Category: Current Affairs

Leszek Kolakowski just won a new prize, the Kluge Prize, which is worth $1 million.

This is the nature of the prize:

The prize…is meant to highlight fields of study as varied as anthropology, history, philosophy, sociology and religion for which there is no major international award. It was conceived by the librarian of Congress, James H. Billington, and financed by the philanthropist John W. Kluge, who had no say in selecting the winner, library officials said.

In other words, it is intended to supplement the Nobel Prize. Kolakowski, a brilliant author, polymath, and critic of Marxism, is more than deserving. See also Jacob Levy’s excellent post on the matter, rebutting the charge that the award was politically motivated by “right-wing” considerations. After all, Kolakowski teaches at Oxford, hardly a hotbed of radical right sentiment.

In general we would expect that new prizes are awarded to the relatively old; Kolakowski is 76. Remember Cato’s Milton Friedman Prize of last year? It was awarded to the 85-year-old Lord Bauer, who died right before the award ceremony.

Presumably a new prize is seeking to build up its reputation, so its first few awards should be sterling in quality, not very controversial, and designed to generate maximum publicity. Once a prize is more established, the prize givers can take more chances, or use the prize to certify the quality of younger achievers, or use the prize to spur greater achievement.

Robin Hanson wonders why we don’t use more prizes today, in lieu of grants, to encourage science. In the eighteenth century, prizes not grants were the dominant means of encouraging science. One drawback of prizes is that they tend to be awarded in the interests of the prizegiver, and not necessarily to stimulate maximum scientific output. Arguably prizes should be awarded when people are younger, not older, if only for incentive reasons. Still, prizes make the most sense when you cannot predict where new innovation is coming from, and thus you do not know who should get the grants. As our world becomes more complex, less hierarchical, and more decentralized, I predict a greater reliance on prizes to stimulate science.

Sony and BMG might merge, bringing together the world’s second and fifth largest music companies. That would pair Tori Amos and Michael Jackson (Sony) with Outkast (BMG). The resulting firm, supposedly designed to cut common administrative costs, would be almost as large as the industry leader, Universal. Here is the full story.

My take: Regulatory approval is not certain, arguably unlikely, but regulators should not worry about market power issues. This is a desperation merger in a fading industry. The real “industry sector” includes file sharing, once you count that, and the accompanying zero price, the concentration issues do not look so bad. On the other hand, shareholders should not worry if they don’t get regulatory approval. I would expect a mess more than any significant cost savings, as the merger does not address the underlying problems faced by either company.

After years of whiling away wasted hours, Ecuadoran businesses and civic groups have launched a campaign to force people accustomed to habitually missing appointments and deadlines to start showing up on time.

“Symptoms: Rarely meets obligations on time, wastes people’s time, leaves things to the last minute, no respect for others,” reads a poster that has been appearing around the country, dealing with chronic lateness syndrome as if it were a disease.

“Treatment: Inject yourself each morning with a dose of responsibility, respect and discipline. Recommendation: Plan, organize activities and repair your watches.”

This is the new campaign in Ecuador, which aims to encourage timeliness. It is organized and funded by the private sector. And who, pray tell, are the biggest offenders when it comes to tardiness?

The most flagrantly late are public functionaries and military officials, Ecuadorans agree, and their president has been steeped in both cultures.

The program even includes incentives. If you are on time for a meeting, you are greeted with a pleasant sign telling you to come on in. The red flip side of the sign reads: “Do not enter, the meeting started on time.” N.B.: I want one of these.

Ecuadoreans are notorious for their lateness; for dinners scheduled for 8, people start assembling at about 10:30.

The private sector in the United States also has tried to combat tardiness, although the initial problem is less severe. Note, however, that CEOs are more often late for meetings than not, 60 percent of the time. Here is one attempt to reign in abuses:

A popular solution is charging $1 to $5 a minute to anyone who arrives late [for a meeting]. The money can be donated to charity, or saved toward an office party. Nielsen says ISD has tried late fees. They work for a while, but enforcement usually falls by the wayside after a couple of months, he says.

Such solutions won’t work on CEO offenders with big egos, Mina says. Locking the door after the meeting starts, or telling the CEO that a 2 p.m. meeting starts at 1:45 can be “career-limiting moves,” he says.

One source mentions a European study finding that the French are especially late. The Japanese have a reputation for being very punctual.

LeBron James, basketball player for the Cleveland Cavaliers, and just out of high school, signed a $90 million contract to promote Nike shoes. Given his debut performances, this now appears to be a bargain.

Consider the following facts, taken from yesterday’s Financial Times (registration and subscription required):

1. The U.S. market for branded athletic shoes is about $7.8 billion a year.

2. Nike commands 39 percent of this market, although this is down from 48 percent in 1997.

3. The older Air Jordan shoes sold for $175 a pair, but are now unacceptably out of date. Jordan, of course, has retired, and for the third and probably final time in his career.

