China markets in everything fact of the day

A Chinese man who set up an online business selling dead mosquitoes says he’s received 10,000 orders in just two days.

Nin Nan, of Shanghai, came up with the idea of selling mosquitoes he killed to attract visitors to his online jewellery shop.

"I locked myself in the room, thinking hard of a promotion plan. With a ‘pa’ sound and a dead mosquito, I came up with this weird idea," he told Qianlong News.

Nin sells his mosquito corpses for six yuan – about 45p – each. His ad reads: "Truly killed by human hands. Can be used for science studies, decoration, and collection."

Here is the story, and thanks to Allison for the pointer.

Which books to take to Africa?

Niall writes me:

I have an optimization problem that I thought you and other loyal MR
readers, like myself, could help me with.

The Question: How should I go about selecting books to bring with me for
a year of field research in rural Africa?

Conditions:
1. I have a limited amount of weight I can carry on the flight
2. There is little or no access to additional books where I will be
3. I only expect to return to the US once during that year

Thanks for continuing the to make MR the most educational blog on the web.

Sadly I do not know this fine gentleman.  But I’ll suggest the following five books: Moby Dick, The Bible (but it must be a serious translation), Plato’s Dialogues, Homer’s Odyssey, and a long, fun book of science fiction or fantasy that you haven’t already read.  LOTR would be a fine first choice if it fits that bill, otherwise ask around.  The basic principles are that the works should be long, deep, divisible into smaller parts, capable of sustaining rereadings, culturally central in some way, and last of all you need one piece of pure fun.  Readers, can you improve upon these tips?

I’ll add that if you read some language other than English, and thus read more slowly in that language, pick a book or two there as well.

A Biological Model of Unions

That’s the title of a paper by Michael Kremer and Benjamin Olken.  The bottom line is:

…a union that implements workers’ preferences will not be evolutionarily stable.

The union that survives must either extract fewer rents for the workers (thus lowering anti-union expenditures from the employer, or helping keep the employer in business) or spend excess funds on organizing and bolstering union membership in the broader economy.  A union that spends on membership and organizing drives tends to spread from one firm to the next.  If a union were truly controlled by its members it would take lots of current rents with little concern for the longer-term future of the firm or for the longer-term future of the union.

Here’s a neat paragraph:

The dynamics of unionization levels also bear a similarity to those under the Susceptible-Infected (SI) model of epidemiological dynamics…In that model, new potential hosts are born uninfected; the chance that they become infected increases with the number of hosts already infected; and once hosts are infected, they stay infected until they die.  Note that this comparison is purely positive, not normative.

Yes the paper does offer some evidence but it is more interesting as a theory piece.  Here is an earlier ungated version, there is also 2001 version listed at NBER and here is the current version.

The history of America since 1980

Brad DeLong spells it out:

  1. The end of the Cold War
  2. Other winner-take-all factors that have, in combination with
    education, pushed American income polarization back to Gilded Age
    levels.
  3. The failure of American taxpayers to support their state and local
    governments in expanding funding for public education–and the impact
    of reduced public education effort in sharpening the distinction
    between rich and poor.
  4. The computer revolution in productivity growth.
  5. The rise of China (and soon, we hope, India) as industrial powers.
  6. The extraordinary social liberalization of America–if you had told
    any Republican in 1980 that 2008 would see (a) a Negro with an
    Arabic-Swahili name beating a veteran fighter pilot in the presidential
    polls and (b) gay marriage as the big cultural issue of the day, said
    Republican would have blown several gaskets. And if you had said that
    this would have been the result of an "Age of Reagan" said Republican
    would have melted down completely.

I’m mostly on board (and read the broader post) but, in addition to mentioning Latinos, I’ll suggest two revisions.  First, on #3 I doubt if the stagnation of American lower education is the result of insufficient dollars.  It is notoriously difficult to find a convincing link between educational expenditures and educational quality and I don’t think that is econometric problems.  On #6 I never saw most of the Reagan Republicans as especially prudish or socially conservative; that was just a lie told to one of the interest groups attending the party.  Revolution in the Head — which is oddly enough a social history of the Beatles — is especially good on the connection between 1960s morals and the Reagan Revolution.

