The origins of Monopoly

The board game that is, not the economic phenomenon. It appears to have sprung from the Henry George movement. George, of course, was obsessed with land monopoly and its unproductive rents. It is no accident that the board game assigns such extortionary power to landholders:

On January 5, 1904, Lizzie J. Magie, a Quaker woman from Virginia, received a patent (view patent) for a board game. Lizzie Magie belonged to a tax movement led by Philadelphia-born Henry George; the movement supported the theory that the renting of land and real estate produced an unearned increase in land values that profited a few individuals (landlords) rather than the majority of the people (tenants). Henry George proposed a single federal tax based on land ownership believing a single tax would discourage speculation and encourage equal opportunity.

Lizzie Magie wanted to use her game, which she called “The Landlord’s Game” as a teaching device for George’s ideas. The Landlord’s Game and Monopoly are very similar, except all the properties in Magie’s game are rented not acquired as in Monopoly and instead of names like “Park Place” and “Marvin Gardens” one finds “Poverty Place”, “Easy Street” and “Lord Blueblood’s Estate”. The objectives of each game are also very different. In Monopoly the idea of the game is to buy and rent or sell property so profitably that one becomes the wealthiest player and eventually monopolist. In The Landlord’s Game, the object was to illustrate how (under the system of land tenure) the landlord had an advantage over other enterprisers and to show how the single tax could discourage speculation.

When I was young I had a counterproductive obsession with owning the yellow properties.

Here is the full story. Here is an NPR account of the origins of monopoly. I am indebted to an email from Lauren Landsburg and Russ Roberts for the initial historical reference.

Carmel stops licensing new art galleries

Art is dead in Carmel — or at the very least, its growth is stunted.

With a glut of art in the idyllic seaside village — about four out of 10 businesses [out of a total of about 300] are art galleries — the Carmel City Council is taking action to prevent new galleries from springing up.

As expected, the council unanimously agreed last week to impose a moratorium on licensing art galleries in the city.

Here is the full story. Is this a public choice story of old galleries keeping out upstarts? A slow growth movement? A rebellion against the horrible aesthetic quality of so many contemporary Western landscapes? All of the above?

Private Space Travel Takes Off

The $10 million X-Prize has been won.

To win the X-Prize, a privately funded team had to fly a craft at least 100 kilometers high carrying a payload equivalent to three humans, successfully land and then repeat the feat within two weeks.

With this accomplishment, the SpaceShipOne team may have cracked more than space, as it appears that, just as planned, the X-Prize competition has cracked open the door to space tourism.

Sir Richard Branson recently announced plans to use the SpaceShipOne design for a space tourism company to be called Virgin Galactic.

Rutan, Allen and Branson attended the X-Prize’s victory flight.

The returns from innovation

In a recent NBER working paper – “Schumpeterian Profits in the American Economy: Theory and Measurement” – Yale economist William Nordhaus estimates that innovators capture a mere 2.2% of the total “surplus” from innovation. (The total surplus of innovation is, roughly speaking, the total value to society of innovation above the cost of producing innovations.) Nordhaus’s data are from the post-WWII period.

The smallness of this figure is astounding. If it is anywhere close to being an accurate estimate, the implication is that “society” pays a paltry $2.20 for every $100 worth of welfare it enjoys from innovating activities.

That’s from Don Boudreaux at Cafe Hayek. To some extent fame incentives alleviate underinvestment in new ideas. To some extent I advocate favorable tax and legal treatment for innovation.

The Economics of the Intifada

The number of Palestinians who worked daily in Israel before the intifada was more than 150,000; the figure now is fewer than 35,000.

Of the 2.2 million Palestinians on the West Bank, 50 percent now live below the poverty line, compared with 22 percent in 2001; the figure is now 68 percent in teeming Gaza, with its 1.3 million people.

The percentage of Palestinians with savings declined from 70 percent to 13 percent.

Before the second intifada, some $500 million a year was provided in aid; the average annual figure for the last four years is more than $1 billion, about $310 a person, the highest per capita rate in the world.

Some 500,000 of the 3.5 million Palestinians are in dire economic straits, said David Shearer, the head of the United Nations agency’s office here. Some 40 percent now feel insecure about feeding their families; 29 percent feel severely insecure, and half of them are heavily dependent on foreign aid. Some 30 percent are watching their savings dwindle. “They are the new poor, and they are slipping down,” Mr. Shearer said.

