In praise of red tape

by  Tyler Cowen in

At a time when the press failed to check a reactionary Administration,
when the opposition party all too often chose timidity, it was the
lowly and anonymous bureaucrats, clad in rumpled suits, ID badges
dangling from their necks, who, in their own quiet, behind-the-scenes
way, took to the ramparts to defend the integrity of the American
system of government.

That is Christoper Hayes.   I call it The Paradox of Accountability.  Bureaucrats are, in many cases, not very accountable.  That same quality makes them ideally suited to impose accountability on other parts of government, most of all leaders.  The downside is that the Smithsonian expense reimbursement scandal can go on for so long.  Note also there cannot be the same overseer for every part of government; that ovedrseer would itself not be accountable.  (Was it Brecht who, a’la Bryan Caplan, wanted to call an election and institute a new set of people?)  At the same time no part of government is insulated from accountability either; the paycheck must come from somewhere.  Nodes of accountability and unaccountability more often evolve than are chosen, yet we have only a murky sense of what the optimal filters might be…

What is at stake in the new EU negotiations?

by  Tyler Cowen in

Henry Farrell has the scoop.  Excerpt (the post has much more):

…will national parliaments get an effective veto over decisions made at the EU level [?].  The constitutional treaty provided them with a warning role which I suspect would have amounted in fact to an effective veto power (it would be politically difficult to ignore their recommendation) – at the moment, there is a proposal on the table to enhance this further.  This seems to me to be an excellent idea.  National parliaments have been losing clout in the EU – a lot of their business now involves either rubber stamping or making minor modifications to legislation that is drafted at the EU level.   With a couple of exceptions, they don’t play much of a role at all in discussing how governments should negotiate on European legislation.  Providing them with an effective veto at the end of the process would mean that they would have to be consulted earlier, and would perhaps become over time a key partner in the legislative process.  This would mean increased inefficiencies in getting things done (the addition of another veto player), but would also mean a lot more democratic legitimacy.  At the moment, governments are able to get away with a lot of stuff at the EU level that they couldn’t get away with domestically.

My personal view is to keep the extra roadblocks yet deny the extra legitimacy.  Ultimately I would have the EU be more like a huge free trade area and "bribe Eastern Europeans to be freer" society.  I agree that Henry’s wishes for a more active EU would be good for the short run (elites can be smart), but in the longer run I fear the destabilizing consequences of organizing so many political decisions around institutions which will never connect with voters in any single country or linguistic group.

Claims that intelligent left-wing bloggers couldn’t possibly agree with

by  Tyler Cowen in

We don’t take steps to redress inequalities of looks, friends, or sex life.  We don’t grab a kidney from you to save someone’s life, even though that health difference was unfair brute luck.  Redistribution of wealth has some role in maintaining a stable democracy and preventing starvation.  But the power of wealth redistribution to produce net value is quite limited.  The power of wealth creation to produce net value is extraordinary.  Most of America’s poor are already among the best-off of all humans in world history.  We should be putting our resources, including our advocacy and our intellectual resources, into wealth creation as much as we can.

That’s me, quoting me; I pulled the material from the inner guts of Typepad software.

Ricardian rent theory

by  Tyler Cowen in

Lex, a loyal MR reader, asks:

My understanding of Ricardo’s theory of rents is that they are based on the least productive land used.  Shouldn’t rent be based on the most productive land not used?  Is that merely a semantic difference?

Ricardian rent theory is strange. Let’s say you have three pieces of land, yielding 3, 5, and 10. Rent will be 7, or 10-3, with apologies to Samuel Hollander. The marginal piece of land, the one yielding three, is allocated to wages and profit from capital.  (You can treat profits as an afterthought in this model.) The rest goes to landowners.

Why might that distribution result?  In the Ricardian model you can (and do) augment labor through Malthusian breeding.  So labor doesn’t have much bargaining power in the long run.  Any move in favor of wage labor creates more people and lowers the wage of labor to the return on the marginal unit of land.  If you have some extra land, even if it isn’t incredibly productive, you can always breed more people to cultivate that marginal unit.  So the value of the least valuable piece of land in essence sets the wage.

Land is inelastic in supply, and thus the landowners reap the rest of what is produced.  We can also see that the last plot of land used (and not the marginal piece of land not used) determines rent and wages, because it is the actually used piece of land which regulates population and the return to labor.

That is my quick and dirty take on Ricardo, noting that "what Ricardo really meant" became a cottage industry about one hundred and ninety years ago…

The best sentence I read today

by  Tyler Cowen in

[From the NY Times.]  I commented earlier
on the contradiction between how college presidents think students
should be judged – they believe it is fine to judge all students
according to one standard that usually has little to do with their
strengths and goals – and how they wish to be their colleges to be
judged.

