The young and super-wealthy go to therapy

by  Tyler Cowen in

Not long ago, a young titan of New York real estate sat in his psychotherapist’s office. An art collector, he was thinking of bidding about $8 million for a painting, and something about the deal made him uneasy.

The therapist thought the patient was merely trying to impress him. This happened whenever the man felt unsure of himself, which was most of the time.

But instead of trying to explore the patient’s anxiety, the therapist encouraged him to buy the artwork: “This is what you want; you should go get it.”

The therapy fees can range from $400 to $600 an hour and the therapists are often too impressed by their patients.  The whole article is interesting.

Stoking the fires

by  Tyler Cowen in

Ken Rogoff writes:

I am puzzled that so many economic pundits seem to think that the solution is
for all governments, rich and poor, to pass out even more cheques and subsidies
so as to keep the boom going. Keynesian stimulus policies might help ease the
pain a bit for individual countries acting in isolation. But if every country
tries to stimulate consumption at the same time, it won’t work. A general rise
in global demand will simply spill over into higher commodity prices, with
little helpful effect on consumption. Isn’t this obvious? Yes, there is still a
financial crisis in the US, but stoking inflation is an incredibly unfair and
inefficient way to deal with it.

In other words, if the initial shocks are real, boosting aggregate demand won’t have much of a positive effect plus it will worsen inflation.   Maybe it’s a good thing the stimulus package is too small to be very "effective."  Mark Thoma adds comment.  I am, however, puzzled by Rogoff’s distinction between a single-country stimulus package and the global combination of such packages.  If nominal stickiness is a binding problem in enough sectors, a large enough stimulus can work no matter how many countries do it.  If nominal stickiness is not a major binding problem (and I suspect this is the relevant case), then even a single-country stimulus plan will be ineffective.

Bargaining with your roommates

by  Tyler Cowen in

Joseph, a loyal MR reader, asks:

I recently leased my first apartment…with a friend who just graduated from college with me. It’s a nice apartment, and spacious, but it has one bedroom that is larger and nicer (better views, bigger closet, more windows) than the other.

We’re looking for the most equitable way to allot the good bedroom without resorting to cash transfers (too crass). We’ve come up with a few strategies so far:

1. Bid on the good room with chores (meaning the person who is willing to do the most domestic chores to compensate wins the auction and the room)
2. Best out of seven rocks-papers-scissors
2. Series of challenges submitted by close friends.

#1 seems like the best option we’ve come up with so far, but I’m afraid of winner’s curse. I don’t want a resentful roommate.

Do you think there’s a better solution?

Adam, another reader, asks, in a separate email, how friendly roommates should allocate the rights to joint furniture purchases.

I suggest the crass cash transfers!!

Free Riding

by  Tyler Cowen in

Taking a cue from the publisher, Amazon.com reports:

[Richard] Tuck presents a bold challenge to the skeptical account of social
cooperation so widely held today.  If accepted, his argument may over
time encourage more public-spirited behavior.

Richard Tuck, of course, is a Professor of Government and Harvard and a historian of early modern political thought.  This book has many complicated philosophic arguments, here are bites of three of them:

1. If your cooperative behavior adds positively to a Sorites problem ("how many stones make a pile?"), it can be rational for a self-interested person to see good reason to contribute.

2. Under a properly sophisticated theory of causality (with or without Sorites), you might see your contribution as helping to cause a good end to come about, even if your contribution is not "necessary" for the good end to occur.  The phrase "pre-emptive cooperation" is used.

3. Rule rather than act utilitarianism often has (rational) force on people’s behavior.

Since there is more cooperation than standard models would predict, we can’t dismiss these arguments, which by the way are used to claim that standard economic reasoning is historically contingent.  By the end of the book we are told that perfect competition may operate as oligopoly and that — don’t be surprised — more government may be both necessary and desirable.   

Think of this as a kind of verbal game theory, written for people who won’t read technical game theory or formulate a precise solution concept.  I don’t think this looser approach is always worse, though the exposition could have been more to the point.

Here is a podcast for the book.  Here are the first twenty pages.

Squib

by  Tyler Cowen in

Franny’s on Flatbush Avenue was possibly the best pizza I’ve had in the U.S., Gala Manor in Flushing was definitely the best dim sum I’ve eaten in this country, the projected fall in Wall-E box office is 61 percent (July 4th is a tough weekend but ouch!), and wars of independence are easiest to justify when the population is still relatively small and the nation state is not yet built.  Call it investment.  Quasi-independence or full independence was inevitable so the real question is whether North America would be better off if Florida remained a Spanish colony and the Louisiana Purchase had never happened.  That said, American independence was probably very bad for native Americans and blacks and of course that rent transfer is part of what motivated independence.  I am preparing a lecture on The Merchant of Venice and, via Eduardo Pegurier, here is All the Water in the World.

Very excellent sentences

by  Tyler Cowen in

Control systems and pecuniary incentives erode morale by signaling to the agent that the principal is not worth impressing.

Here is an earlier draft of the paper, "Pride and Prejudice: The Human Side of Incentive Theory," by Tore Ellingsen and Magnus Johannesson; a better version is in the June 2008 American Economic Review.

By the way, in my mental pantheon, "Very excellent sentences" are stacked somewhere above "Very good sentences."