Here is the full story.

Yet many Palestinians support the intifada, and obviously some are willing to die for it. I conclude that economists need a better theory of human irrationality. Analogies from expressive voting theory suggest that (many) Palestinians support the intifada because their voices are not decisive. The support is seen as a kind of “cheap talk,” leading to a collective insanity which perhaps no single person intended. But do individual Palestinians who support the intifada really mind that so many other people go along with them? Doubtful, the contrary is sooner true, namely that people prefer that their peers follow their position.

In my (admittedly unorthodox) view the degree of decisiveness is not the key to determining the degree of human rationality. I would sooner believe that the amount of pride at stake is what turns on the irrational part of our brains, whether we are decisive or not. Remember, Stalin was convinced that Hitler was not going to invade anytime soon.

Markets in everything

How about non-matching socks? LittleMissMatched.com sells you paired socks with different colors and designs. “That way, you would never have to worry about losing a sock,” says one company spokesperson [exam question: does this violate an axiom of choice theory, if so which one?]. The company, by the way, considers schoolyard bullies to be one of its greatest opponents. Here is the full story, New York Times password required.

It is not the case that each sock is strictly unique; the company is encouraging its (intransitive?) young customers to trade socks with each other, to obtain matching pairs.

Should we prefer a monopolistic or competitive Jihad?

Matt Yglesias asks MR to address whether we would prefer, all other things equal, terrorists organized into a single group, or organized into competing groups. The answer to this question will not be a priori, but here are a few relevant considerations:

1. If terrorists perform their acts for fundraising purposes, or for criminal status, you would probably rather face a monopoly opponent. They are more likely to rest on their laurels.

2. If you think that terrorists are deterrable, at least in principle, you would prefer an easily identifiable monopoly opponent.

3. If you think that terrorists are likely to engage in internecine warfare with each other, you would prefer the more competitive set-up. (I’ll predict that if anyone kills, or has killed, bin Laden, it is one of his own people.) This is especially true when the terrorists are far away from you; they can fight without major spillover effects on your citizenry.

4. Perhaps the production of terrorist attacks involves significant economies of scale. In that case you would prefer the smaller competing groups. Nuclear weapons probably involve such economies, but suicide bombings can be organized on quite a small scale.

My guess: In Iraq you would prefer a smaller number of groups, since there is some chance of striking a deal with them. And there we are more worried about the suicide bombers than a loose nuclear device, so economies of scale do not overturn this conclusion. We are less likely to ever “trade” with al Qaeda and its offshoots, so in that case I would prefer splintering. Furthermore al Qaeda has a greater long-run nuclear potential, so it is more important to deny them potential economies of scale. I suspect we do not much mind if western Pakistan becomes a scene for terrorist infighting, whereas such conflicts could scuttle reconstruction in Iraq.

Health Insurance and Health Costs

Tyler asks Why is private health insurance such a disaster? in particular he wants to know, Why does private health insurance perform so badly in holding down costs?

There are actually two issues. Tyler mostly questions the traditional arguments that insurance increases costs. I won’t deal with all of his arguments (today!) but consider the following:

The tax-free nature of employer-supplied insurance benefits encourages wantonness. (TC: Why? You can subsidize the purchase of apples, that doesn’t mean apples will be produced inefficiently or at “excess cost” for that level of apple output.)

True, but the phrase “for that level of output” contains a whole bag of tricks because subsidies will change the output level both in quantity and quality terms. Assume that there are two drugs, a cheap one at $10 and an expensive one at $20. You think the expensive drug is worth $5 more than the cheap one. With no subsidy you buy the cheap drug. With a 75% subsidy the cheap drug is $2.50 and the expensive one is $5 and the difference is now only $2.50 – you now buy the expensive drug. Thus there is no necessary production inefficiency but costs double.

So it is true that 3rd party payment will increase total costs. I think some of the other arguments that Tyler questions are also correct but these arguments do have another problem – one Tyler does not mention. To the extent that third party payment is not increasing, the increase in demand will cause a one-time increase in the level of prices/expenditures. What we see in the United States and worldwide, however, is a sustained increase in relative prices and expenditures and for that you need some factor that is also sustained – that factor is technological advancement. In real terms technological advancement lowers prices but when you combine that with an elastic demand for medical care nominal prices and expenditures increase. (When Christian Barnard performed the first open-heart surgery in 1967 he reduced the real cost of treating heart disease but increased expenditures on open-heart surgery).