4. Market competition is growing. Brands such as New Balance emphasize the substance of the shoe, rather than any famous endorser. Nike requires some means of product differentiation.

5. Kobe Bryant, another Nike endorser, has seen his star fall as of late.

6. LeBron has played only a few games, but so far his performance is far ahead of other basketball high school phenoms, such as Kevin Garnett or Kobe Bryant. Cleveland has been one of the worst teams in recent basketball history, but most NBA teams are including Cleveland, that is LeBron, in their specialty packages of the best games of the season.

7. The deal itself has generated enormous publicity for Nike, it is mentioned in most articles about James.

Nike pays LeBron only $10 million upfront, the rest comes over seven years. Right now, Nike appears to have made a steal. And remember, they laughed when Nike paid Michael Jordan $2.5 million in 1985.

Mutual funds control some $7 trillion for about 95 million investors.

But to this economist, much about the industry is a puzzle. Why, for instance, do so many investors seek out funds other than minimum commission, “buy and hold” funds? This could be a significant market failure, since managed funds do not in general outperform the market and generally charge higher fees. Alternatively, we might think that investors enjoy trying to beat the market, and that they are consuming a kind of gambling service. Investment clubs, for instance, are almost certainly a bad financial idea, especially if you do them with your friends. But maybe they improve your social life.

The current abuses include the `unholy trinity’ of illegal late trading, abusive market timing and related self-dealing practices. In other words, the mutual fund keeps the good trades for itself, or offers them to favored investors. The practice now appears to be widespread, read the above link or here.

This reminds me of the equilibrium we often observe in the car dealership market. When you buy a new car, most dealers put you through hell. You have to fill out all sorts of paperwork, taking up half your day and locking you in psychologically to sticking around through protracted negotiations, based on deceit and lies. Most buyers don’t leave and go elsewhere, in part because they know they can only expect to start all over again with the same. And as long as it is not too visible, you don’t feel too bad about your initial investment decision.

I suspect we see the same kind of stickiness with mutual funds. Many investors will not be shocked by the recent revelations. But why bother switching to another fund? Once you get there, you can expect more of the same.

I’ve never seen a good analysis of which market features lend themselves to this kind of outcome. Could it be the occasional allocation of large sums of cash that lies at the root of the problem? But why can’t firms make credible commitments to honesty up front? Clearly fraud is not the norm for all industries, the restaurant sector does not work this way. I suspect legal penalties alone will never solve the problem, our best hope is that technology, and monitoring, somehow change to make mutual funds, and buying a car, more like the experience of going to a nice restaurant.

Nielsen reports that men, ages 18-34, are watching 8 to 12 percent less prime-time network television than a year ago; this is a significant decline over the course of only a single year.

Commentators cite the growing appeal of DVDs, video games, and personal video recorders, among other developments. For instance, DVD sales are up 70 percent in the last year. 23 million homes will have broadband Internet access by the end of this year. 21 million American homes now have digital cable. And 70 percent of all watchers with TiVo skip the commercials.

The change since the 1970s has been enormous:

The general audience decline started as a trickle. In 1977, on an average night, 93 percent of the 90 million TV viewers were watching the three major networks. By the week of Oct. 6-12, 2003, the six major commercial networks had 53 million viewers, down 24 percent from the previous year.

I have heard that Seinfeld, a huge show in its time, would not have been in the top ten programs of the 1970s, if measured by the number of people watching.

About $60 billion is spent on television advertising every year, and perhaps we can expect this number to start declining.

The above information is taken from the November 3-9 issue of Variety, although forget the link if you are not a subscriber. In my view this is all good news across the board.

No matter who you vote for the government always gets in.

…the disdain for (and, in recent years, sometimes legal banning of) human “management” of the woods plays a role in the rising of dangerous wildfires. Time to drop the illusion that everything can be natural in a society of 285 million citizens. People are here and we’re not going to go away; people and forests and brushlands are in closer contact all the time; this leaves us little choice but to return to some version of managing lands to exert power over natural fire.

…Note that, since it is fashionable to deride George W. Bush’s environmental policies, the president’s “healthy forest” initiative, unveiled months ago, contains many provisions aimed at exactly the sort of pragmatic management that would reduce wildfires. The “healthy forest” bill was blocked in the Senate by Democrats and enviro lobbyists, who expressed horror at the thought of artificial intervention in the forest. Wednesday, as San Diego burned, the Senate passed the legislation 97-1. Bush’s plan is far from perfect, but will move forest management back toward realism.

Read Gregg Easterbrook for the full and very thoughtful analysis.