The Gridlock Economy

by  Tyler Cowen in

How many popular economics books offer a message which is (mostly) true, non-trivial, and understandable?  Michael Heller’s The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives satisfies that troika.  The key message is that the "tragedy of the anti-commons" is often a bigger problem than the better-known tragedy of the commons.  The tragedy of the anti-commons arises when too many veto rights are exercised.  Here is one simple example:

Tarnation, a spunky documentary on growing up with a schizophrenic mother, originally cost $218 to make at home on the director’s laptop.  It required an additional $230,000 for music clearances before it could be distributed.

Or try tracking down orphaned copyrights or proceeding without explicit permission.  Furthermore many new drugs are more costly to market, or end up not being marketed, because there are so many possible patent infringement issues.  By the way about half of the patents litigated to judgment are not upheld.  Too many interest groups have veto power over infrastructure development, such as wind power or a new oil refinery (my examples).  The U.S. allocates its spectrum far less efficiently than either Japan or South Korea.  Holdouts lower the rate of property redevelopment; I learned that The New York Times used eminent domain to build its new headquarters because otherwise assembling such a large parcel of land in midtown Manhattan was very difficult.  It all boils down to the story of too many tolls on the medieval Rhine.

Yes, the author does give full credit to Buchanan and Yoon for their work on the anti-commons.

Heller does not cover the deeper question of whether a society can respect minority rights to the desired degree without encountering too strong a problem of the anti-commons.  Most of us are for the right to appeal, for the right to a fair trial, for various courses of redress, for the right to sue, for basic rights of intellectual property, and so on.  Some set of interest groups has to support those regimes.  Can those interest groups be so empowered without the excesses outlined in this book?  Would we still want to abolish the anti-commons problems if it led to a more general weakening of minority rights?

The New Palgrave Dictionary of Economics

by  Tyler Cowen in

An overview is here, the list of contributors is very prestigious (disclaimer: I wrote the article on the social discount rate), and the Palgrave name is golden.  The old Palgrave Dictionary of Political Economy still makes for fascinating browsing.  Yet the price tag for the new edition is over $2000, $2500 on Amazon.

Not everyone is good at using Google and Wikipedia.

Sentences to ponder

by  Tyler Cowen in

The "likely consequence" of growing numbers of Chinese
learning English without "enough quality spoken practice" means that
"more and more spoken English will sound increasingly like Chinese."
Already, non-native speakers far outnumber native speakers, and in the
next decade, native speakers will make up only 15 percent of those who
use the language.

Here is the link, hat tip to Ben Casnocha.

How are wines arranged in the store?

by  Tyler Cowen in

The wine aisle in your grocery store is probably organized this way.
Yes, I know there is a California section and an Import section and
even a jug/box wine spot, but look within each wine display and you’ll
see the clear price stratification effect. The wines you have come to
buy are probably on the shelf just below your natural eye level, so
that you cannot help but see those special occasion wines just above
them (and the higher priced wines above them on the top shelf). Cheaper
wines are down below, near the floor, so that you have to stoop down to
choose them.

The physical act of taking the wine from the shelf mirrors the
psychological choice you make – reach up for better (more expensive)
wines, stoop down for the cheaper products. The principle will be the
same in upscale supermarkets and discount stores but the choices (what
price wine will be at the bottom, middle and top) will differ as you
might expect.

Here is the full post, which includes a photo.

Markets in everything?

by  Tyler Cowen in

Who knows, but just maybe:

Doubts about the official version of the rescue surfaced in Switzerland
where a public radio station quoted an unidentified source – "close to
the events, reliable and tested many times in recent years" – saying
$20m was paid to the guerrillas. "It was not a negotiation with the
Farc directly but with a person who is very important in that
organisation, commander César," Frederich Blassel, a journalist with
the Swiss station, told Colombian radio. The reported suggested that a
wife of one of the guards – possibly César – had acted as a go-between
after being arrested by the security forces.

It’s in any case spectacular news and a major blow against terrorism.  Colombia remains an underrated economy and tourist destination and I expect this to serve as a further tipping point toward good things.

The secrets of *Lost*, revealed

by  Tyler Cowen in

The Buddhist notion of "Dharma" refers to a state of affairs where people are liberated from the cycles of both birth and death.  Babies cannot be born on the island and it is an open question whether one can really die there so the island is an attempt to realize this ideal.  Of course the original project on the island is called The Dharma Initiative.  The Buddhist notion of Bardo involves reviewing the major events of one’s previous life, as represented by the show’s frequent flashbacks.  More generally the islanders are most likely experiencing a cycling of bardos and it is no accident that we are now peering into their futures.  Ben and Widmore represent two evil spirits of the Buddhist pantheon, dueling for the power to corrupt and to control life and death.  The numbers which reappear in various contexts, including 108, and the sequence of winning lottery numbers, are taken from Buddhist mythology (see the links).  Desmond’s retreat from the world, and his ability to foresee Charlie’s death, are both very Buddhist themes.  Claire’s baby is probably a reincarnation and John Locke is arguably a Tulku and he is explicitly tested as such in the last season.  The names Rousseau, Hume, and Locke are used because one theme is Western philosophy confronting the truths of the East.  Here is more and try this too though it is vague.  Here’s the single best page.  Aldous Huxley is an influence as well.  The Buddhist interpretation isn’t new, but no one quite seems to have said "This is it."  Toss in time travel, and a bunch of women who look like underwear models, and you can explain most of the apparent anomalies in the plot.