Markets in everything?

by  Tyler Cowen in

The new claim is that a woolly mammoth could be regenerated for as little as $10 million.  The basic technique, as I understand it, is reconstructing the genome of the mammoth and modifying the DNA in the egg of a modern elephant and bringing the final-stage egg to term in an elephant mother.  It is noted that the same will be possible with Neanderthals, as it is expected that their genome will be recovered and sequenced shortly.

Didn’t I read as recently as ten years ago that "Jurassic Park" scenarios were more or less impossible?  I don’t expect Neanderthal man to reappear soon, but assuming the world stays (relatively) peaceful and wealthy, what is the chance of seeing one or more such beings within the next two hundred years?  Yes I know all about the law, eventual demographics, and the fear of planet-wide interspecies war, but at $10 million and over one hundred countries in the world, is not private philanthropy robust?

As one commentator asks, if we humans killed them off in the first place, does that mean we have any obligation to revive them now?

A frightening figure

by  Alex Tabarrok in

Paul Krugman presents a frightening figure. 

The figure [below] shows the real interest rates on corporate bonds, with
the expected rate of inflation from the spread between 20-year TIPS and
20-year Treasury rates. All data monthly, from St. Louis Fed.Corporate_real

I’ve been saying for some time that one of the signs of a credit crunch has got to be rapidly rising real rates – in very recent weeks, that appears to be happening.  The timing suggests to me that this is more of a deflation problem than a banking-credit problem per se but at this point who cares – we can probably all agree it’s more bad news.

Addendum: Greg Mankiw is also troubled by what this figure means.

Facts about China

by  Tyler Cowen in

Exports constitute nearly 40 percent of China’s GDP–far too high a figure. (By comparison, in the U.S., exports account for about 10 percent of GDP most years.) And the global financial slowdown is already taking a terrible toll. Some 10,000 factories in southern China’s Pearl River Delta area had closed by the summer of 2008. Gordon Chang, a leading China analyst, estimates that 20,000 more will shutter by the end of this year. In the third quarter of 2008, Beijing also reported its fifth consecutive quarterly drop in growth,
and several private research firms expect a sharper slowdown next year.
Additionally, unemployment is skyrocketing; in Wenzhou, one of the main
exporting cities, about 20 percent of workers have lost their jobs, Reuters recently reported.

Here is more.  By the way, here is an article on China’s retreat from environmental concerns.

I thank Clifton Chadwick for the pointer.

Singapore to Pay Organ Donors

by  Alex Tabarrok in

Big news on the effort to alleviate the shortage of human organs:

Singapore is to allow compensation for kidney transplants and for eggs.
A government proposal has been approved by a bioethics committee and
legislation will be introduced early next year.

…According
to the BMJ, a sum of S$10,000 was mentioned. According to the Straits
Times, the health minister, Mr Khaw Boon Wan, mentioned "at least a
five-figure sum, possibly even six-figure" as appropriate
reimbursement. This would include expenses, such as transport and
medical costs, as well as loss of earnings. Also, the donor should be
covered for follow-up medical costs and higher insurance premiums as a
result of losing a kidney.

In other big news the National Kidney Foundation (NKF) is reconsidering their long-held opposition to compensation for organ donors.  The NKF is surveying people on financial compensation.  Marginal Revolution readers can raise the level of discussion and perhaps help save some lives by answering the survey here (it’s very short).

Thanks to Lloyd Cohen and Richard Darling for the pointers.

Outliers

by  Tyler Cowen in

The book is getting snarky reviews but if it were by an unknown, rather than by the famous Malcolm Gladwell, many people would be saying how interesting it is.  The main point, in economic language, is that human talent is heterogeneous and that the talent of a particular person must mesh with the capital structure of his or her time if major success is to result.  The book is best read as a supplement to Ludwig Lachmann’s Capital and its Structure.  The main enduring insight of both Lachmann and Gladwell is simply how much we live in a world of complementarity rather than substitutability.

Nowhere in the book does the name Dean Keith Simonton (check out the headings to these links) appear nor does the phrase "multiplicative model of human success."  A lot of the content here has already been done with more rigor and empirical support and also in readable form I might add.  Everyone should read Simonton, noting that his hypotheses fare better in the arts than in politics.

If you ask too much from Outliers it will fall apart.  It is too easy to find contingency in the world and Gladwell doesn’t begin to look for a theory of which contingencies are interesting or not.  For instance arguably Ludwig van Beethoven would not have been a great composer if:

1. An extra butterfly had died two million years ago.

2. The outcome of the Thirty Years’ War had been different.

3. The Germany of his time had not had fortepianos.

4. His parents had conceived their child one second earlier.

5. Haydn had not paved the way.

#3 and #5 seem more interesting than #1 and #4 but that’s because some contingencies just don’t help us understand the world very much.  Gladwell never gives us enough theoretical structure to see why his contingencies are the relevant ones.  Simply showing the contingencies in personal histories is not, taken alone, very enlightening.

Gladwell’s contingency stories skid out of control.  At one point it seems the main claim is that the steady accumulation of advantages is what matters, but once you ask which advantages end up "counting," the claim collapses into tautology.

There is also a "PC" undercurrent in the book of "don’t write anyone off" but if everything is so contingent on so many factors, maybe writing people off isn’t such a big deal.  It could go either way.  It depends. 

