China fact of the day
When next summer’s Olympics roll around, the Beijing Weather Modification Office will be poised to intercept incoming clouds, draining them before they get to the festivities. No fewer than 32,000 people
nationwide are employed by the Weather Modification Office — "some of
them farmers, who are paid $100 a month to handle anti-aircraft guns and rocket launchers" loaded with cloud-seeding compounds.
Here is the story.
Who waits longest for coffee?
Tim Harford reports:
Caitlin Knowles Myers…with
her students as research assistants, staked out eight coffee shops in
the Boston area and watched how long it took men and women to be
served. Her conclusion: men get their coffee 20 seconds earlier than
women. (There is also evidence that black people wait longer than white
people, the young wait longer than the old, and the ugly wait longer
than the beautiful. But these effects are statistically not as
persuasive.)
This does not seem to reduce to greater complexity of drink for the female customers, read these clarifying remarks from the researcher. One question I have is when the order counts as having started; in my family I am sure that the women spend more time ordering. The simplest explanation, however, is that the staff feel more implicit psychological pressure to meet the needs of the male customers. I’ve also found that indecisive behavior at the counter leads to slower service, I have one particular (male) friend in mind. I am myself virtually always a decisive orderer.
Along not totally unrelated lines, here are new but not surprising results on which waitresses receive the biggest tips.
I am dared to believe the dollar is undervalued
Paul Krugman writing in Economic Policy estimates that at a real dollar depreciation rate of 2% per year the US is headed for a steady-state capital-account position of -15 months’ GDP, and that at a rate of 4% per year is headed for -7 months’ GDP. Yet foreigners–both private and central bank–are not demanding any yield premium on US assets.
This worries him, very much: situations in which large numbers of speculators, investors, and financiers hold irrational expectations are situations that could rapidly move southward overnight should reality intrude into the mind of the capital market.
Link here. I know full well that in most sensible intertemporal models the U.S. dollar is overvalued and must fall further to set right the trade balance. But these same intertemporal models don’t explain business cycles or unemployment very well (they do at times, but that’s it), so why should they explain currency values? Nor do these same macro models command the full loyalty of Krugman and other pessimists in different settings.
I do know that purchasing power parity predicts long swings in exchange rates to some crude extent, and right now I’m dead set against family summer vacation in Europe. So I will accept this dare and assert that the U.S. dollar is undervalued in world currency markets.
Pascal’s wager and religious diversification across children
Justin Wolfers of the Wharton Business School spoke on Pascal’s Wager, saying that if one believes in religion then the greatest risk is choosing the wrong one. And how to hedge against such a risk? Mr. Wolfers advises the following: Have lots of children and bring each one up under a different faith. That way, if people don’t get into heaven themselves, at least they will have maximized the chances that one of their children will.
Here is the link. God may hold this sort of maximizing behavior against you, but surely not against your kids…
Markets in everything, but not for everybody
A cigarette vending machine that can tell adults from minors by
determining their approximate ages based on bone structure, wrinkles
and the way their skin sags went on sale Monday.People wishing to buy cigarettes have to look at a facial
recognition camera in the upper section of the machine and press a
button. In about three seconds, the machine determines whether the
person is 20 years old–the legal age to buy cigarettes–or above. The
purchase will be allowed if the machine is satisfied.
Here is the full story. But if you want to feel better about markets again, here are lots of strange toys, with photos. The second page is even better. #8 and #11 are, um…strange, even for Japan.
Econometrics Haiku
Here are some Econometrics Haiku from noted econometrician Keisuke Hirano.
Supply and demand:
without a good instrument,
not identified.
I relate to these especially:
T-stat looks too good.
Use robust standard errors–
significance gone.
and
From negation comes
growth, progress; not unlike a
referee report.
