What determines fertility?

by  Tyler Cowen in

Here are some thoughts:

So there would seem to be two models for achieving higher fertility:
the neosocialist Scandinavian system and the laissez-faire American
one. Aassve put it to me this way: “You might say that in order to
promote fertility, your society needs to be generous or flexible. The
U.S. isn’t very generous, but it is flexible. Italy is not generous in
terms of social services and it’s not flexible. There is also a social
stigma in countries like Italy, where it is seen as less socially
accepted for women with children to work. In the U.S., that is very
accepted.”

By this logic, the worst sort of system is one that
partly buys into the modern world – expanding educational and
employment opportunities for women – but keeps its traditional
mind-set. This would seem to define the demographic crisis that Italy,
Spain and Greece find themselves in – and, perhaps, Japan, South Korea,
Hong Kong, Taiwan and other parts of the world. Indeed, demographers
have been surprised to find rapid fertility changes in the third world,
as more and more women work and modern birth-control methods become
standard options. “The earlier distinct fertility regimes, ‘developed’
and ‘developing,’ are increasingly disappearing in global comparisons
of fertility levels,” according to Edward Jow-Ching Tu…the birthrate in 25 developing countries – including Cuba, Costa Rica,
Iran, Sri Lanka and China – now stands at or below the replacement
level.

Can past nuclear explosions advance art history?

by  Tyler Cowen in

A former curator from the State Russian Museum in St Petersburg
believes they can. She has developed a new method for dating paintings
in collaboration with Russian scientists which, she says, provides
“indisputable” evidence of whether a painting was made before or after
1945.

According to the inventors, the new patented technology is based on the
idea that man-made nuclear explosions in the 1940s and 1950s released
isotopes into the environment that do not occur naturally. The tiniest
traces of these isotopes, Caesium-137 and Strontium-90, permeated the
planet’s soil and plant life, and eventually ended up in all works of
art made in the post-war era because natural oils are used as binding
agents for paints.

Therefore, they believe that any work of art
originally believed to pre-date World War II, but which registers trace
amounts of Caesium-137 and Strontium-90, can be “definitively” declared
a post-1945 forgery.

Here is the full story.  It’s worth noting that many categories in the art world show rates of forgery approaching 50 percent or higher.

More on speculation

by  Tyler Cowen in

Here is Paul Krugman’s model, Mark Thoma covers related ground.  I view this as an intertemporal Hotelling model and not as analogous to a currency model as Krugman suggests.  In the bottom right hand graph of the four graphs in Krugman’s post, I don’t understand what institutional force hinders a market-clearing price.  More concretely, if expected future price goes up (or interest rates fall), the supply curve in that graph should shift back to the left (wait and pump more later for the higher price) and/or the demand curve in that graph should shift out to the right (buy now rather than later at the higher price).  Measured inventories will rise to the extent the demand curve does the shifting; if the supply curve does the shifting the "excess inventories" stay in the ground.

It is possible to derive Krugman’s desired result through another and indeed simpler channel.  Define speculation as the desire to hold more oil because of the perception that oil now has a greater convenience yield.  As Jeffrey Williams points out, a big part of convenience yield is the option value of selling the oil on favorable terms.  If you’re guessing that option value will pay off, it’s not unreasonable to call that speculation.  We now have a one-line proof: because of "speculation" the demand to hold oil goes up, and so the stocks of oil held will rise.

This again illustrates the value of starting with Holbrook Working when analyzing futures markets.

And it’s fair to say, as Krugman still does, there is no evidence that this mechanism is what is driving the higher oil prices.  Of course the people who are blaming "speculation" don’t seem to have any coherent definition of the concept in mind; that’s another problem with their argument. 

How to bargain with aliens

by  Tyler Cowen in

Let’s say you meet up with an alien race and you need to bargain with them by radio or some other method of signaling.  You don’t have any other information other than your knowledge of human beings.  What traits should you think are overrepresented in humans, relative to what a rerun of evolution can be expected to produce in an intelligent being?  Would you expect them to be more or less benevolent than humans?

