Pictures of Spain

by  Alex Tabarrok in

Grandiose projects across Spain now sit empty and dying. The New York Times focuses in on Ciudad de la Luz, a mega-movie studio built far from cultural centers that is now foundering.

Ciudad de la Luz has become a prominent example of Valencia’s frenzy of modern-day pyramid building, which left a legacy of $25.5 billion in regional debt and bankrupt infrastructure projects as well as the backlash now building against it.

Valencia’s other investments included a harbor for superyachts, an opera house styled like the one in Sydney, Australia, a futuristic science museum, the biggest aquarium in Europe and a sail-shaped bridge, not to mention an airport that never had a single arrival or departure. It also attracted extravagant events like the America’s Cup and Formula One racing.

The Daily Mail takes a look at Spain’s “ghost airport,” a billion Euro project that was meant to serve 5 million passengers a year and is now closed after just three years in operation.

CIUDAD REAL, SPAIN - JULY 06

The Socialist regional government spent millions propping up the venue, promoting the project with advertising campaigns and approving a €140 million guarantee to keep it afloat.

But, last October, it saw its final commercial flight, by Vueling. The airport remained open for another six months, the staff still being paid to deal with a handful of private arrivals.

It finally closed in April, but even though it is now closed to air traffic, maintenance tasks still have to be carried out.

The 4,000 metre runway has to be continually painted with yellow crosses, so pilots flying over the airport will know they cannot land there.

Private money appears to have also taken a bath on many of these projects although it’s always difficult to say after government guarantees and kickbacks. The Times quotes one tourist on the meaning:

“I understand now why there’s a financial crisis in Europe,” said Bryce Matuschka of New Zealand. “The bridge is a real work of art, and the aquarium is great, but for some of these buildings you just have to ask, What was all that money spent for?”

I don’t think that’s quite right. My view is that rather than causing a crisis, bad investments are mostly masked by a boom and revealed by a crisis. Still, “infrastructure spending” doesn’t always create jobs; sometimes it’s better to stick with slow rail and sewers.

Reminiscences of Miles Kimball, and others

by  Tyler Cowen in

Miles and I were in the same entering class in Harvard.  Miles and Abhijit Banerjee were for economic theory the sharpest students in the group and it must have been an absolute terror to teach them.  Both were gentlemanly in the extreme, but if a mistake or ambiguity were on the board, or in a paper, you could be sure they would find it and point it out.  I recall Abhijit answering a question on the macro final exam and showing that what he thought would be the supposed Harvard faculty member answer was in fact wrong, in addition to solving for the right answer, finding a few other possible equilibria, and acing the rest of the exam in but a few hours’ time.  Steve Kaplan, from the same class, later became known as an empirical economist but his theoretical acumen was remarkably good.  Those three dominated a lot of the discussions.  Mathias Dewatripont was also no slouch in theory though temperamentally quieter.  Alan Krueger, in his third year, obtained the reputation of having the best eye for an important empirical paper and how to execute it; he learned the most from Larry Summers.  Nouriel Roubini was generally quiet, though he looked all-knowing and at times slightly jaded.

Brad DeLong was a few years older.  He was thought of as the slightly right-wing guy (compared to his peers he was) who read a lot of unusual history of economic thought, including Adam Ferguson.  He and his girlfriend (now wife) were inseparable and always affectionate.

Miles struck me as a mind in perpetual motion, in the best sense of that phrase.  I was not surprised, in 1984, when I heard about his linguistics Master’s thesis, which includes a learned and original discussion of Charles Peirce.  Miles is also a cousin of Mitt Romney, and he will soon blog “Will Mitt’s Mormonism Make Him a Supply-Side Liberal?”.  I wonder what he makes of us all.

Here are his early tweets.

One feature about his blog which is refreshing is that he is neither a libertarian nor a progressive, though he incorporates ideas from both approaches.  My RSS feed is mostly libertarians and progressives, but that is part of the strange selection mechanism of the blogosphere, not a reflection of the economics profession.