The roots of medical innovation
In a much-praised piece, Jon Cohn argues that the NIH, not commercial incentives, is the key to American medical innovation. He writes:
The great breakthroughs in the history of medicine, from the development of the polio vaccine to the identification of cancer-killing agents, did not take place because a for-profit company saw an opportunity and invested heavily in research. They happened because of scientists toiling in academic settings. "The nice thing about people like me in universities is that the great majority are not motivated by profit," says Cynthia Kenyon, a renowned cancer researcher at the University of California at San Francisco. "If we were, we wouldn’t be here." And, while the United States may be the world leader in this sort of research, that’s probably not–as critics of universal coverage frequently claim–because of our private insurance system. If anything, it’s because of the federal government.
The single biggest source of medical research funding, not just in the United States but in the entire world, is the National Institutes of Health (NIH): Last year, it spent more than $28 billion on research, accounting for about one-third of the total dollars spent on medical research and development in this country (and half the money spent at universities).
A few points should be made:
1. The strength of American medical innovation stems from the combination between the NIH, private philanthropy, and commercial incentives. Cohn has lots of (just) praise for the NIH, as basic research is often a public good. But he doesn’t say enough about philanthropy, and he confuses pro-NIH evidence with showing the superfluity of commercial incentives.
2. Send some flowers to Cynthia Kenyon, whom I could not personally quote in this manner with a straight face. You would never know that universities are profiting from drugs, and patenting them, at an unprecedented rate. Universities are also forming partnerships with drug companies at an unprecedented rate.
3. Companies must work very hard to translate basic research into usable applied form and the U.S. is a clear world leader in this regard. A drug idea is not the same as a drug. Cohn at times admits this, but is he really denying that the supply curve here slopes upward with regard to expected profits? You can cite all kind of "mixed" factors about commercial incentives but at the end of the day that is the basic question.
4. Statins, Prozac, and anti-AIDS drugs are notable examples of #1. Or try this list of Merck products. Merck and Pfizer are much more than simply marketing or doctor bribery machines, although admittedly they are that too.
5. The standard arguments against commercial "me-too" drugs are considerably overrated.
6. FDA restrictions are at least partly responsible for the costly, overly concentrated, and blockbuster-oriented nature of U.S. and other pharmaceutical companies. Tight regulations discriminate against the small company and the small idea. Even if you think tight regulations are a good idea, don’t blame these tendencies on the big bad corporations.
7. It is odd for Cohn to cite me as his libertarian foil, since the referenced piece very clearly cites the NIH as a critical factor behind American medical innovation. This odd citation again represents the desire to replace "anti-commercial" arguments with an easier-to-make "pro-NIH" case.
9. The NIH works as well as it does because the money is mostly protected from Congress. It is not a success which can easily be replicated. The more money is at stake, the more Congress wants to influence allocation. We should guard this feature of the system jealously and try to learn from it. If we can.
The bottom line: Arguments for the NIH are not arguments against the importance of commercial incentives for medical innovation.
Addendum: Read Clive Crook too.
Why is Kasparov still alive?
One loyal MR reader wrote in the comments:
He’ll [Kasparov] be fine. Killing him would be too bad a move in terms of PR.
But that is exactly my worry. Putin has many would-be enemies. What better retaliation than to do something evil and make it look like Putin is possibly at fault? (That is in fact one theory about the polonium poisonings.) Maybe you think Putin has already signaled credibly that he wouldn’t kill Kasparov, but if that is the case then he could in fact turn around and order it done and not take the blame. Either way the equilibrium looks like assassination. The going rate for an assassin simply isn’t that high and surely somebody has at least that much at stake in the outcome.
When I was a little kid I saw TV coverage of the assassinations of Bobby Kennedy and Martin Luther King. I recall wondering why every famous politician, or at least every reachable famous politician, isn’t assassinated. Or why isn’t the equilibrium quantity of product sabotage — accompanied by options trading of course — very high? The sabotage doesn’t have to hurt people to lower share prices.
If some people find it worthwhile to send spam, why don’t many more? Is the cost structure really that heterogenous on the production side?
I might add these are important questions for understanding a future of extreme nuclear proliferation.