Should it matter if they have demonstrated superior technology?  Should such achievement make you think they are more or less cooperative toward "outsiders"?

Let’s say the "alien beings" are designed robots, like Cylons.  How would that change your answer?  But unlike in BSG you know only that they were once designed.  What if you know the robots were designed not by evolved beings but by other designed robots?  Does it matter how many levels of robot design enter the picture?

WALL-E

by  Tyler Cowen in

Better than better than good.  It is, however, not recommended for children.  WALL-E is to film as Moses and Aaron is to opera, albeit cast with two robots and a bunch of figures from a Botero painting.  The first week gross will be high but I fear that next week some bold genius at Pixar will be fired.

Addendum: Here’s one financial analysis of the movie’s prospects.  And note that movies with no dialogue in the first half hour are not ideal for DVD sales to children.

Why you should throw books out

by  Tyler Cowen in

I’m guest-blogging for Penguin just a bit, to promote the paperback edition of Discover Your Inner Economist.  Here is my post on why you should throw books out.  Natasha, alas, does not agree and sometimes she pulls them out of the trash and scolds me.  But here is an excerpt in my defense:

Here’s the problem. If you donate the otherwise-thrashed book
somewhere, someone might read it. OK, maybe that person will read one
more book in life but more likely that book will substitute for that
person reading some other book instead.

So you have to ask
yourself — this book — is it better on average than what an attracted
reader might otherwise spend time with? No I’m not encouraging
"censorship" of any particular point of view, but even within any
particular point of view most books simply aren’t that good. These
books are traps for the unwary. A lot of books don’t make the cut of
"above average to those readers they will attract" and of course since
you’ve spent some time with the volume you ought to be in a position to
know. (But note the calculation is tricky. Sometimes a very bad book
can be useful because it might appeal to "bad" readers and lure them
away from even worse books. Please make all the appropriate
calculations here.)

Note that the smarter and more discriminating are your friends, the higher the standard your book donations to them must meet.  Toss it!

Oil splat

by  Tyler Cowen in

It would take too long to sum up the dialogue, by this point you are either following the discussion or not.  A few points:

1. Bryan Caplan asks a good question: "You know now that the price of oil will be flat for five years, then
fall by 10% per year every year thereafter. Everyone else thinks the
price will be flat forever."  Can you profit?  Yes, by rolling over your short positions and constructing a synthetic long-term bet, even if the current futures markets extend for only three years or for that matter one year.  Fischer Black said so, so in other words you do have a chance to put your money where your mouth is.

2. Arnold Kling wonders why so many commodity prices have risen at the same time.  I’ll repeat that fundamental value — and thus the concepts of speculation and bubble — are trickier and vaguer with commodities than in stock markets.  I’ll say that "expectations" have driven the general rise in commodity prices.  If those expectations turn out to be wrong, we can call it all a bubble; if they turn out to be right, then it hasn’t been a bubble.  What should we call it in the meantime?  We’re not going to solve that problem in any factual way.  Make your bets, as they say.

3. Bryan Caplan notes that commodity prices always have fallen back down in the past and argues that is likely to happen again in the future.  I say no, the current price is your best (rough) estimate of scarcity (adjusting for storage costs), don’t expect mean-reversion, future returns (but not prices) are a random walk, and extrapolation is a dangerous method to apply to financial time series.  (For instance every time the stock market has fallen it has bounced back up again but that does not mean you can earn supernormal returns by buying on the downticks; even Shiller finds only small gains here.)  I love Julian Simon too but don’t let him overrule Eugene Fama.

4. Mark Thoma has an exhaustive post on convenience yield.  The models used are too piecemeal and they allow "inventories," "convenience yield," and "speculation," to serve as free-floating, not necessarily attached concepts.  The discussion here pays insufficient attention to Holbrook Working, who knew that convenience yield was front and center of the entire analysis, just as "the demand for money" is the centerpiece of the quantity theory.  Working himself didn’t even think that "speculation" was a well-defined concept in commodities markets; even if he went too far there the concept remains murky.  The current discussions are mixing fundamental conceptual definitions with some broader institutionally-motivated definitions and thus none of the results quite match up.