“eBay ordered to pay damages in sale of fake goods”

That’s the headline, the country is France.  Is there any efficiency rationale for this decision?  The alternative equilibrium involves a fair number of fakes, some good discounts for real items, an overconcentration of trading activity is easily verifiable or not worth faking items, and of course a diminution in the value of brand names.  The latter effect may even be welfare-improving once you consider price discrimination and the association of brand names with monopoly rents.  You can put the penalty on the seller but how is eBay to detect possible fakes?  Buy and inspect the wares?  Shut down trade in any fakeable item?  I would think it is also easy enough to "buy fakes" from your buddy, in essence keep the cash, give him a percentage, and then sue eBay for the "loss."  If the owner of the brand can sue would not the French court consider a suit from the buyer of the fakes as well?

Very good sentences

many of the same people who ridicule the idea that private-sector output is meaningfully reduced by higher taxes are convinced that private-sector output is meaningfully raised by higher subsidies.

That’s from Don Boudreaux.  You’ll also find that many proponents of hiking the minimum wage think that subsidizing low-wage jobs will work.  There are models where the relevant effects switch at just the right margins, of course; surely those models are true.

Markets in everything, cultural diplomacy edition

In Paraguay the latest hit record — and yes it is a hit — is by the U.S. Ambassador singing Paraguayan folk songs in the language of Guarani.  Crowds love it, though one Paraguayan critic compared it to "the monotone of a tired bird."  The ambassador had no previous professional singing experience.  One Paraguayan Senator is asking his Congress to denounce the diplomat.  "Paraguayans cry when they hear it" is another, more laudatory assessment.  Here is the interesting story.

Here is a speech by the ambassador, excerpt:

We are not building a military base………  We are not stealing the Guarani aquifer………….  We are not buying up the Chaco…………….

The truth is that our agenda is very positive, both for the region and for Paraguay.

With oil at $140 a barrel, can you still love Julian Simon?

Remember Julian Simon, the guy who argued that resource prices would fall, fall, fall in real terms?  I loved spending time with him and to this day he remains an underrated economist.  (By the way, the very first piece I ever wrote was a guide to using Julian Simon for high school debaters.)  But can we still advocate his major thesis?

The possible belief space includes the following:

1. There is still a good chance that future resource and oil prices will fall dramatically, so Simon should not be dismissed.  Still, the single best estimate today can be inferred from the current market price, which implies a good chance that resources will get more expensive.

2. Simon is right and futures markets currently indicate that the price of oil is expected to fall dramatically.

3. Simon is still right, the rest of the world is wrong, and betting on this is how I will get rich.

4. Simon is right but current markets don’t allow us to bet on his major claims.  Futures markets extend for only a few years’ time, not for say the twenty years or so that are needed to validate his prediction.

4b. The deliverance of plenty is truly far away and no one is willing to take those margin calls for the next 187 years; in this scenario the present expected value of the future improvement is pretty low.

5. Simon is right but nominal interest rates will soon fall so low that successive short selling of oil in the futures market won’t yield supernormal returns.  (This can mean, for instance, that you’d rather lock up all your money today at the higher rates, rather than short selling.)

No way does #2 work, though there is often slight backwardation in the futures price.  I’ve never heard anyone argue #5 and indeed most people haven’t even thought of it as an escape hatch.  My belief is closest to #1.  Bryan Caplan argues for #4 but Arnold Kling shows that doesn’t fly.  If you’re always rolling over a successively renewed short position in the futures market, sooner or later the price decline for oil will yield you supernormal profits; in the meantime your margin deposit is earning the rate of return on T-Bills, noting that you must buy into the new contract cycle before your old contract expires so as not to miss the window of opportunity.  OK there is margin call risk, etc. but if Simon is right that is small relative to your potential gains.

(Alternatively you might argue that if you are in contract cycle #3, the good news will arrive to affect the pricing of cycle #4 before you can buy in, adding on that even after the future good news is announced the MC curve is so steep that you don’t gain much on contract cycle #3.  That’s possible but a) ex ante you still have supernormal returns since it may not work out that way, and b) the reality is that huge good supply news, whether for oil or some other energy source, would lead to lots of pumping today and a plummeting oil price right away.)

I invite Alex to accept #1 or otherwise indicate his stance.

It’s amazing how much, on this issue, some people resort to what can only be called technical analysis — inferring future price movements from past trends — when they would scoff at that approach in almost any other context.  It’s OK to argue that belief #3 held for most of world history –before we all read Simon and perhaps before there were futures markets in oil — but I want to know if you are betting on #3 today and if not why not and also what other ways there are to get very rich that you can tell me about (does only the oil market malfunction so?).