The Shortage of Transplant Organs
The Wall Street Journal has a front-page article and a debate between Julio Elias and Alvin Roth on alleviating the shortage of transplant organs. This interactive graphic was good at explaining the idea of kidney swaps. Elias and Roth should have discussed no-give, no-take rules and Lifesharers.
I will be speaking to Congressional and agency staff about the organ shortage this Thursday at noon (this event is not open to the public.)
Addendum: Transplant surgeon Arthur Matas, mentioned in the WSJ article, is no
libertarian but argues for live kidney sales in a new Cato Policy
Report.
Tyrone on American unhappiness
Tyrone wrote to me:
1. It is a mistake to focus on the survey evidence on happiness; maybe at first it shocks Americans that their country doesn’t come in a clear first, but America is bound to end up in the top tier and that will prove hard to counter. The Easterlin paradox, which turns purely on the meaning of words over time, is also weaker than is commonly believed and of course Tyler and Will were going to be ready for that.
2. Start with the disproportionately large number of Americans in prison. They are not happy. Furthermore they don’t get to answer most questionnaires.
3. Then ask: given how rotten prison is, why did those Americans take the chances that might put them in prison? How many people were just as unhappy, or nearly as unhappy, but didn’t chance a crime or end up in prison? What does the distribution of the process have to look like, and what are the implied levels of unhappiness, to place so many people in prison? The answer to those questions will be ugly.
4. Then move to race and cite those studies showing that many white people say they wouldn’t want to be black for a million dollars. There are a few different ways to interpret those answers, but none of them are favorable for the pursuit of happiness in America.
5. Cite statistics on how many Americans are obese. Some of this is genetic variation, but still the happiness-generating process has to be pretty badly skewed to generate so many pounds. Ask Tyler whether he thinks that most truly obese women are happy.
6. Ask Will to provide a running stream of consciousness of what runs through his mind when he visits a K-Mart in rural West Virginia.
7. Paint a convincing portrait of Americans as the people most prone to self-deception, self-puffery, and the most likely to lie about their own levels of happiness. Attack the reliability of happiness studies.
8. Present moderation as a prerequisite of happiness, and argue that America is anything but a land of moderation.
9. Cite the millions of Americans — now one out of every ten women — who take Prozac or other anti-depressants. Yes, there is strong evidence that Prozac makes people happier. But surely such people can be said to have "failed in their pursuit of happiness." They didn’t start off wanting to be happy by taking a drug.
10. Don’t push income volatility or poverty too hard. It will collapse into "things aren’t perfect" and allow the other side to focus on America’s very considerable economic achievements. Nor put too much blame on America’s relatively weak welfare state. That is a symptom of American social illness, not a cause, and more fundamental is that the poor themselves don’t care enough about their own fate (so why then would anyone else either?).
11. And why do European women seem so much more self-assured than do American women?
Yes, that is what Tyrone thinks. Poor, poor Tyrone. No wonder he is so unhappy. He thinks he is surrounded by so many other unhappy people. That makes him contrarian by nature.
Some people say that the debates between Tyler and Tyrone are the most interesting of all. But I know better. When such debates end, Tyler is always happy, and Tyrone always unhappy. Doesn’t that alone show that Tyler usually has the better of it?
Unintended Consequences meet Tragedy of the Commons
A decade ago, the saiga antelope seemed so secure that conservationists
fighting to save the rhino from poaching suggested using saiga horn in
traditional Chinese medicines as a substitute for rhino horn.Research commissioned by WWF at the Chinese University of Hong Kong in the
late 1980s found it to be as effective as rhino horn in fighting fevers, and in
1991 WWF began a campaign in Hong Kong to publicise it as an alternative. The
following year, the UN Environment Programme appointed WWF ecologist Esmond
Bradley Martin as its "special envoy" to persuade pharmacists across Asia to
adopt saiga horn (New Scientist print edition, 9 March 1991 and 3 October
1992).
And the result?
In 1993, over a million saiga antelopes roamed the steppes of Russia and
Kazakhstan. Today, fewer than 30,000 remain, most of them females. So many males
have been shot for their horns, which are exported to China to be used in
traditional fever cures, that the antelope may not be able to recover
unaided.