5. Contra Paul Krugman, invoking convenience yield should not be thought of as an Ptolemaic epicycle or a fudge factor.  The demand to hold oil is the starting point of the whole analysis, see also Jeffrey Williams’s work.  The upshot is that if speculation were driving the current price, it would be consistent with either a premium of the futures price over the spot or vice versa; invoking convenience yield to explain the relatively cheap futures is what you might expect in the first place, speculation or not, bubble or not.

6. Interfluidity has the most careful and accurate exposition of the relevant market relationships, mostly because he sticks closely to the Holbrook Working tradition. 

7. The bottom line is that when it comes to the key substantive questions about the oil market – why are prices so high — the correct answer is the Lachmannian one: "expectations."  If you push one step further on that, and try to evaluate or "source" those expectations, the correct answer is "we don’t know."  Jim Hamilton hints at some of this — and the imprecision of the "inventories" term — in this insightful post.

Addendum: On other practical matters, this new Op-Ed by Paul Krugman is essentially correct, although his claim that speculation is impossible in the iron ore market shows, better than anything else, the oddity of his semantic choices.

Bryan Caplan, REPENT YOUR LOVE FOR THOMAS REID!

by  Tyler Cowen in

Here is a fascinating article from The New Yorker, mostly about itching but not just.  Here is my favorite part:

A new scientific understanding of perception has emerged in the past few decades, and it has overturned classical, centuries-long beliefs about how our brains work–though it has apparently not penetrated the medical world yet. The old understanding of perception is what neuroscientists call “the naïve view,” and it is the view that most people, in or out of medicine, still have. We’re inclined to think that people normally perceive things in the world directly. We believe that the hardness of a rock, the coldness of an ice cube, the itchiness of a sweater are picked up by our nerve endings, transmitted through the spinal cord like a message through a wire, and decoded by the brain.

…Yet, as scientists set about analyzing the signals, they found them to be radically impoverished. Suppose someone is viewing a tree in a clearing. Given simply the transmissions along the optic nerve from the light entering the eye, one would not be able to reconstruct the three-dimensionality, or the distance, or the detail of the bark–attributes that we perceive instantly.

…The images in our mind are extraordinarily rich. We can tell if something is liquid or solid, heavy or light, dead or alive. But the information we work from is poor–a distorted, two-dimensional transmission with entire spots missing. So the mind fills in most of the picture. You can get a sense of this from brain-anatomy studies. If visual sensations were primarily received rather than constructed by the brain, you’d expect that most of the fibres going to the brain’s primary visual cortex would come from the retina. Instead, scientists have found that only twenty per cent do; eighty per cent come downward from regions of the brain governing functions like memory. Richard Gregory, a prominent British neuropsychologist, estimates that visual perception is more than ninety per cent memory and less than ten per cent sensory nerve signals.

And sorry, readers, for shouting in the header; sometimes I get carried away.  By the way, don’t let defenders of naive realism tell you that any attempt to contradict it is self-refuting.  Science proceeds in pieces, cross-tested in various ways, and the sum total of those pieces can revise our understanding away from naive realism without producing self-contradiction.

RSS queries

by  Tyler Cowen in

As many of you know I am anti-RSS but I would like to understand the phenomenon better.  So I have a few questions for you.  What feature in an RSS reader do you not have but long for?  What would cause you to switch from one reader to another?  Would you ever consider a reader that forced ads on you, bundled up with the delivered post?

Don’t worry, we’re not planning or even contemplating changes in our RSS feed, I simply would like to learn.

Assorted links

by  Tyler Cowen in

1. Something else happens, via Bruce Charlton

2. "Civil War," an excellent new paper by Chris Blattman and Edward Miguel

3. Convenience yield, an excellent introduction; by the way Jeffrey Williams is a good author on the intuitive properties of futures and forward markets as they relate to storage.

4. The Japanese equivalent of the Hummer.

5. How to hire new people, by Auren Hoffman

6. Whose incomes are growing riskier?  It’s only about five percent of the distribution.