Gladwell deliberately steers us away from the contingency of genetic endowment (even for a given set of parents, which sperm got through?), but if you hold everything else fixed you can assign a very high marginal product to the genetic factor if you wish, usually up to 100 percent of a person’s outcome.  That mental exercise is verboten but somehow it is OK to hold the genetic endowment constant and vary some other historical factor and regard that as a meaningful contingency.  See the discussion of Beethoven above, especially #4 on the list.

Gladwell descends into the swamp of contingency but he is unwilling to really live in it and take it seriously or, alternatively, to find a way out. 

In reality the complementarity concept is easier to work with and also more fruitful for thinking about policy implications or for that matter the implications for management or talent training.  Success is fragile but foster competing cultures based on clusters of talent motivated by rivalry and emulation.  Don’t filter out the eccentrics or the risk takers.  That’s about where David Hume ended up but Gladwell never gets anywhere close.

It’s still a good book and a fun book.  You can order it here.

Peter Orszag for OMB?

by  Tyler Cowen in

If reports are true and Barack Obama is really going to tap widely
respected CBO Director Peter Orszag to head up the Office of Management
and Budget (it’s like the CBO, but for the White House, so it makes
sense) then I believe that would make him the highest-ranking blogger in the history of the United States of America.

Here is more.  Orszag, of course, is a very good economist.

Markets in everything: Cupzzas, a pizza baked in cupcake form

by  Tyler Cowen in

"We just really wanted to shatter the cupcake-pizza dichotomy. It’s just existed for too long."

I am a monist myself.  Here is much more information.  It is also an example of Thomas Schelling’s idea of research by accident:

"[A] lot of our ideas come from just not having the proper materials," Wilder said. "Like the pupzzas came from not being able to find the large tins."

Facts about automakers

by  Tyler Cowen in

Yermack estimates that the aggregate capital investment in GM and Ford since 1980 has led to a net reduction in capital of $465 billion…This is what I find particularly disturbing: with that $465 billion, “GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan, and Volkswagen.”

Here is more.  And here are facts about GM wages.

The wisdom of Gordon Tullock, part II

by  Tyler Cowen in

The U.S. Navy said pirates commandeered a Saudi-owned supertanker
bearing more than $100 million worth of crude a few hundred miles off
the Kenyan coast, an attack that sharply increases the stakes in an
effort by governments and militaries to protect the world’s
energy-supply lines.

U.S. Navy officials said the hijacking was unprecedented for its
distance from shore and the size of its target — a ship about the
length of a U.S. aircraft carrier. The attack appears also to be the
first significant disruption of crude shipments in the region by
pirates.

Here is the story.  Here is Peter Leeson’s paper on pirates.  I don’t yet see it on Amazon, but stay tuned for Peter’s forthcoming book The Invisible Hook. 

I thank Brad Williams for the pointer.

Addendum: From another article:

The pirates’ profits are set to reach a record $50 million in 2008,
Somali officials say. Shipping firms are usually prepared to pay,
because the sums are still low compared with the value of the ships.

Investment in the Great Depression

by  Tyler Cowen in

Brad DeLong shows a graph of how Gross Private Domestic Investment rises during the New Deal, except for the contractionary 1937-8 downturn.  The pattern is striking.

A loyal MR reader emails me a citation to Robert Higgs’s book, which on Google (pp.6-7) claims that net investment was negative over the 1930-35 period.  There is talk of a "capital consumption allowance" and that allowance accounts for the difference between the gross and the net terms.  Only in 1941 did net investment exceed its 1929 level.  Here’s a chart which seems consistent with these claims and which shows the difference between the net and the gross series for investment.  The waves are very similar but at different absolute levels.

Can any readers explain what is going on  In this time period, using this data, is net or gross investment a better indicator of recovery and economic conditions?  Is the pro-New Deal claim that making net investment "less negative" (but still negative) counts as a success or rather that the gross investment series is what matters? 

When I look at this data series — whether gross or net — I see a few monetary policy actions (initial reflation, breaking the old link to gold, increasing reserve requirements in 1936) as the dominant explanatory variables. 

The Obama transition: science and the arts

by  Tyler Cowen in

President-elect Barack Obama continues to name members of his transition team.
Among the latest announcements are that the National Science Foundation
agency review will be led by Jim Kohlenberger – who was senior domestic
policy adviser to Vice President Al Gore, where he focused on science
and technology – and Henry M. Rivera, a lawyer. For the arts and
humanities transition team, Obama has selected Bill Ivey, director of
the Curb Center for Art, Enterprise, and Public Policy at Vanderbilt
University and former chairman of the National Endowment for the Arts;
Anne Luzzatto, who served in the Clinton administration as a special
assistant to the president and who has more recently been vice
president for meetings and outreach at the Council on Foreign
Relations; and Clement Price, the Board of Governors Distinguished
Service Professor of History and director of the Institute on
Ethnicity, Culture, and the Modern Experience at Rutgers University at
Newark.

Here is the link.  Those names are not huge surprises and of course you will again see the imprint from the Clinton administration.

Fighting the liquidity trap

by  Tyler Cowen in

If you don’t like public spending you could do it this way: Give every voter a federal debit card. And put the money in their accounts. Tell them if they don’t spend it this month, the government will take it back.

Some people will try to cheat and find ways to save the money, but probably not many.

Some people will use the money to pay down their credit cards. That’s good. The less they pay in interest each month the more they can spend.

That’s J Thomas from the MR comments and you can think of it as Silvio Gesell plus some modern technology.  I’m not recommending this policy, just noting that in terms of stimulating aggregate demand it both vanquish a liquidity trap and it would outperform government spending or what I call "raising taxes in the future."