Assorted links

by  Tyler Cowen in

1. Can complex financial assets be booby-trapped?

2. Jon Chait makes the case against prizes.

3. Bruce Bartlett opposes cutting the payroll tax.

4. Which countries produce the most beef? (put the cursor on the balloons)

5. Metaphors: people mostly describe their lives in terms of a "journey"; is this just our tendency to impose false or misleading narrative on events?  Poorer people, however, are more likely than richer people to describe their lives as a "battle."

6. John Nye on inequality and positional goods (read the whole symposium).

Obama’s bribe for seniors

by  Tyler Cowen in

$250 for each senior or $13 billion in total.  It's bad precedent to go around a COLA calculation, even on a one-time basis, but you can construct a partial defense of the policy (here is Matt's semi-defense).  Think of it as a helicopter drop of money, a'la Scott Sumner.  If the helicopter drop substitutes for (part of) a second fiscal stimulus, that's a net gain.  The drop of money stimulates aggregate demand, limits deflationary pressures, and, by the way, you're giving it to a lot of people who are not stuck in a liquidity trap.  They'd love to buy more stuff in The Dollar Store.

How will the expenditure be financed?  Obama was vague on that, but as usual the Fed moves both first and last in the monetary policy game.  All Obama has to do is make the second stimulus $13 billion less than it otherwise would have been, wink and nod to Ben B., and it is all (or mostly) for the better.

What I’ve been reading

by  Tyler Cowen in

1. Ulysses and Us: The Art and Everyday Life in Joyce's Masterpiece, by Declan Kiberd.  He argues that Ulysses is a fun book, a popular fiction, and easy to read.  I won't give away my copy to anyone, which you can take as an endorsement.

2. David Byrne, Bicycle Diaries.  The former member of Talking Heads, and compiler of Brazil Classics 1, bicycles through ten cities and reports on them.  Most of the pages have something interesting.

3. Alain de Botton, The Art of Travel.  I found this a difficult book to get a grip on.  To my eye, most of the pages were a kind of empty.  Can you explain to me what made this book good?  The first page has a sentence like: "Any sadness I might have felt, any suspicion that happiness or understanding was unattainable, seemed to find ready encouragement in the sodden dark-red brick buildings and low skies tinged orange by the city's streetlights."  That's not, to my ear, an ugly sentence, but what's in it?

4. The Thirty Years' War, by Peter H. Wilson.  I read about one-third of this lengthy and clearly written Belknap Press book.  After a while I realized I was learning what the War wasn't (not the beginning of religious toleration, not the beginning of the modern nation-state, etc.), but not what the War was.  I guess I'll never know.

5. Danube, by Claudio Magris.  Now this is a splendid travel book.

I'm also enjoying A.S. Byatt's The Children's Book, which has beautiful language and creates its own world; still, I can't find the thread of the plot at p.100.  And the new Pamuk (which I'm still reading, very slowly) remains sublime and it is becoming one of my favorites.

Insurance company update

by  Tyler Cowen in

Pelosi said the House may adopt a Senate provision that would assess a
flat fee on insurance companies that is expected to generate about $40
billion over 10 years, as a way to pay for its reform bill.

Here is more.  The WP reports:

The blunt admonition echoed a round of harsh statements Wednesday from
senior Senate Democrats, and came in response to the insurance's
lobby's aggressive campaign to block reform legislation from advancing.

Austin Frakt and Ian Crosby on the insurance antitrust exemption

by  Tyler Cowen

He writes:

Taxpayers will be best served by insurers with sufficient market
power to bargain down provider rates, but with not quite enough power
to keep the savings (“rents“)
for themselves. That is, we want low provider rates to translate into
low premiums. Though liberals may be skeptical that this balance is
achievable, it is not at odds with their objectives in principle. After
all, one of the arguments for the public option is that it would be a
large insurer with commensurately large negotiating power but would use
that power on the behalf of consumers.

How to balance the power of insurers and providers is far from
simple. Many have pointed to the alleged dominant market position of
insurers as a substantial source of high health care costs. However,
the health economics literature
supports the notion that recent increased market power of insurers does
not lead toward monopolistic pricing, but rather it provides a
counter-balance to the power held by hospitals and provider groups.

Moreover, insurance companies are partially exempt from federal
antitrust law for an important reason: so they can share rate-making
data. This function actually benefits small insurers who would not
otherwise have sufficient data to properly adjust premiums.
Paradoxically, removing the legal cover for data sharing would harm
small insurers more than large ones.

Read his whole post, which also has a good public choice analysis of the recent threat to repeal the exemption.

Where would a do-gooder do the most good?

by  Alex Tabarrok in

A loyal reader writes:

I am sitting down on a rainy night to try and dream up a future career… I am a humanities guy with a hobby in economics (not a engineer or coder.)  I want to seek wisdom, not riches; I want to do good, not become wealthy. I want to go where others aren't.

So here is the main question:

1) What would be on your list of unsolved problems that public governments or private enterprise are not addressing adequately? Which of these could be addressed by 1 person or by $1,000? By 10 people or $10,000? 100 people or $100k? 1,000 people or $1MM? 10k or $10M? 100k or $100MM. Where can I have a lot of impact even if I won't find fabulous wealth?

And here is my meta-question.  The problem is that market prices do not correctly signal the relative value of public goods or charitable goods.  So what signals should someone use if they want to allocate their labor (in the charitable sector) to the highest value product?

