Arbitrage
I make a living buying and selling used books. I browse the racks of thrift stores and library book sales using an electronic bar-code scanner. I push the button, a red laser hops about, and an LCD screen lights up with the resale values. It feels like being God in his own tiny recreational casino; my judgments are sure and simple, and I always win because I have foreknowledge of all bad bets. The software I use tells me the going price, on Amazon Marketplace, of the title I just scanned, along with the all-important sales rank, so I know the book's prospects immediately. I turn a profit every time.
Sometimes the guy spends eighty hours a week in used book stores, and if you are an author think of this as your competition. For the pointer I thank Andy Howard and the full story is here.
Along related lines, Adam Ozimek thinks that "Brain Mounted Computers are a Dominant Strategy Equilibrium."
Barter markets in everything, bring your own restaurant
On a recent evening, an abandoned gas station with a curb blocked by cement barriers is the meeting point for a group of people who appear to be pulling chairs and tables from the trunks of their cars. It's almost dark. Some boxes are set on the sidewalk; linens and dishes and food are pulled out and what moments ago was an eyesore has been transformed into a popular place to eat. It's called BYOR. That stands for "bring your own restaurant." It's not quite an established venue, but the food is very good.
It's free to those who share. And the ambiance is unexpected as the outdoor location keeps changing. People learn where BYOR is going to be via Facebook. In the mild weather it's "open" every other weekend. No reservations required: just an appetite and some extra chairs if you have them.
What should you infer about Holyoke, the locale of this practice? The full story is here and I thank Anastasia for the pointer.
And from China, here is a vending machine for live crabs.
Assorted links
1. What happens when Germans — Berliners — hate supply and demand (partial distant nudity in the photo).
2. On Alex Ross.
3. Verbal mistakes.
$$ Leaving Las Vegas, continued
The meaning of such facts is speculative, but they are fun to ponder:
A 40†² container filled with household goods, shipped from Shanghai to Houston, TX costs $6169.93. Reverse the trip and ship the same container from Houston to Shanghai and the cost is $3631.07. That’s because 60% of containers on ships coming from the US to China are empty, which means Maersk and other shippers are desperate to sell container space.
The full story, which considers the cost of shipping a bottle of Fiii water, is here and I thank Henry at Crooked Timber for the pointer.
Markets in everything, unexpected loopholes edition
"Crafted from 40,000-year old Woolly Mammoth Ivory, they capture the exquisite design and proportions of the original Staunton pattern Chess set, registered by Nathaniel Cook and produced by Jacques of London in 1849"
For more than 2,000 years, Mammoth Ivory has been traded and it remains a highly prized commodity across the world. While that demand for the Mammoth Ivory has always been higher than its supply, it skyrocketed in 1963 when the CITES agreement was enacted. This agreement banned all sales of new Elephant or Walrus Ivory, in an effort to protect the animals from extinction. As a result, Mammoth Ivory became the only type of animal-based ivory that is exempt from the international trade restrictions because it is considered to be a fossil.
The price is $9.995.00. If that's not offbeat enough for you, try "Endangered Parrots of the World Chess Set," for $4,790.00, although I suspect they would come down if you bought them in quantity.
Rob Shimer on the new Nobel Laureates
Read his short piece here and I thank RSK for the pointer.
From another direction, David Z. sends along to me Bruno Frey's Economists in the PITS (pdf), about the scarcity of slots in the top journals.
Classical economics reading list
Joel, a loyal MR reader, asks me:
I am an undergraduate economics student curious about which of the classical economists and books you find most valuable. Classical not just meaning Ricardian but in terms of significant non purely quantitative works that influenced economics as a whole. If one were to put together a reading list of twenty or so of the most influential or important books, what would you recommend? The Wealth of Nations and General Theory of Employment, Interest, and Money seem logical starting points, beyond them though it's hard to wade through the range of choices (Ricardo or Hayek? Schumpeter or Jean Baptiste Say?)
For now I'll stick with classical economics in the narrow sense, as it ends in 1871. If you can read only a few works, I recommend these:
1. Adam Smith, Wealth of Nations. Duh.
2. David Hume, Economic essays. He lacks some of Smith's profundity as an economist, but he is more precise analytically and as always a beautiful writer.
3. David Ricardo, Principles of Political Economy, the first six chapters. Rigor arrives, though at the expense of truth. Still there is something to it. Supplement with Mark Blaug on Ricardo, if you want the model spelt out mathematically.
4. The early marginalists: I'll recommend Samuel Bailey on value and Mountifort Longfield on price theory. Yet still it was a (temporary) dead end and you should read them with that puzzle in mind. At what level of technical sophistication do the contributions of marginalism suddenly seem impressive?
5. Thomas Robert Malthus, on population (don't ask which edition) and Principles of Political Economy. He understood supply and demand, elasticity, a version of the Keynesian model, and environmental economics, and yet he is mainly criticized for being wrong about population. He is one of the strongest and most profound and most underrated economists of all time. Also read Keynes's biographical essay on him.
6. Edinburgh Review. The econ blogosphere of its day. Read the economic essays published in that outlet, by Malthus and many others, especially on monetary theory. I don't know any easy way to track this stuff down, but if you do please tell us in the comments.
