The median voter theorem, in action

by  Tyler Cowen in

Whoops:

Steven Chu, the Nobel laureate scientist who is President-elect Obama’s choice to be energy secretary, said in testimony prepared for his Senate confirmation hearing Tuesday that high oil prices were a threat to the economy, backing away slightly from statements made in his last job, as director of the Lawrence Berkeley National Laboratory, that gasoline prices should be higher.

Here is the story.  Technically speaking, all of his words are correct and do not contradict each other.  Still, if he can't get appointed for favoring higher gas prices, and in a honeymoon period at that…well…you see where this is headed.

Markets in everything, Japan edition

by  Tyler Cowen in

Get the double entendres out of your mind:

Lola – or Rora – to give her a slightly more Japanese pronunciation – is a beauty and she knows it.

Customers pay by the hour for her company. Usually they just want to stroke her, but as a special treat for favoured clients, she will lie back in a chair, close her eyes and pose for photographs.

Lola is a Persian cat who works at the Ja La La Cafe in Tokyo's bustling Akihabara district. It is one of a growing number of Cat Cafes in the city which provide visitors with short but intimate encounters with professional pets.

When I called, there were 12 felines and seven customers, mostly single men…

It costs about £8 ($10) an hour to spend time in a Cat Cafe.

Here is the article, courtesy of Marco Haan; other Japanese markets are discussed as well, including the renting of pet beetles.

And no, this next one is not a "sexy" Markets in Everything, but it, via Megan McArdle, is still remarkable in its own way: Quilt with Matching Tote.

Rationality is a Property of Equilibrium

by  Alex Tabarrok

Some thoughts on rationality and economics, perhaps for a future paper, motivated by the financial panic:  

Rationality is a property of equilibrium.  By this I mean that
rationality is habitual and experience-based and it becomes effective
as it becomes embedded in the rules of thumb and collective wisdom of
market participants.  Rules of thumb approximate rational decision
rules as market participants become familiar with an economic
environment.  Individuals per se are not very rational; shift the
equilibrium enough so that the old rules of thumb no longer apply and
we are likely to see bubbles, manias, panics and crashes.  Significant innovation is thus almost always going to come accompanied with a wave of irrationality.  When we shift to a significant, new equilibrium rationality itself is
not strong enough to tie down behavior and unmoored by either reason or
experience individuals flail about liked naked apes – this is the realm of behavioral
economics.  Given time, however, new rules of thumb evolve and
rationality once again rules but only until the next big innovation arrives.

Dogs and Demons

by  Tyler Cowen in

The subtitle is Tales from the Dark Side of Japan and the author is Alex Kerr.  It is recommended reading for those who would have Obama expand his stimulus plan to include more construction.  Here are some strung-together excerpts:

Few have questioned why Japan's supposed "cities of the future" are unable to do something as basic as burying telephone wires; why gigantic construction boondoggles scar the countryside (roads leading nowhere in the mountains, rivers encased in U-shaped chutes); why wetlands are cemented over for no reason…or why Kyoto and Nara were turned into concrete jungles…

Led by bureaucrats on automatic pilot, the nation has carried certain policies — namely construction — to extremes that would be comical were they not also at times terrifying…

Dozens of government agencies owe their existence solely to thinking up new ways of sculpting the earth.  Planned spending on public works for the decade 1995-2005 will come to an astronomical…$6.2 trillion, three to four times more than what the United States, with twenty times the land area and more than double the population, will spend on public construction in the same period.

…from an economic point of view the majority of the civil-engineering works do not address real needs.  All those dams and bridges are built by the bureaucracy, for the bureaucracy, at public expense.

…The construction industry here is so powerful that Japanese commentators often describe their country as doken kokka, a "construction state."…the millions of jobs supported by construction are not jobs created by real growth but "make work," paid for by government handouts.  These are filled by people who could have been employed in services, software, and other advanced industries. 

Kerr provides almost four hundred pages of documentation for these claims and more.  In the meantime, I am pondering the question of whether government in the United States is of higher quality than government in Japan.  I believe it can be argued either way. 

Addendum: Here is my previous post on fiscal policy in Japan.