Again, Miles’s blog is here and Miles on Twitter is here.  Most of all, he seems to be a great dad, or at least his daughter thinks so.  She too is studying at Harvard, for an MBA.  Here is her project Expert Novice, “Every month or so, I write a letter about what I’ve learned lately.”

Private Firefighters

by  Alex Tabarrok in

Colorado Springs: When firefighter Eric Morris shows up at wildfires across the West, locals battling the flames sometimes look at him and wonder who sent him.

The answer isn’t a public agency. It’s an insurance company.

Morris is among a group of private firefighters hired in recent years to protect homes with high-end insurance policies. In a wildfire season that is one of the busiest and most destructive ever to hit the region, authorities and residents say their help is welcome.

…For insurers, hiring them is worth the cost. They spend thousands on well-equipped, federally rated firefighters, potentially saving hundreds of thousands, if not millions, of dollars to replace a home and its contents.

Private fire fighters benefit the insured and also the non-insured because the extra manpower lets public firefighters divert their attention elsewhere. Since there are spillovers, private firefighters are under supplied.

Hat tip: Tyler Watts.

*Rome: An Empire’s Story*

by  Tyler Cowen in

That is the new book by Greg Woolf.  Could it now be the best single-volume introduction to the history of ancient Rome?  It is conceptual yet avoids the pitfalls of overgeneralizing, a difficult balance to strike.  It also has a superb (useful rather than exhaustive) bibliography.  A good measure of books such as this is whether they induce you to read or order other books on the same topic and this one did.

A sure thing to make my “Best Books of 2012” list.

Paul Krugman on contractionary devaluation

by  Tyler Cowen in

This is from the 1970s, and with Lance Taylor:

The presumption that devaluation is expansionary is not supported by firm empirical evidence. Why, then, is it so widely accepted? Leftists have been known to suggest class bias — as we will argue later, devaluation does typically redistribute income from wages to profits — but this is too glib. We believe, instead, that the orthodox view of devaluation derives much of its strength from the persuasive power of the simple, elegant models in which it is presented. Since skeptics have mostly relied on Journalism or at best partial equilibrium analysis, it is not surprising that theoretical discussion is dominated by the belief that devaluation has an expansionary effect.

As just hinted, neglecting the contractionary impacts of devaluation amounts to ignoring income effects, especially those transferring real purchasing power toward economic actors with high marginal propensities to save. By redirecting income to high savers, devaluation can create an excess of saving over planned investment ex_ ante , and reductions in real output and imports ex_ post .

…Casual empiricism suggests that all three circumstances prevail in many countries, especially the less developed ones. In these
countries a deflationary impact from devaluation is more than a remote possibility; it is close to a presumption. The purpose of this paper is to show in a formal model how devaluation can cause an economic contraction. The results will come as no surprise to those concerned with policy in the underdeveloped world.

There is nothing wrong with changing your mind, as indeed I have myself on numerous issues.  The point is that most macro questions are not cut and dried, and opposing viewpoints are rarely stupid.  I also note a general tendency that, when critics attack other people, they are often attacking views they once held themselves.  I leave it to Adam Phillips and Darian Leader to tell us what that means.

The document you will find here.  For the pointer I thank Jay S.

A fourth and hybrid perspective on the future of on-line education

by  Tyler Cowen in

In a very good blog post, Bryan Caplan lays out three competing perspectives.  But he leaves out a fourth:

Select groups, such as adult continuing education, military officers on ships, precocious 12-year-olds, or perhaps middle class students in Kenya who can’t get the real product, will follow an exclusively on-line model.  But most students will not, at least not in the United States.  College still has considerable consumption value, fraternities improve your job prospects, instructors help motivate, and face-to-face contact imprints a lot of learning on our minds.  Still, there is far too much duplication of lectures and universities are being squeezed by personnel costs.  State governments face rising Medicaid costs and 78 percent or so of students are in state systems.  Lecture duplication will be significantly reduced, and instructional time will be spent…instructing…rather than repeating canned lectures ad nauseum.  Imagine that ten years from now one-third of all lectures are delivered on-line in one manner or another, perhaps with some later in person commentary.  Students may watch those lectures with an instructional aide present to address questions or to show them how to press the “Play” button.  There will be no need for employers to fundamentally change which sources they respect for personnel certification, although possibly some upstarts will arise in corners of the market where quality can be measured by tests.