Iraq is getting a flat tax of 15 percent, here is the full story. I’m all for this, but note that under Saddam very few Iraqis paid any income taxes at all, despite a published marginal rate of 45 percent.

You might now ask who will be exempt from the new taxes:

The 15 percent rate does not take effect until January. In the meantime, Bremer has abolished all taxes except for real estate, car sales, gasoline and the pleasantly named “excellent and first class hotel and restaurant tax.” Even while leaving these Hussein-era levies in place, Bremer exempted his coalition authority, the armed forces, their contractors and humanitarian organizations. Exempting occupation personnel leaves only the Iraqis to pay taxes, as well as journalists, business people and other foreigners.

I don’t mean to show lack of appreciation for those who are putting their lives on the line. But, symbolically speaking, I doubt if this is a worthwhile way to avoid additional expenditures.

Johan Norberg provides some depressing information about the situation in Russia.

Russian President Vladimir Putin’s chief of staff, Alexander Voloshin, is said to have resigned. This is another sign that the so called power clan, “siloviki”, with its base in the FSB (former KGB) is strengthening its grips on power, and that both the liberal economists and the allies with former President Yeltsin are losing out. This is bad news for Russia. It all began with the brutal arrest of the oil magnate Mikhail Khodorkovsky this Saturday. The difference between Khodorkovsky and other oligarchs is not that he is more corrupt or unscrupulous, on the contrary, his oil company Yukos is renowned for being relatively transparent and law-abiding for a Russian company. The difference is that he has challenged Putin by supporting democratic forces, like the parties Yabloko and SPS. Before the arrest FSB also made a raid on Yabloko’s headquarters and stole their servers with their planning for the parliamentary election on December 7th. First the destruction of the free media in Russia and now this. It is no longer possible to call Putin’s Russia a democracy. It is more like a “democtorship” (“demokratur”), as the Swedish novelist Vilhelm Moberg once called a dictatorship with democratic rituals….

Addendum: More on the rise of the siloviki.

Consider this list of newspapers per capita. This is the number of papers, not how many people read papers. Here is the top ten:

1. San Marino 108.19 per 1000000 people
2. Gibraltar 36.08 per 1000000 people
3. Andorra 29.24 per 1000000 people
4. Macau 21.65 per 1000000 people
5. Greece 19.45 per 1000000 people
6. Norway 17.9 per 1000000 people
7. Bermuda 15.63 per 1000000 people
8. Estonia 11.3 per 1000000 people
9. Switzerland 11.09 per 1000000 people
10. Latvia 10.99 per 100000 people

Rounding out the top fifteen are Iceland, Cyprus, and Malta, along with such giants as Sweden and Finland. And note the gap between the frontrunner, San Marino, and number two; San Marino has almost three times as many newspapers per capita.

The United States is not in the top sixty-seven and does not stand on the list at all, it appears not to be in the database. A separate data source lists America as having 1,228 daily newspapers, which if correct would put us in per capita terms at number 28, between Mauritius and Bolivia. Why so low? Well, we rely on TV more, we have more concentrated media (most cities have only one daily paper, and perhaps smaller countries like the gossipy element that follows from a large number of small circulation newspapers.

Note: I have modified the initial version of this post, due to helpful comments from Frank Quist.

Most libertarian economists oppose drug reimportation, on the grounds that the resulting lower prices would harm the incentives for R&D. Richard Epstein provides a good statement of this case, with links to the relevant debates, including some libertarian dissenters, such as Ed Crane and Roger Pilon, both of Cato.

I have wondered, however, whether libertarians ought to reconsider their opposition to reimportation. Recall that the libertarian position paints the FDA as a significant obstacle to drug research.

I suspect that allowing drug reimportation would, in the long-run, break down the authority of the FDA. Once Americans are looking to abroad for medicines, the flood gates will be opened. They will want to buy medicines from Mexico, Europe, and indeed from all over the world. These medicines, of course, will not have met with FDA approval. It is not a matter of pure logic that legal reimportation would lead to this broader class of imported drugs, but I think it is what the political equilibrium would look like. Illegal drug importation is already on the rise; legal reimportation would legitimize and publicize the overall idea of getting drugs from other countries.

So, if we allow reimportation, the FDA will either have to become much stronger, and more intrusive (in conjunction with other governmental agencies, such as customs perhaps), or the FDA will cede much of its effective power, while likely keeping its nominal powers. But in the long run it is hard to see how to enforce restrictions on drug importation, especially once reimportation is legal. Drugs don’t take up much space, and the exact nature of their content is not easily tested. You can have a customs dog sniff for pot, but that same dog cannot tell whether a drug is of pure quality of adulterated, or is something else altogether. If libertarian think that the FDA does more harm than good, perhaps they should welcome reimportation as moving us toward a greater reliance on markets.