7. John Stuart Mill: Autobiography (yes, for economics) and his Some Essays on Unsettled Questions in Political Economy (Kindle edition is free). Mill has underrated depth as an economic thinker and he encompassed virtually all of the interesting trends of his time. That was both his greatest strength and his biggest weakness.
8. Marx: The 1844 manuscripts. More generally, read the Romantics as critics of classical political economy. Coleridge and Carlyle are good places to start.
What about the French?: I find Say boring, Bastiat fun, Cournot incredible but there is no reason to read the original. Try someone weird like Comte or LePlay to get a sense of what economic discourse actually was like back then.
Names to ponder
"The law imposes a very heavy burden on those seeking to attack final court judgments," says Robert Lawless, a professor at the University of Illinois College of Law.
Here is more and I thank Rama Rao for the pointer.
Who said this?
What governments spend on relief work is secondary to what it spends on its armies…Merchants are the knights who will save this region from famine and must avoid investing in worthless projects…
The answer is here, no peeking!
Assorted links
1. On Sebald and awestruck reviews.
3. Edna Ullmann-Margalit has passed away; among other contributions, she once wrote a brilliant paper on invisible hand explanations.
Underappreciated economists: Eric van den Steen
Can a professor at HBS be underappreciated? I believe so. Eric van den Steen is in my view one of the best young microeconomists. He is not a mere technician but rather a dealer in ideas. Oddly, I don't hear his name mentioned often by ordinary, non-frontier economists.
Here is his page of research papers. I am most struck by his paper on the theory of the firm. It is an explicitly Knightian and non-Coasian model of the firm. Unlike many authors, van den Steen does not require that the "firm mode of organization" lower transactions costs in the traditional sense (ever try to get a favor from your purchasing department?).
Instead his model starts with the Aumann model of disagreement and he suggests that control rights in the firm follow from a (figurative) auction over who gets to rule the cooperative venture. It's bidding on the basis of relative certainty to break the initial disagreement. If you bid for the capital goods, and turn the relationship into a "firm," you have greater authority over the other agent, because you can threaten to separate that agent from the capital goods. The winner then installs low-powered incentives because the loser still disagrees with him, and the winner doesn't want the loser to be too motivated to pursue his own vision, thus subverting the winner's orders and recommendations. Overall, the firm increases cooperation among agents but lowers motivation for non-ruling agents and that trade-off determines whether or not a firm will displace a market transactions based on decentralized control of separate decisions.
It's one of the few articles on theory of the firm which make sense to me, the other candidate being Julio Rotemberg's brilliant but poorly explained "A Theory of Inefficient Intrafirm Transactions." I view the Coasian tradition as somewhat of a dead end in industrial organization. Internally, firms aren't usually more efficient than markets although there are good non-transactions cost reasons — including rent-seeking — why they exist.
Here is Eric's paper on the costs and benefits of homogeneity. It's worth reading just about all of his work. Hail Eric van den Steen!
Expecting too much
Sometimes people hold an attitude which I call "expecting too much," even if they do not always articulate this view as such. Here are a few possible examples:
Some Germans: "Yes we know that the eurozone is problematic for some of the poorer countries. We expect that they get their fiscal house in order, and produce some major productivity gains, as we have done in the past. We expect this even if we don't quite tell them this."
Some Americans: "I expect my government to solve Problem X (fill in the blank, the list is a long one) without raising my taxes, and in the meantime I will refuse to countenance a tax increase. To support this attitude I am willing to sound fiscally unreasonable, if necessary."
Some economists: "It is a tough labor market, to be sure. Yet it is expected that you be willing to move around to get a job, as many immigrants do, or that you find a way to make a lower wage work for your life and for an employer. My grandparents managed that, why can't you?"
There are numerous other examples. Is "expecting too much" ever a reasonable attitude? A reasonable tool of motivation? A reasonable bargaining stance? A reasonable defensive strategy against institutions which will otherwise treat you unfairly or perhaps even rapaciously?
I find that expressions of "expecting too much," whether they are articulated as such or not, often send intellectual opponents, on the respective issues, into a fury.
"Expecting too much" is a frequent attitude among the American public today and it is rooted in common sense morality. To the extent "expecting too much" is a reasonable point of view, the public is wiser than its critics will admit.
I am still debating how much reasonable force there is behind this kind of argument.
The Chinese rare earth embargo
Are they extending it to the U.S.? Didn't Nimzovich once say "The threat is stronger than the execution"? Read earlier posts by Reihan Salam and Tim Worstall on the issue and here is the background paper (pdf) I've already linked to.
Icelandic markets in everything
A new line of perfume is about to explode onto the Icelandic market, made of melt water from a glacier sitting on top of the Eyjafjoell volcano that erupted in April, spreading ash and flight chaos across Europe.
"When Eyjafjoell started erupting I suddenly got the idea to bring the power of Icelandic nature into people's homes," Icelandic designer Sigrun Lilja Gudjonsdottir, head of company Gydja Collection, explained Tuesday.
Furthermore:
The citrus-smelling perfume, which will be produced in Grasse in southern France and will be sold in square bottles with a lava rock attached, has been named EFJ Eyjafjallajoekull.
The letters EFJ are there "so that non-Icelanders can pronounce the name of their perfume," Gudjonsdottir explained, adding however that the full name of the glacier on top of Eyjafjoell also needed to be on the bottle since "I wanted the perfume to represent the strength of Icelandic nature."
The article is here and I thank Daniel Lippman for the pointer.