You will find two critiques of my views on on-line education here, and here, but neither represents my views correctly.  They all take on-line education to be an all-or-nothing prospect.

At the end of his post Bryan writes:

* When I talk about “online education,” I don’t just mean students at existing brick-and-mortar colleges taking some classes from their dorm rooms.  I mean students enrolling in virtual colleges instead of physical colleges.

I would say he is defining away the most likely model, namely a hybrid model which has a significant on-line component.

Higher frequency (book) trading: Walras, collusion, or both?

by  Tyler Cowen

High-speed trading tools pioneered in the stock market are increasingly driving price movements on Amazon’s website as independent sellers use them to undercut and outwit each other in a cut-throat online market place.

Product prices now change as often as every 15 minutes as some of the 2m sellers on Amazon’s site join the online retailer in using computerised tools – often developed by former data miners at investment banks – to lure shoppers with the best deals.

…Amazon sellers – using third-party software – can set rules to ensure that their prices are always, for example, $1 lower than their main rival’s.

…Some sellers have even created dummy accounts with ultra-low prices to deliberately pull down those of rivals so they can corner a market by buying their goods, say pricing experts. That practice violates Amazon’s rules of conduct.

Here is more, “Amazon robo-pricing sparks fears.”

Re-running the Stanford experiment in Turkish prisons

by  Tyler Cowen in

It goes on today, more or less:

The problem confronting the conscripts nonetheless extends far beyond commanders who are drunk with power. In perhaps the strangest twist in the story of the disko, [rights activist Tolga] Islam says prison guards themselves are chosen from the ranks of conscripts, often from the same group that they oversee — and sometimes torture. “These are people who have been taken from the same group of soldiers, some know each other. And what is most incredible is that, from what we understand, commanders don’t necessarily tell guards how to torture or how far to go. In the disko, they give them impunity to do what they wish.”

It is chillingly similar, Islam says, to a notorious 1971 experiment by Stanford psychologist Philip Zimbardo, where participants were randomly given roles as guards or prisoners in a mock prison. Within less than a week, the mock guards had quickly “become sadistic,” subjecting some prisoners to psychological torture. The experiment was shut down after only six days.

“The diskos are the perfect real life example of this experiment. Guards begin to think, ‘We have this person in our prison for 24 hours. Nobody will stop us if we torture him.’” That disturbing license for abuse leads prison guards develop their own practices of torture, from slapping inmates who make eye contact with guards to severe and prolonged beatings, deliberate malnourishment, confining recruits to cramped and filthy spaces, or leaving them shackled outside in the sun for prolonged periods of time.

While former military judge Kardaş says that such practices follow a “hard logic” of instilling fear and a sense of arbitrary control among recruits, at times even that vague reason for torture seems to be absent. In Uğur’s case, it is difficult to understand what the torture was meant to communicate, given that his unit had just days left before its term of service was over. “The only way to explain it is that there’s a culture of impunity here, one that gives people unimaginable power and allows abuse to go on for years,” Islam argues.

Here is much more, by Noah Blaser, sad story but compelling reading.

Weather or Not People are Bayesians

by  Alex Tabarrok in

A new paper by Tatyana Deryugina finds that people make inferences about global warming from local weather but, given that they use local information, their inferences are mostly consistent with rational updating with some deviations in the very short run. Much more important than local weather, however, are other factors such as education and ideology.

