Incorporated Men and Women

by  Alex Tabarrok in

In my post on The Unincorporated Man “framing” writes:

Instead of saying that a corporation can own shares in your income, how about saying it is like a loan that you wont get into trouble ever paying back, but will have to pay more if you become rich.

Exactly. In fact, I have written about income-contingent loans before and how one of them got Bill Clinton through college. At the PSD blog Ryan Hahn also points to Lumni, a new firm that is investing in human capital in the developing world:

Lumni designs, markets and manages “Human capital funds”, an innovative investment vehicle for financing education. Students agree to pay a fixed percentage of their individual incomes for a predetermined number of months after graduation. The arrangement traspases part of the risk of investing in education from the student to the investor, who is in a better position to diversify it.

Lumni is the brainchild of economics professor Miguel Palacios.  Here is his book and Cato paper on human capital contracts.

Slightly scary stories about the leverage of European banks

by  Tyler Cowen in

Felix Salmon and I were on the radio a few days ago and we agreed (I think) on the need for as-simple-as-possible stronger limits on bank leverage.  I browsed the web to see how this struggle was going and ran across the following, from March:

A planned cap on bank leverage would not make the sector safer, said a German banking lobby on Friday, adding heavyweight support to a growing campaign.

This is scary for at least two reasons.  First, it may be difficult to implement a leverage restriction in the United States, as supposedly this would be happening through an international agreement, namely Basel III.  This is a major (the major?) problem with the current banking bill.  There is then this:

France does not want a fixed numerical cap, preferring to give national regulators discretion in supervising leverage.

Deutsche Bank (DBKGn.DE), a member of the BDB, says a ratio is simplistic, while Sweden wants a carve-out for its banks.

And this:

The BDB said a study from the WHU Otto Beisheim School of Management concluded a ratio would likely force banks to scale back on lending and threaten recovery.

Might I go out on a limb and suggest that some of these European banks are…excessively leveraged?  In theory the Basel III reforms will adjust the leverage restrictions for the risk of bank assets.  It's been the case for a long time that many German banks have higher measured degrees of leverage.  But are they more leveraged, all things considered?  If they're worried about Basel III, maybe the answer is yes.  

From the comments, on the inevitability of utilitarian judgments

by  Tyler Cowen in

Mario Rizzo writes:

Tyler, please. You should have taken my course this past semester. Benthamite reasons. Bentham is a total mess. One commentator said that Benthamite utilitarianism is a philosophy that tells you what to do when you have the data that you cannot obtain. This is it in a nutshell.

I very often agree with Mario and even here I think I agree with Mario, though Mario doesn't think he agrees with me.

To be sure, I am not a Benthamite utilitarian, if only because I believe rights should sometimes trump utilitarian recommendations.  Furthermore, schema for making interpersonal comparisons involve value judgments, which means the Benthamite calculation is never purely descriptive but rather contains significant elements of other, non-Benthamite moral theories. 

That said, Benthamite reasoning is hard to escape.  Everyone relies on it when making decisions in everyday life, whether it be voting on a job candidate or buying one car rather than another or putting a bus line on one road rather than another.  Even a lot of the arguments for following rules rely on an ultimate Benthamite judgment about good vs. bad consequences.

The fact that one might be wrong in any particular estimation — always the case — doesn't change the need to make a final judgment.  "Benthamite" makes it sounds more scientistic than it needs to be, since Bentham had some unusual views, but still an assessment needs to be made.

Mario offers an instructive comment: "Bentham is a total mess."  Is this an aesthetic critique, or is the suggestion that following Benthamite maxims won't lead to utility-positive results?  If the latter, which is what I suspect, Mario is himself a Benthamite broadly speaking and in that sense we (at least partially) agree.  

Maybe you're a preference utilitarian, but when it comes to aggregation, or how you interpret "veil of ignorance" results, you're still going to rely on utilitarian constructs to do a lot of the final work in the theory.  If your imaginary people are behind a veil of ignorance, they've got to estimate the cardinal utilities (broadly interpreted) associated with different results.  You're just shifting the cardinal comparison to a different place, away from the theorist (supposedly) and into the hands of the veiled ones.

Benthamite reasoning is inescapable, though it is a big mistake to make cardinal utility the only relevant value.  We're all pluralists now, but cardinal utility should be a major part of the relevant pluralist bundle.

What should World Bank development economists do?

by  Tyler Cowen in

World Bank development economists, most of all.  I'm giving a talk on this topic tomorrow at the World Bank (South Asia division) and I thought I would solicit your advice and opinions.  If you could reallocate the effort of economists within the World Bank, what would you propose?  More big picture study?  More RCTs?  Should they spend more time refuting the simple fallacies of the economically illiterate?  Or should they invest in a stronger capacity for technical economics?  Should they offer more concrete advice on how to write incentive-compatible contracts for projects?  Should they calculate theories of the net bias in remaining World Bank institutions (too many contracts?) and act to counter those biases?  Or should they more or less give up on the idea of development and spend their time promoting the idea of freer immigration, as Michael Clemens does?

Sarcastic answers are welcome too.

What should World Bank economists do?

