Drinks are on the House
…in terms of breadth of interest in economic subjects, literature and ephemera, Marginal Revolution is like nipping into a world-class local bar, where the drinks are always perfectly mixed, the atmosphere is relaxed and civilized, while intelligent conversation and serendipity are available on tap. The comments tend to be of unusually high quality too.
From Alen Mattich's writeup of the best economics blogs in the WSJ. Congrats and thanks to all our commentators.
James Heckman bleg
When it comes to the idea of "early intervention," and the claims that it offers very high rates of return, does he have serious published critics?
Facts about Brazil
[Rio favela] Complexo do Alemao ranks lower than the African country of Gabon on the United Nations Human Development Index, a world survey of living standards that measures factors like access to education and health care. By comparison, the Development Index scores of upscale Rio neighborhoods like Gavea and Leblon are higher than Norway, the world’s top-ranked country.
Here is more, mostly on the war against the drug gangs.
Free Money
Christopher Beam's piece on libertarianism had some amusing moments:
Say we started from scratch and created a society in which government covered
only the bare essentials of an army, police, and a
courts system. I’m a farmer, and I want to sell my crops. In Libertopia, I can sell them in exchange for money. Where does
the money come from? Easy, a private bank. Who prints the money? Well,for that we’d need a central bank–otherwise you’d have a thousand
banks with a thousand different types of currency.
A monetary system with thousands of banks issuing their own currency! Ho, ho, ho….those wacky libertarians where do they get their crrrrrazy ideas?
Images from Nick Szabo, the Minneapolis Fed, the San Francisco Fed, the Philadelphia Fed and Larry Schutts.
Addendum: Scott Sumner has other bones to pick.
Joseph Gibson on how to improve Congress
Chug refers me to this new book. A few of the ideas are:
1. Make Congress a temporary job, a bit more like jury duty or serving in the military.
2. Allow all financial contributions but require full disclosure on the internet.
3. Lower or eliminate the fixed allotment for Congressional staff, to limit the "bubble" which surrounds Congressmen.
4. Do not allow fundraising while Congress is in session, to make sessions more urgent.
5. Require that bills be written in plain English.
6. Allow formal vote-trading, so minority legislators could have some prospect of promoting their better ideas.
7. Make it easier to repeal unnecessary laws.
8. Eliminate the "hold" and make filibusters much harder.
9. Make confirmations quicker and easier.
10. Make the House smaller.
There is more, but that is a start.
In general I find Congressional reform proposals, including filibuster abolition, difficult to evaluate. There is no simple model at hand. Sometimes the median voter model is useful, but in most cases it implies the reforms don't matter, a conclusion which I would not wish to accept so readily. Multi-dimensional cycling models often imply that either a) it still doesn't matter (the agenda setter remains in charge), or b) it matters some huge amount in a way which is difficult to forecast but the entire political equilibrium can shift and not just locally.
There are many "near median voter models," perhaps too many.
There is also the Becker QJE 1983 model about the bargaining power of different interest groups. Still, when it comes to outlining exactly how the procedural reforms shift the political bargain, we are again looking at a black box. The first cut version of the model seems to imply that political procedures don't much matter.
The overall problem is that plausible models generate either no changes or large, non-local changes. Maybe we should take those results seriously, but then in the former case it doesn't matter and in the then-more-relevant latter case we still can't predict the nature or even the direction of the non-local shift.
The euro: where we are at
Wolfgang Munchau writes:
The EFSF will expire in 2013, at which point a new, tougher crisis regime will kick in. The EU has chosen this particular two-step construction for mainly political reasons, but from a funding perspective it is a nightmare. All existing bondholders will be protected until 2013. All government bonds issued from 2013 onwards will have collective action clauses. This means that if a government cannot service the debt, it can agree a haircut with a majority of investors – with legal force for all investors, including those who disagree with the majority vote. Looking at it from a risk-management perspective, this means that the entire default risk of the eurozone periphery will be concentrated on post-2013 bond issues. No one in their right mind would buy such junk bonds.
The way the new crisis mechanism is constructed ensures that the market for European periphery bonds is going to remain thin. What is now being conceived as a new crisis mechanism may end up as the eurozone’s principal funding agency if no one else will provide the funds. It would issue its own bonds – eurozone bonds – underwritten by the few remaining triple A-rated sovereigns, most importantly Germany and France. It is hard to see how such a construction could be sustainable. Should there ever be a default, Berlin and Paris would have to pay up – or default themselves.
How they are teaching English in South Korea
The robots, which display an avatar face of a Caucasian woman, are controlled remotely by teachers of English in the Philippines — who can see and hear the children via a remote control system.
Cameras detect the Filipino teachers' facial expressions and instantly reflect them on the avatar's face, said Sagong Seong-Dae, a senior scientist at KIST.
"Well-educated, experienced Filipino teachers are far cheaper than their counterparts elsewhere, including South Korea," he told AFP.
Apart from reading books, the robots use pre-programmed software to sing songs and play alphabet games with the children.
"The kids seemed to love it since the robots look, well, cute and interesting. But some adults also expressed interest, saying they may feel less nervous talking to robots than a real person," said Kim Mi-Young, an official at Daegu city education office.
Kim said some may be sent to remote rural areas of South Korea shunned by foreign English teachers.
The full story is here and I thank the ever-excellent Daniel Lippman for the pointer. There is more here.
Assorted links
Markets in everything
There is only one legal gun store in all of Mexico, and the military serve as the clerks, and yet in the country guns are still bought and sold:
Alberto Islas, a security expert based in Mexico, said it is common knowledge that the easiest way for the average citizen to buy a gun is to ask a friendly local police officer.