Refuting this post helps confirm it

by  Tyler Cowen in

Chess players who train with computers are much stronger for it.  They test their intuitions and receive rapid feedback as to what works, simply by running their program.  People who learn economics through the blogosphere also receive feedback, especially if they sample dialogue across a number of blogs of differing perspectives.  The feedback comes from which arguments other people found convincing.  Do the points you wanted to hold firm on, or cede, correspond to the evolution of the dialogue?  This feedback is not as accurate as Rybka but it's an ongoing test of your fluid intelligence and your ability to revise your opinion. 

Not many outsiders understand what a powerful learning mechanism the blogosphere has set in place.

Three tweets for the web

by  Tyler Cowen in

Here is my article in the Wilson Quarterly, in their latest issue on "The Death of the Book."  Excerpt:

Sometimes it does appear I am impatient. I’ll discard a half-read book that 20 years ago I might have finished. But once I put down the book, I will likely turn my attention to one of the long-running stories I follow online. I’ve been listening to the music of Paul McCartney for more than 30 years, for example, and if there is some new piece of music or development in his career, I see it first on the Internet. If our Web surfing is sometimes frantic or pulled in many directions, that is because we care so much about so many long-running stories. It could be said, a bit paradoxically, that we are impatient to return to our chosen programs of patience.

Another way the Web has affected the human attention span is by allowing greater specialization of knowledge. It has never been easier to wrap yourself up in a long-term intellectual project without at the same time losing touch with the world around you. Some critics don’t see this possibility, charging that the Web is destroying a shared cultural experience by enabling us to follow only the specialized stories that pique our individual interests. But there are also those who argue that the Web is doing just the opposite–that we dabble in an endless variety of topics but never commit to a deeper pursuit of a specific interest. These two criticisms contradict each other. The reality is that the Internet both aids in knowledge specialization and helps specialists keep in touch with general trends.

They also asked me for the Twitter version of the article, and it is this:

“Smart people are doing wonderful things.”

Political extortion

by  Tyler Cowen in

Harry Reid is telling the Senate Judiciary Committee that the real
reason health insurance is so expensive is that they're evil monopolists…

There is talk of repealing the antitrust exemption enjoyed by the insurance industry.  Whether the exemption is a good idea or not, I do not know.  The relevant event is that the insurance industry seems to have turned against Obama's health care reform.  Everyone who cares about American democracy and rule of law should be complaining about Harry Reid, Patrick Leahy and their allies in this move.  So far I don't hear the outcry.

My favorite movie watching season

by  Nicholas Tabarrok

I always love the Fall, not for the changing leaves, not for the weather, and not for the chance to show off my sweater collection.  I love the Fall because it's the best movie season of the year.  The months from September to December is when all the distributors bring out their smart, adult, critically favored, award season films.  The summer is left to the kids and the action blockbusters, but over the next few months is when all the Oscar contenders will be released.  UP IN THE AIR, WHERE THE WILD THINGS ARE, MEN WHO STARE AT GOATS, THE IMAGINARIUM OF DR PARNASSUS are just a very few of the smart, cool, quality looking pictures that I'm looking forward to seeing over the next few weeks.

I have always assumed, and I believe it's conventional wisdom in the industry, that these kinds of films come out at the tail end of the year in order to remain in voters minds come Oscar ballot time, which is immediately in the new year.  The thinking is that any film that comes out in the early part of the year will be forgotten and overlooked compared to the more recent offering, regardless of it's artistic merit.  Aside from it being a sad commentary on the shortness of our memories I'm wondering if this is entirley true.  I'm taking a leap here and turning to the educted readers of MR for their feedback, but I wonder if like the proven business observation that when a second carpet shop opens beside the first it's competition, when a third opens it becomes the carpet district and is good for all of them.  Is there something about a grouping of similarly aimed films coming out all at once, even from competing distributors, that increases the box office for all as opposed to having them spread out evenly throughout the year?  I know I'm drawing a parellel between geography and the calendar, and perhaps that's a classic apples and orange mix, but I can't help but wonder if creating a film 'season' is not conferring a benefit to all the films that are released in this period.

The economics of local forest management (or another lesson in Elinor Ostrom)

by  Tyler Cowen in

Here are some recent results:

In the first study of its kind, Chhatre and Arun Agrawal of the University of Michigan
in Ann Arbor compared forest ownership with data on carbon
sequestration, which is estimated from the size and number of trees in
a forest. Hectare-for-hectare, they found that tropical forest under
local management stored more carbon than government-owned forests.
There are exceptions, says Chhatre, "but our findings show that we can
increase carbon sequestration simply by transferring ownership of
forests from governments to communities".

One reason may be that locals protect forests best if
they own them, because they have a long-term interest in ensuring the
forests' survival. While governments, whatever their intentions,
usually license destructive logging, or preside over a free-for-all in
which everyone grabs what they can because nobody believes the forest
will last (Proceedings of the National Academy of Sciences, DOI: 10.1073/pnas.0905308106).

The authors suggest that locals would also make a better job
of managing common pastures, coastal fisheries and water supplies. They
argue that their findings contradict a long-standing environmental
idea, called the "tragedy of the commons", which says that natural
resources left to communal control get trashed. In fact, says Agrawal,
"communities are perfectly capable of managing their resources
sustainably".

If you turn to the first page of the paper itself, the header reads:

Edited by Elinor Ostrom, Indiana University, Bloomington, IN, and approved September 4, 2009 (received for review July 22,
2009)

Of course this sort of result is inspired by her work as well.  For the pointer I thank Andrew Grant.