Princeton Encyclopedia of the World Economy

by  Tyler Cowen in

These are two heavy volumes (1328 pp.) and if you read them you will have a very good background understanding of the institutions behind the global economy.

Here is the book's home page with some sample free material.  Here is a list of contents.  Here is one summary of the book's contents.  The editors, Kenneth A. Reinert and Ramkishen S. Rahan,are from GMU School of Public Policy although note that is not the same as the economics department.  You can buy it here.

Betting markets in everything

by  Tyler Cowen in

Bet on your own grades.  Here is how it began:

One
Sunday afternoon, Steven and I were sharing ideas, and I mentioned to
him that I had an exam the following day and that if I were to study I
was sure to get an A. But I was enjoying my Sunday afternoon, and I
made it clear to him that I had no intention of studying. That’s when,
in order to provide me with motivation, we made the following
agreement: If I got an A on the exam, he would give me $100, and if I
didn’t get an A, I would give him $20. We thought every student would
like this type of motivation, therefore, we established Ultrinsic
Motivator Inc.

I thank Max for the pointer.

The Nude Deal

by  Alex Tabarrok in

Larry Flynt's plea for a porn stimulus plan has attracted much ridicule.   Nevertheless, during the thirties burlesque was part of FDR's National Recovery Administration.  Here's Jonathan Bean at The Beacon on the history.

The National Recovery Administration
(NRA) was the first New Deal effort at recovery. The agency mandated
that all industries draft “Codes of Fair Competition” to benefit
business and labor. NRA codes – all 700 of them –corporatized the
entire economy. Wage and price fixing was o.k. as the experimenters rid
themselves of old superstitions that price fixing was somehow harmful
to Mrs. Consumer. As long as everyone put in the “fix,” all would be well. The Supreme Court disagreed and ended the experiment in May 1935 (Schechter v. United States).

Yet there was an upside to the code-making. It made Americans
realize how complex the economy had become by 1933. After all, there
were codes for the Dog Food Industry (Code 450), Curled
Hair Manufacturing and Horse Hair Dressing Industry (Code 427),
Shoulder Pad Manufacturing (Code 262), and the Burlesque Theatrical
Industry (Code 348). The latter limited burlesque dancers to four strip
teases per evening. The goal was to spread the work, and it simply
wasn’t fair that the pretty girls got to strip more than the other
gals.

Comparing Recessions

by  Alex Tabarrok in

It you look at job losses in this recession compared to previous recessions this recession looks very bad but the labor force is much bigger today than in previous recessions.  Thus, if you look at the percentage change in employment you get a different story.  The Minneapolis Fed crunches the numbers:
1employment_length_small 

and
2gdp_length_small

Of course, this recession is not yet over but this is useful information.  We might not like it but recessions are normal.

Important Addendum: The Fed defines Mildest, Median, Harshest by taking the Mildest employment drop of any recession in that quarter and plotting that.  Thus, the Mildest, Median, and Harshest recessions are Frankenstein recessions, cobbled together from other recessions. I do not think this is a good way to express the data.  See this update for a better method.

When have countries refused to take back land?

by  Tyler Cowen in

Matt Yglesias writes that the Jordanians don't want the West Bank back, at least not in anything resembling its current state.  The Palestinians would be regarded as destabilizing by the Jordanian government.  How many historical examples can you find of countries refusing to take back territory that was once, in some form or another, theirs?  Spain probably wouldn't take back Ecuador but the offer will not come because the Ecuadorean government values the land.  So when is the political shadow value of land negative for both governments?  (Of course it's not negative for the Palestinians.)  The West Bank aside, I can't think of examples where there is both a possible offer and a refusal to take the land back.

Could Puerto Rico be an example?  Maybe the U.S. would gladly "give it back" (that is debatable, however) but it seems that Puerto Rican voters don't want full, unencumbered title.

Department of provisional Bayesian update

by  Tyler Cowen in

Today I read this:

Although Mr. Obama has not publicly identified which priorities will have to wait, advisers and allies have signaled that they may put off renegotiating the North American Free Trade Agreement, overhauling immigration laws, restricting carbon emissions, raising taxes on the wealthy and allowing gay men and lesbians to serve openly in the military.

Here is the article.  When it comes to health care, the prediction is that we get a "down payment" on future change but not yet the whole reform.