"The cop will bring it to your house and show you how to load it," Islas said. "Of course, it is technically illegal."
Here is police reform in Mexico.
Today is Ronald Coase’s 100th birthday
That is an email notice from David Boaz.
What are the novels about monetary policy?
Ezra writes:
"It’s too bad 'You Shall Know Our Velocity' isn’t a novel about monetary policy."
That's Matthew Yglesias, and it got me wondering about whether there are any novels about monetary policy. There's "The Wonderful Wizard of Oz," which some believe to be an allegory for the debate over the gold standard. If you're willing to include novels about the effects of monetary policy, pretty much any novel about the Great Depression counts, and "The Grapes of Wrath" is particularly eloquent on the subject. But is there anything more on-topic than that?
I am reminded of Paul Cantor on Thomas Mann on hyperinflation. Specialists may wish to consult Friedrich Achberger, "Die Inflation und die zeitgenossische Literatur," in Aufbruch und Untergang: Osterreichische Kulturzwischen 1918-1938, Franz Kadrnoska, ed. (Vienna: Europa, 1981), pp. 29-42; there are monetary policy themes in Musil, Zweig, and Broch, among others. Hans Fallada too. Is there a monetary theme in H.G. Wells's The Last War?; Wells was a follower of Frederick Soddy. How about from 19th century England? From science fiction? Isn't there mutual banking in Eric Frank Russell?
Addendum: Here is Krugman's pick. And more here.
One paragraph on the Lehman bankruptcy
Do you know the old saying "A picture is worth a thousand words"? How about a new saying: "197 words is worth a thousand words"?:
To take one example: Lehman’s holding company (LBHI) filed for bankruptcy, but at the last minute its US broker-dealer (LBI) was kept out of bankruptcy by the NY Fed. The problem was that no one knew about this – most people thought LBI had filed too. Lehman had all sorts of problems getting employees to even show up for work; JPMorgan, which was LBI’s clearing bank, unilaterally shut off LBI’s access to its accounts for several days, and actually started seizing assets of LBI’s prime brokerage clients (a huge no-no); clearinghouses improperly limited LBI’s trading activity; the NSCC mistakenly seized a large amount of LBI’s customer securities; Lehman’s European broker-dealer (LBIE) stopped payments to LBI’s omnibus account even though LBI continued to make payments to LBIE; incoming customer securities to LBI weren’t getting properly segregated; counterparties simply stopped posting collateral they owed on OTC derivatives with LBI; and so on. That first week, the biggest challenge was simply getting someone at Lehman on the phone. (I saw a 63-year-old senior partner do a fist-pump you’d have to see to believe when he finally got an account executive at Lehman on the phone. Unquestionably the highlight of my week.)
The full article is here, hat tip goes to Matt Yglesias.
Economics and mental health care
Jacob, a loyal MR reader, writes to me:
I am a research assistant involved in an evaluation of the quality of mental health care. It turns out that much of “quality” from a clinician's perspective involves coercing/convincing/luring patients into treatment – patients should show up quickly (“initiation”) and repeatedly (“engagement”) and for a really long time (“continuation-phase treatment”). For example, health plans are graded on the proportion of depressed patients that they can keep on antidepressants for 6 months (link – pg 23).
So, how do you think about markets and individual-level-decision making among the severely mentally ill. On one hand, it feels inadequate to throw up ones hands and say everyone is the best ruler of themselves. But it also feels inadequate to defer fully to the experts. I’m sure this topic has been tackled elsewhere but a thoughtful analysis has evaded me so far.
A few points:
1. Here are some recent reported results about conceptualizing mental illness; I cannot vouch for them.
2. Here is an article about the fracturing of the concept of mental illness. Here is The Economist on the same topic.
3. The mentally ill have it tough in China.
4. Here is one story of rational economic man.
5. I disagree with Bryan Caplan's argument that mental illness is a false category; he is making an odd turn toward behaviorism. That the behavior can be reduced to preferences and constraints does not mean that is the best or only way of understanding the phenomenon (which is not just about behavior).
6. Here is the major paper on economics and mental health. Here is a collection on the same topic, by the same authors.
7. You won't find the answers to your questions in any of those places, or here. I do, in the meantime, hold two views. First, historically the concept has been used — indeed abused — to incorrectly rationalize a lot of forcible institutionalization. Second, it is not a meaningless concept, though fractured it may be.
Markets in everything
At $600,000 per week the 60 metre Lürssen superyacht Solemates designed by the great Espen Oeino is one of the world’s most exclusive charter craft. It’s also one of the most cutting edge thanks to a new system that lets guests control various functions via an iPad. Don’t happen to own one? Not a problem – the captain hands each guest their own iPad when they step aboard. Via the device they can control the shipboard entertainment and climate systems, adjust the blinds and lights in their cabins, and even summon a crewmember to bring more cocktails. The sleek yacht, launched in Monaco earlier this year, boasts a top speed of 15.5 knots with a range of 7,000 nautical miles.
There is a bit more, and a photo, here. For the pointer I thank Chris F. Masse.
Mexico fact of the day
Until the mid-1990s, Mexico spent just 0.008% of annual economic output on law enforcement, among the lowest rates in the world. The average officer earns $500 a month, or about half the average per-capita income in Mexico. Seven of 10 finished only primary school. More than 400 municipalities have no local police at all.
Here is much more, mostly on the battle with the drug cartels.