Long Live the Marginal Revolution!

It looks like our short-lived technical difficulties are over (cross fingers!). If all continues to be well we should now be available at our permanent address, www.MarginalRevolution.com which is easier to remember than http://MarginalRevolution.blogs.com (the old address will continue to work just fine of course as they map to the same place). I have a question for the techies. Do different browsers use different DNS servers? I was very puzzled to find that the new address worked from IE at least several minutes earlier (and perhaps longer) than from Mozilla. Email me if you know the answer.

Can you find a Republican on the MIT faculty?

I am not a Republican, but the results from articles of this kind, from David Horowitz’s Center for the Study of Popular Culture, disturb me. In America the number of registered Democrats and Republicans, over time, is roughly equal. The same cannot be said for university faculty. The most Republican school these researchers had in their sample was Northwestern, which still had a 4-1 ratio in favor of Democrats. The aggregate ratio was about 10-1, with the school sample included the entire Ivy League and Berkeley. Brown had a 30-1 ratio in favor of the Democrats. They couldn’t find a registered Republican at MIT, Williams, Oberlin, or Haverford. They found 3 registered Republicans among the administrators of the Ivy League.

Being a collector is cheaper than you think

“…80 percent of the lots Christie’s sell go for under $8,000.” From the Thursday New York Times (registration required), and why couldn’t an editor improve the grammar in that sentence? The median lot at Sotheby’s sells for $4,177, at Christie’s South Kensington, a branch, the median lot sells for $2,259. More than ever before, collecting is no longer the exclusive province of the wealthy.

Why I worry about vouchers

Alex (my co-blogger) and I have been arguing for years, it is perhaps no surprise that now we do it in the blogosphere. He is more optimistic about the performance of school vouchers than I am. He notes that housing vouchers have worked well, better than government housing, I think that school vouchers are more problematic than housing vouchers for several reasons:

First, government must define which schools are acceptable recipient of vouchers. In the short run it is fairly clear, it is far less so if we have vouchers in place for twenty years and schooling evolves. What about schools that teach black supremacy? Radical Islam? Creationism? Remember how controversial a few supposedly obscene NEA grants were? Not all those grants went directly to the artists either. What if an educational program involves home schooling plus ten hours of class time a week? Would that qualify for a voucher? Defining “suitable housing” does not involve a problem of nearly this magnitude.

Second, school vouchers could become the new middle class entitlement, as I mentioned in my New Zealand post earlier today. Imagine politicians upping the voucher amount and coverage to win votes each election cycle, just as they are now extending senior health coverage to prescription drugs. Again, we have not seen this with housing vouchers but “parents” are a much bigger and stronger constituency.

If I had my finger on the vouchers button, I would press it and allow experimentation at the state and local levels. So many American urban public schools are a disgrace. But few partial deregulations have worked better than promised. Most have created perverse incentives and occasioned considerable backlash, we all know that electricity “deregulation” has been a mixed bag at best, although the idea in principle makes sense.

If we are going to move forward with vouchers, I would like to know what the plan will look like, once it gets through the political meatgrinder. I don’t know any voucher proponent who has done this.

How rich are you, globally?

If you earn $36,000 per year, you are in the top one percent of our planet, for a more comprehensive look at your relative status, check out the Global Rich List, don’t use commas when you type in your yearly income. Their stated goal is to encourage charity and make us feel happy about how rich we are, in reality I think they are trying to make us feel guilty about how rich we are. They don’t mention the policies and cultural attitudes that created this wealth.

The reference is from the blog of John M Scalzi.

Addendum: Donald Sensing tells us much more about the genesis and meaning of the list.

Kiwi watch: Can New Zealand fly again?

Read this interview with Roger Douglass, former New Zealand finance minister and the initiator of New Zealand’s market reforms, which now have stalled for a decade.

Douglass tells us: “Government spending on welfare, retirement income, health and education has now reached $8,000 per New Zealander and $24,000 per household per year [that is Kiwi dollars, take 55 American cents as a ballpark figure for the time period in question]”. At the same time the quality of these services has not been rising. Douglass proposes tax credits for these services instead, combined with market provision on the supply side.

Unlike with vouchers (see Alex’s previous post on vouchers), the state would not have to define what constitutes an acceptable education or social service. This is a significant advantage of Douglass’s notion of tax credit. On the other hand, the reform institutes the equivalent of a negative income tax or guaranteed annual income. A welfare payment that is automatic and easy to collect has bad incentive effects and runs the risk of becoming a new middle class entitlement, increased before every election.

Douglass describes “believability” as the biggest obstacle to reform. Given that a large change would be in the offing, most New Zealanders simply would not believe that they would receive equal or greater quality services for the same or lower net price.

“Blame Sarbanes-Oxley”

Peter Wallison, in today’s Wall Street Journal (registration required, and yes you have to pay), serves up a biting critique of Sarbanes-Oxley, the recent legislation aimed at limiting conflicts of interest within corporations.