The tragedy here is that diversion would have been a good idea had the WWF understood some economics – for diversion to work you must divert to a privately owned resource.
Hat tip to MetaFilter.
What I’ve Been Reading
1. Love, Life, Goethe: Lessons of the Imagination from the Great German Poet, by John Armstrong. The author does not demonstrate overwhelming expertise but this is nonetheless not a bad place to start on the most neglected of all the great writers.
2. The Stillborn God: Religion, Politics, and the Modern West, by Mark Lilla. Why Schleiermacher really matters, how Kant painted himself into a corner trying to solve the problems laid out by Rousseau, and why it all springs from Hobbes. I found this well above average for its genre, though you must have a taste for Straussian-like books where big ideas clash at the macro level and there is little attempt at any kind of empirical resolution.
3. How Life Imitates Chess: Making the Right Moves, from the Board to the Boardroom, by Garry Kasparov. This is a fun book, except that life mostly doesn’t imitate chess. Chess is characteristic for its lack of self-deception; it is hard to avoid knowing where you stand in the hierarchy and excuses are few and far between. That’s why most chess players are depressed. Kasparov seems to save his self-deception for politics; let’s hope he is still alive a year from now.
4. Dark Sun: The Making of the Hydrogen Bomb, by Richard Rhodes. This favorite book of Jason Kottke is first-rate non-fiction, it is also one of the best books on the Cold War.
5. The Feast of the Goat, by Mario Vargas Llosa. One of the best studies of the psychology of political power and the connection between tyranny and the erotic. A fun albeit sometimes harrowing read. Another superb translation by Edith Grossman, might she be the best translator ever?
Prudie meets Trudie
In Discover Your Inner Economist the economist and blogger Tyler Cowen provides quirky and insightful advice for life based on his signature urbane style of economic reasoning. On his blog, MarginalRevolution.com, Cowen offers economic advice in his periodic "Dear Trudie" posts. Presumably Cowen offers good economics. But dare one take an economist’s advice? Emily Yoffe, author of Slate‘s popular "Dear Prudence" advice column, will advise. Please join us for an advice-off, as Trudie meets Prudie to discuss the practical benefits of economic reasoning (or lack thereof) in everyday life.
That’s this Thursday, noon, at Cato, also webcast live at www.cato.org. To register, visit www.cato.org, e-mail [email protected].
Here are my previous Trudie posts.
Markets in everything
Bookstores where you can go to watch TV, courtesy of Borders.
Kiss me, I’m vaccinated
I just had my flu shot. Please send your checks to my George Mason address.
People who have the flu spread the virus so getting a flu shot not only reduces the probability that I will get the flu it reduces the probability that you will get the flu. In the language of economics the flu shot creates an external benefit, a benefit to other people not captured by the person who paid the costs of getting the shot. The external benefits of a flu shot can be quite large. Under some conditions each person who is vaccinated reduces the expected number of other people who get the flu by 1.5.
Since a large fraction of the benefits of the flu shot, perhaps even a majority of the benefits, go to other people and not to the person paying the costs, the number of people who get a flu shot in the United States is well below the efficient level. I only got the shot because, as you well know, I’m altruistic. I care about you. But do send your checks, that will help.
In lieu of a check I’m thinking of having some buttons made up to encourage people to get their shot. Here are some possible slogans:
- Kiss me, I’m vaccinated.
- Take one for the herd!
- Get a flu shot. The life you save may not be your own.
Madison Avenue here I come!
Of course, we know from the Coase Theorem that there is an alternative approach. We could charge people who do not get their flu shots. (Thus, if you haven’t had a shot you must still must send me a check.) Or to reduce transaction costs we could fine people who get the flu. I kind of like that last one. (But what to do about the 36,000 a year who die from the flu – charge their estates?)
What do you think? Leave your suggestions/slogans for how to encourage getting a flu shot in the comments.