In other words, health insurance companies don’t hold down costs because their customers don’t want them to. In this sense, I don’t think private health insurance is a disaster. The problem, if there is one, is in ourselves.

The Ig Nobel Prize in Economics

This year’s Ig Nobel prize in economics goes to the Vatican for outsourcing prayer.

A prize to Tyler, probably more Ig than Nobel, for flagging more than one future winner in Marginal Revolution including the aforementioned prize in economics and the prize in psychology for research on gorilla vision.

If you don’t yet know about the gorilla vision research, I encourage you view this Java video of a basketball game and try to count the total number of times that the people wearing white pass the basketball. Do not count the passes made by the people wearing black. When you’re done read Tyler’s post. As this award indicates some Ig Nobels are given for important research.

More Lost Nukes

Concerning yesterday’s post on missing nuclear weapons Gerald Hanner wrote to say:

I once flew with one of the people involved in that lost nuke in South Carolina. It was being carried by a B-47, and they were on their way to a forward-deployed base in England to pull alert. For takeoff the weapon (no one in the business calls them “bombs”) is not pinned into the release mechanism so that it could be released if there was an aircraft emergency after takeoff. Since the “pit” was not installed in the weapon there was no chance of a nuclear detonation. In any case, after a safe takeoff the copilot went back to the bomb bay to place a safety pin in the release mechanism; the pin would not go into the slot it was designed for. After calling back to their departure base to discuss the problem, someone on the ground suggested jiggling the release mechanism a bit to properly align the parts. The copilot did. The next transmission from the aircraft was, “Shit! We dropped it!” The weapon released and went right through the closed bomb bay door; those were heavy dudes back then. You’ve read the rest of the story.

Dave Walker of Lockjaw’s Lair wrote to report on a still-missing nuclear weapon in North Carolina.

It was just after midnight on January 24, 1961. A B52G Stratofortress (one of the greatest airplanes ever to cast a shadow on this fine Earth, IMHO) suffered structural failure in its right wing near Faro, NC. The plane carried two MK39 hydrogen bombs.

The two weapons were jettisoned from the plane. One parachuted safely to the ground, receiving minimal damage. The other plummetted to Earth, partially breaking up on impact. Part of the weapon, however, was never found. The lost portion was the uranium-containing part, as well. Crews dug to a depth of 50 feet in the boggy field, but could never retrieve the warhead. To this day, the lost weapon continues to lie in this field.

Radioactivity tests have come up negative, and the Air Force has purchased an easement on the property to prevent anyone digging. If you’d like to read further on the case of the lost warhead, check out this link.

Truth is Stranger than Fiction Department

In 1958 a nuclear bomb 100 times more powerful than that dropped on Hiroshima was accidentally lost over the coast of Georgia. Amazing! But it doesn’t stop there. At first, there was an intense search but the search petered out when several weeks later another bomb was accidentally dropped near Florence SC – fortunately the latter weapon, although nuclear, was not primed. The bomb’s conventional components, however, detonated on impact creating a huge crater and injuring several farmers. The weapon lost over the Georgia coast may have been found recently by a private radiation expert who measured radiation levels 3,000 times above normal near where the bomb was said to have gone down.

The economics of open-source software

What will the world of software look like once the open-source transition is complete?

Some programmers worry that the transition to open source will abolish or devalue their jobs. The standard nightmare is what I call the “Open Source Doomsday” scenario. This starts with the market value of software going to zero because of all the free source code out there. Use value alone doesn’t attract enough consumers to support software development. The commercial software industry collapses. Programmers starve or leave the field. Doomsday arrives when the open-source culture itself (dependent on the spare time of all these pros) collapses, leaving nobody around who can program competently. All die. Oh, the embarrassment!

We have already observed a number of sufficient reasons this won’t happen, starting with the fact that most developers’ salaries don’t depend on software sale value in the first place. But the very best one, worth emphasizing here, is this: when did you last see a software development group that didn’t have way more than enough work waiting for it? In a swiftly changing world, in a rapidly complexifying and information-centered economy, there will always be plenty of work and a healthy demand for people who can make computers do things–no matter how much time and how many secrets they give away.

Here is the full essay, if nothing else it is provocative. It is also beyond my sphere of expertise, but anyone interested in the private provision of public goods should check out this piece.

Thanks to Steven Pearson for the pointer.