Here is a key passage:

…this was a wholesale change in the governance of American corporations, putting significantly more authority into the hands of independent directors and correspondingly reducing the power of corporate managements…it may have had unintended consequences – a reluctance of managements to take the risks and make the investments that had previously brought the economy roaring back from periods of stagnation or recession…The independent directors of a company are part-timers…Unfamiliarity in turn breeds caution and conservatism…They [directors] have little incentive to take risk and multiple reasons to avoid it.

There is not much more to the Op-Ed than that, no real facts, but this is an important point. Passing Sarbanes-Oxley was a kneejerk reaction from a Congress that felt the need to do something, anything, about corporate scandals. The Senate voted for it 99-0 (only a few negative votes in the House), never a good sign, unanimous votes often mean that an angry and uninformed public opinion rules the day. Time will tell what costs we will pay for this mistake.

Here is a small bit on implementation costs, but keep in mind they are secondary to the question of how investment gets distorted. I realize that corporate insiders are not the ones to trust here, but they don’t like the law either.

Let’s accept the fact that corporate governance isn’t always fair, and opt for the system that does the best job of delivering the goods.

Addendum: Here is a direct link.

Russian rebound

David Warsh offers a good, balanced piece, with good links, on Russia’s recent economic performance, seven percent growth last year, a bright spot in Europe. A third of Muscovites earn a normal European wage.

I visited Moscow last month, it seemed poorer to me than Mexico City. Even more worrisome, there was a noticeable apathy about politics, only the Mafias seem to care. My wife is Russian, so I had good chances to meet and talk with other Russians, a select group no doubt, but even they had little passion to work for political improvement.

Stay tuned. And don’t ask about the provinces.

When is word of mouth important?

I have found some data on the relative importance of word of mouth for various purchases and choices. The first number in each category is what percent of respondents say they rely on other people, as one of the three best sources of information in a given area. The second number is the percent relying primarily on advertising:

Restaurants: 83, 35 (word of mouth is huge, by the way check out my ethnic dining guide)

Places to visit: 71, 33

Prescription drugs to try: 71, 21 (the prevalence of word of mouth here surprised me, do men really boast to other men about the effectiveness of Viagra? Or do women spread the word?)

Movies to see: 61, 67 (this time I am surprised that advertising is so effective, I guess that is why they spend $30 million marketing the average Hollywood movie)

Videos to rent or buy: 59, 45

Retirement planning: 58, 9

Clothes to buy: 50, 59

Finding a new job: 47, 54 (I am surprised that ads are so potent here)

Computer equipment: 40, 18

Web sites to visit: 37, 12

From the new book The Influentials, by Ed Keller and Jon Berry. The book is about the ten percent of the American population that (supposedly) tells the other ninety percent what to do, I assume that bloggers fall into the former category. The material is a bit fluffy, still unlike many marketing books it does have useful facts and figures. By the way, we are told that word of mouth is important for books too, although there is no single simple figure to cite.

Education Vouchers: The Lessons from Housing

Tyler is concerned that a voucher system for education might end up looking like our health care market – “a crazy-quilt mix of bad incentives, high costs, and increasing levels of intervention.” But our health care system is not a voucher system – much more relevant is the existing voucher system for housing. Public housing has been a disaster in this country, low quality, dangerous and expensive (to the taxpayer). The Section 8 voucher and similar certificate programs have been far superior on all measures. What would you rather have – an apartment in a public housing project, costing the taxpayer $1000 a month, or a voucher worth $500 a month that you could spend on private housing?

The economic studies on the superiority of vouchers are unanimous. Here is Ed Olsen, one of the country’s leading researchers:

Five major studies have estimated both the cost per unit and the mean market rent of units provided by housing certificates and vouchers and important production programs, namely Public Housing, Section 236, and Section 8 New Construction.1 These studies are based on data from a wide variety of housing markets and for projects built in many different years. Three were multi-million dollar studies conducted for HUD by respected research firms during the Nixon, Ford, Carter, and Reagan administrations. They are unanimous in finding that housing certificates and vouchers provide equally desirable housing at a much lower total cost than any project-based assistance that has been studied, even though all of these studies are biased in favor of project-based assistance to some extent by the omission of certain indirect costs.

As with housing, the market for education would be very competitive so we would not see price rises due to monopoly problems (as Tyler fears might be the case). There has been a big debate about whether private schools result in better outcomes that public schools. Put aside this debate and focus on what is undeniable – private schools have achieved at least as good outcomes as have public schools but at about half the cost (similar to the cost savings of vouchers over public housing). Thus we are starving the most productive sector of the educational market and throwing money at the least productive sector. Prices might rise in a voucher market but only as a rational response to the lower price of quality in private schools.

A response to Charles Murray

An article in today’s Washington Post cites recent research on the heritability of IQ. Here is the bottom line:

“Genes do explain the vast majority of IQ differences among children in wealthier families…But environmental factors – not genetic deficits – explain IQ differences among poor minorities.” The IQ heritability quotient is 0.72 for well-to-do families, but only 0.10 for poor families. The key data involves 623 pairs of twins born to poor black mothers. It seems that genes and environment interact to a greater degree than had previously been thought, perhaps good genes help you only significantly only when you have a certain minimum level of educational opportunity.

The piece will be out in the November issue of Psychological Science, here is the home page of the author, Eric Turkheimer.