Gattaca University

by  Alex Tabarrok in

From the NYTimes, Berkeley will give its students genetic tests. 

…this year’s incoming freshmen at the University of California, Berkeley, will get something quite different: a cotton swab on which they can, if they choose, send in a DNA sample.

The university said it would analyze the samples, from inside students’ cheeks, for three genes that help regulate the ability to metabolize alcohol, lactose and folates.

Those genes were chosen not because they indicate serious health risks but because students with certain genetic markers may be able to lead healthier lives by drinking less, avoiding dairy products or eating more leafy green vegetables.

Don't be surprised if this is soon canceled.

Adam Wheeler’s resume

by  Tyler Cowen in

You'll find it here.  He's the fraud who lied his way into Harvard.  Here is the description of his "book" (supposedly) under review at Harvard University Press:

The Mapping of an Ideological Demesne

– Under review with Harvard University Press 2008-2009

The massive proliferation, from the fifteenth through the seventeenth century, of technologies for measuring, projecting, and organizing geographical and social space produced in the European cultural imaginary an intense and widespread interest in visualizing this world and alternative worlds. As the new century and the Stuart era developed, poets and dramatists mediated this transformation in the form of spatial tropes and models of the nation. I examine the geographical tropes by which Tudor and Stuart writers created poetic landscapes as a mode of engagement with the structures of power, kingship, property, and the market. Accordingly, each of the texts that I examine betrays an awareness of writing as a spatial activity and space as a scripted category. The critical topographies that these writers created are maps of ideology, figural territories within which social conflict and political antagonism are put into play.

I've read worse.  How you react to that description is a Rorschach test of sorts, especially if you are not thinking it is fraudulent.  Here is a TNR post on Wheeler.  Here is a Princeton University Press post about Wheeler and the book he claimed to have under contract with them, to be co-authored with Marc Shell, a very well-read scholar.

Why are none of the sources reporting how well he actually did at Harvard and elsewhere?  Isn't that an interesting question?  How much would the world differ if Harvard reserved a fifth of its entering class for those individuals who showed the most talent for fraud?  I don't mean that question in a cynical light, it is one genuine way of trying to think about how education adds value to labor market outcomes.

Investing in the Poor

by  Alex Tabarrok in

The Unincorporated Man is a science fiction novel in which shares of each person's income stream can be bought and sold.  (Initial ownership rights are person 75%, parents 20%, government 5%–there are
no other taxes–and people typically sell shares to finance education and other training.)

The hero, Justin Cord a recently unfrozen business person from our time, opposes incorporation but has no good arguments against the system; instead he rants on about "liberty" and how bad the idea of owning and being owned makes him feel.  The villain, in contrast, offers reasoned arguments in favor of the system.  In this scene he asks Cord to remember the starving poor of Cord's time and how incorporation would have been a vast improvement:

"What if," answered Hektor, without missing a beat, "instead of giving two, three, four dollars a month for a charity's sake, you gave ten dollars a month for a 5 percent share of that kid's future earnings?  And you, of course, get nothing if the kid dies.  Now you have a real interest in making sure that kid got that pair of shoes you sent.  Now it's in your interest to find out if he's going to school and learning to read and write.  Now maybe you'll send him that box of old clothes you were thinking of throwing away.  Under your system you write a check and forget about the kid, who'll probably starve anyway.  Under our system, you're locked into him.

…the real benefit comes about when those 'evil, selfish, horrible corporations' get involved.  How long will it take for a business to realize that there's a huge profit to be made in those hundreds of millions of starving children?…Imagine a world where a bank gives a loan to a corporation to build a school, hospital or dormitory.  Not because its the right thing to do; who cares!  They'd do it because it's the profitable thing to do.  And because of that, my system, not in spite of greed and corruption and incorporation, but because of it, will work better than yours in any time period with any technology you choose."

So who do you stand with, JC or Hektor?

Hat tip to Robin Hanson for lending me the book and from whom I cribbed the description of ownership rights.  Hanson offers other thoughts on the novel.  And here are earlier comments from Reihan Salam.

Draw the rational Bayesian inference here

by  Tyler Cowen in

Germany’s BaFin financial-services regulator said it will temporarily ban naked short selling and naked credit-default swaps of euro-government bonds starting at midnight. The ban also includes naked short selling of 10 banks and insurers.

I thank a loyal MR reader for the pointer, my apologies I have misplaced the email and I don't know your name.

Questions that are rarely asked

by  Tyler Cowen in

If you could create a punctuation mark, what would its function be and what would it look like?

That's from Hudson Collins, loyal MR reader.  I've always liked the chess marks "!?" and "?!" and wondered why they weren't used in standard English.  The former refers to a startling move which is uncertain in merit and the latter refers to a dubious move which creates difficult to handle complications.  Plus "N" could be used to mark sentences with novel ideas.  I also would ask for a punctuation mark meaning: "This sentence adds an "N+1" understanding to a problem which everyone else is discussing at an "N" level."  Maybe the mark could be an arrow pointing up to the sky.  Similarly, you could imagine an arrow pointing downwards to hell.

What kind of punctuation mark would you add?