…a Bayesian who is perfectly informed about world weather and science should
not give signicant weight to recent weather in his county when updating his beliefs. However, I
find that some forms of temperature and precipitation abnormalities have an effect over short time
scales of 1-2 days. Average weekly deviations and extreme events such as heat waves or droughts
weeks or months before the survey have no effect on beliefs, suggesting that the short run effects
are temporary and due to psychological heuristics.

Unlike previous studies, I also consider the effects of prolonged periods (1-12 months) of
abnormal weather. I find that abnormally low precipitation and abnormally high temperatures are
signicant predictors of the degree to which people believe the effects of global warming have
already begun to happen. The estimated patterns are consistent with how a Bayesian who only
observes local information would update his beliefs, but I cannot rule out that informed individuals
simply overweight their local weather.

…The marginal effects of education, relative to high school [on “the effects of global warming have already begun to happen”]  is 0.045 for “some college”, 0.101 for “college”, and 0.166 for “graduate school” A day on which precipitation is 2.5 standard deviations above normal would produce a change
in beliefs about the timing of global warming comparable to the estimated correlation between beliefs and “some college”. Precipitation would have to be 8 standard deviations above normal to produce a change in beliefs comparable to the coefcient of “graduate school”…In addition, the [weather] effects are short-lived because the average standard deviation over the past week does not change beliefs.

Hat tip: @jzilinksy via @bryan_caplan.

Addendum: Yes, the title of the post was on purpose!

Who becomes an entrepreneur?

by  Tyler Cowen in

There is a new paper by Ingrid Schoon and Kathryn Duckworth:

Taking a longitudinal perspective, we tested a developmental– contextual model of entrepreneurship in a nationally representative sample. Following the lives of 6,116 young people in the 1970 British Birth Cohort from birth to age 34, we examined the role of socioeconomic background, parental role models, academic ability, social skills, and self-concepts as well as entrepreneurial intention expressed during adolescence as predictors of entrepreneurship by age 34. Entrepreneurship was defined by employment status (being self-employed and owning a business). For both men and women, becoming an entrepreneur was associated with social skills and entrepreneurial intentions expressed at age 16. In addition, we found gender-specific pathways. For men, becoming an entrepreneur was predicted by having a self-employed father; for women, it was predicted by their parents’ socioeconomic resources. These findings point to conjoint influences of both social structure and individual agency in shaping occupational choice and implementation.

Here are Powerpoints for the paper.  Here is a gated copy.  For the pointer I thank Michelle Dawson.

How did Germany become such a strong net exporter?

by  Tyler Cowen

Christian Odendahl writes:

The soaring export demand from Europe for German products is one of those often-heard truisms about the euro crisis that is actually false.

What did change massively, however, were Germany’s imports from the euro area as measured by market share. The collapse in German import share is a sign of a weakening domestic economy. The German current-account surplus vis-à-vis the rest of the euro area was therefore accompanied by import contraction, not unusually high export growth. Wherever the German savings recycling took place, it was not in the euro zone.

The full post is here.

The culture that was Japan

by  Tyler Cowen in

“It was a generation,” Kuroda said through an interpreter, “when [baseball] coaches believed you should not drink water.”

Born in 1975, Kuroda is one of the last of a cohort of Japanese players who grew up in a culture in which staggeringly long work days and severe punishment were normal, and in which older players could haze younger ones with impunity.

Summer practices in the heat and humidity of Osaka lasted from 6 a.m. until after 9 p.m. Kuroda was hit with bats and forced to kneel barelegged on hot pavement for hours.

“Many players would faint in practice,” Kuroda said with the assistance of his interpreter, Kenji Nimura. “I did go to the river and drink. It was not the cleanest river, either. I would like to believe it was clean, but it was not a beautiful river.

“In order to play,” he added, “you had to survive. We were trained to build an immune system so that we could survive and play.”

Here is more, hat tip to Hugo.  As I often say, I am a utility optimist and a revenue pessimist, for Japan most of all.