used motorbike. Is that "just a transfer"? Or is it "a real resource loss"? I say it's the latter, but then virtually any redistribution will destroy some complementary value from the portfolio of the individual losing the money. What is then left to count as a pure transfer?
There is also no such thing as a pure lump-sum transfer when population is endogenous, either through child-bearing decisions or through taking risks with one's life.
The distinction between pecuniary and non-pecuniary externalities is useful, and hard to do without, but its foundations are shaky. In practical terms the weakness of the foundations matters most when we are doing health care economics or analyzing food subsidies (or comparable forms of aid) in poor countries. The richer and healthier the people are, the more likely the distinction can be invoked without much trouble.
And Samson is correct to think that large numbers of transactions involve pecuniary externalities, at least whenever the particular actions of a buyer or seller influence market price.
Markets in everything
With AwesomenessReminders, a real person will call you every day to tell you how much you rock. If you're not around, we will leave you a voicemail.
For the pointer I thank Paul Sas, who tells me they charge $10 a month.
Here is one of the owner's other sites, www.compassionpit.com: "Chat with an anonymous stranger who won't judge you." To my mind, that claim lowers the credibility of the awesomeness reminders quite a bit.
Assorted links
1. Jacob Levy on Ernest Gellner.
3. Markets in everything: dating site which kicks out non-ugly people.
4. What if I were in charge? (NB: I am not telling you to click on this link)
The bad apples ruin the good
Horton's work raises many questions, not least because it contradicts other work suggesting that it is possible to improve poor workers' output by pairing them with good workers. By contrast, Horton found that "the bad apples ruined the good apples, and the good apples did nothing for the bad."
Here is much more of interest, on new developments in measuring worker productivity. In my view this effect is a significant factor behind the stickiness of wages. Negative signals often mean "get rid of the person" and not "renegotiate a lower wage." I thank an MR reader for the pointer.
More parking links
Donald Shoup wrote me and asked if I might pass along the following links, to correct misinformation:
1. A short video on the San Francsico parking experiment.
5. Chapter one of Shoup's book.
6. Shoup's website.
From me, here is Matt Yglesias on parking feedback loops.
The culture that is Bryan Caplan
A new paper finds that your philosophic beliefs matter for your real world performance, or at least they predict it:
Do philosophic views affect job performance? The authors found that possessing a belief in free will predicted better career attitudes and actual job performance. The effect of free will beliefs on job performance indicators were over and above well-established predictors such as conscientiousness, locus of control, and Protestant work ethic.
The pointer comes from Vaughn Bell on Twitter. One interpretation is that a "belief in free will" corresponds to private information about the likelihood of being successful, and wanting to take credit for that success. A second interpretation is that the belief itself makes you more successful, by encouraging you to take responsibility for your choices.