I’ll also note that current oil prices hardly suggest (do click on that link) a level of bone-crunching, civilization-ending scarcity, so you can believe in #1 and still be an optimist overall, as indeed I am.  I’m just not nearly as much of an optimist as I was when oil was $10-$20 a barrel, wasn’t it even $8 a barrel for domestic oil less than ten years ago?

Also on belief #4 note that: forward contracts allow for longer bets than do futures contracts, contract length is endogenous to important events (though synthetic contract positions mean we don’t need all of the possible longer term contracts), and it is odd for libertarians — combinatorial prediction market fans at that — to suddenly cite missing markets to defend their broader position.

Addendum: Oh, yes, there is one more option.  I call it "#3 is correct but my wife won’t let us get rich."  I’ll say this in response: for all the virtues marriage has for men, when you look around and study it more closely, you’ll find the institution has even more virtues than you had thought.

Second addendum: Here is Jeffrey Sachs on this topic.

What determines fertility?

Here are some thoughts:

So there would seem to be two models for achieving higher fertility:
the neosocialist Scandinavian system and the laissez-faire American
one. Aassve put it to me this way: “You might say that in order to
promote fertility, your society needs to be generous or flexible. The
U.S. isn’t very generous, but it is flexible. Italy is not generous in
terms of social services and it’s not flexible. There is also a social
stigma in countries like Italy, where it is seen as less socially
accepted for women with children to work. In the U.S., that is very
accepted.”

By this logic, the worst sort of system is one that
partly buys into the modern world – expanding educational and
employment opportunities for women – but keeps its traditional
mind-set. This would seem to define the demographic crisis that Italy,
Spain and Greece find themselves in – and, perhaps, Japan, South Korea,
Hong Kong, Taiwan and other parts of the world. Indeed, demographers
have been surprised to find rapid fertility changes in the third world,
as more and more women work and modern birth-control methods become
standard options. “The earlier distinct fertility regimes, ‘developed’
and ‘developing,’ are increasingly disappearing in global comparisons
of fertility levels,” according to Edward Jow-Ching Tu…the birthrate in 25 developing countries – including Cuba, Costa Rica,
Iran, Sri Lanka and China – now stands at or below the replacement
level.

Can past nuclear explosions advance art history?

A former curator from the State Russian Museum in St Petersburg
believes they can. She has developed a new method for dating paintings
in collaboration with Russian scientists which, she says, provides
“indisputable” evidence of whether a painting was made before or after
1945.

According to the inventors, the new patented technology is based on the
idea that man-made nuclear explosions in the 1940s and 1950s released
isotopes into the environment that do not occur naturally. The tiniest
traces of these isotopes, Caesium-137 and Strontium-90, permeated the
planet’s soil and plant life, and eventually ended up in all works of
art made in the post-war era because natural oils are used as binding
agents for paints.

Therefore, they believe that any work of art
originally believed to pre-date World War II, but which registers trace
amounts of Caesium-137 and Strontium-90, can be “definitively” declared
a post-1945 forgery.

Here is the full story.  It’s worth noting that many categories in the art world show rates of forgery approaching 50 percent or higher.

More on speculation

Here is Paul Krugman’s model, Mark Thoma covers related ground.  I view this as an intertemporal Hotelling model and not as analogous to a currency model as Krugman suggests.  In the bottom right hand graph of the four graphs in Krugman’s post, I don’t understand what institutional force hinders a market-clearing price.  More concretely, if expected future price goes up (or interest rates fall), the supply curve in that graph should shift back to the left (wait and pump more later for the higher price) and/or the demand curve in that graph should shift out to the right (buy now rather than later at the higher price).  Measured inventories will rise to the extent the demand curve does the shifting; if the supply curve does the shifting the "excess inventories" stay in the ground.

It is possible to derive Krugman’s desired result through another and indeed simpler channel.  Define speculation as the desire to hold more oil because of the perception that oil now has a greater convenience yield.  As Jeffrey Williams points out, a big part of convenience yield is the option value of selling the oil on favorable terms.  If you’re guessing that option value will pay off, it’s not unreasonable to call that speculation.  We now have a one-line proof: because of "speculation" the demand to hold oil goes up, and so the stocks of oil held will rise.

This again illustrates the value of starting with Holbrook Working when analyzing futures markets.

And it’s fair to say, as Krugman still does, there is no evidence that this mechanism is what is driving the higher oil prices.  Of course the people who are blaming "speculation" don’t seem to have any coherent definition of the concept in mind; that’s another problem with their argument.