That’s Seth Roberts.  From Arnold Kling, here is a very good post on set points.

Efficient rent-seeking

by  Tyler Cowen in

I wish to thank the many loyal MR readers (buyers!) who pre-ordered my Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist.  On Amazon.com it went from non-existent in the rankings to a peak of #220, hovering most of the day in the mid-200s.

The offer of access to my secret blog still stands; pre-order the book and write to [email protected]. 

By the way, here is Daniel Klein on the use of tying to produce public goods.  Or think of the economics this way: ex post copyright brings monopoly rents to some producers.  Some of those profits are competed away by advertising, except in this case "the ad" is intended to provide real (not just persuasive) benefits to the consumers.  Here are books and papers on efficient rent-seeking.

Addendum: I’ve now been adding new posts to it, but of course I can’t tell you their topics!

Behavioral economics and poverty

by  Tyler Cowen in

Mullainathan worked with a bank in South Africa that wanted to make more loans. A neoclassical economist would have offered simple counsel: lower the interest rate, and people will borrow more. Instead, the bank chose to investigate some contextual factors in the process of making its offer. It mailed letters to 70,000 previous borrowers saying, “Congratulations! You’re eligible for a special interest rate on a new loan.” But the interest rate was randomized on the letters: some got a low rate, others a high one. “It was done like a randomized clinical trial of a drug,” Mullainathan explains.

The bank also randomized several aspects of the letter. In one corner there was a photo—varied by gender and race—of a bank employee. Different types of tables, some simple, others complex, showed examples of loans. Some letters offered a chance to win a cell phone in a lottery if the customer came in to inquire about a loan. Some had deadlines. Randomizing these elements allowed Mullainathan to evaluate the effect of psychological factors as opposed to the things that economists care about—i.e., interest rates—and to quantify their effect on response in basis points.

“What we found stunned me,” he says. “We found that any one of these things had an effect equal to one to five percentage points of interest! A woman’s photo instead of a man’s increased demand among men by as much as dropping the interest rate five points! These things are not small. And this is very much an economic problem. We are talking about big loans here; customers would end up with monthly loan payments of around 10 percent of their annual income. You’d think that if you really needed the money enough to pay this interest rate, you’re not going to be affected by a photo. The photo, cell phone lottery, simple or complicated table, and deadline all had effects on loan applications comparable to interest. Interest rate may not even be the third most important factor. As an economist, even when you think psychology is important, you don’t think it’s this important. And changing interest rates is expensive, but these psychological elements cost nothing.”

Mullainathan is helping design programs in developing countries, doing things like getting farmers to adopt better feed for cows to increase their milk production by as much as 50 percent. Back in the United States, behavioral economics might be able to raise compliance rates of diabetes patients, who don’t always take prescribed drugs, he says. Poor families are often deterred from applying to colleges for financial aid because the forms are too complicated. “An economist would say, ‘With $50,000 at stake, the forms can’t be the obstacle,’” he says. “But they can.” (A traditional explanation would say that the payoff clearly outweighs the cost in time and effort, so people won’t be deterred by complex forms.)

Thanks to a reader — his name mistakenly deleted from my email — for the pointer.

Sophisticated, Unintelligent-Non Design

by  Alex Tabarrok in

The buds or leaves of many plants are arranged not randomly but in sophisticated spiral structures that exhibit many mathematical properties involving Fibonacci sequences and golden angles. 

FlowerA theist might see evidence of intelligent design in these structures.  An evolutionary biologist (or economist) might see evidence of unintelligent design i.e. they will assume that since the patterns are far from random there must be some functional advantage to spiral patterns and that natural selection operating over many generations results in a convergence to or near the optimum.

There is, however, a third – often overlooked – possibility.  Sophisticated structures may be the result of unintelligent, non-design.  Here’s an interesting article, for example, arguing that the spiral patterns in flowers are the result of physical processes of attraction and repulsion.  In particular, check out this cool movie which shows magnetized drops of ferrofluid being dropped into a dish that is magnetized at its
edge and filled with silicone oil. The droplets are attracted to the edge of the dish and repelled from one another.  What’s interesting is that when the droplets are dropped slowly they float directly away from one another in a simple pattern but when they are dropped quickly they form intricate spirals with different properties depending on how quickly they are dropped.  (Note that the movie is a bit long – just grab the slider and you will see what is going on).  The physical model is only suggestive of what is going on in flowers, of course, but the idea is generating new testable predictions about the kinds of patterns we should see in real flowers.

My suspicion is that quite a few of the sophisticated patterns that we see in nature and elsewhere is neither intelligent nor unintelligent design, i.e. not functional in any direct sense, but rather the result of unintelligent, non-design.

Why don’t we have real Chinese food in the United States?

by  Tyler Cowen in

We don’t — just believe me — outside of a few places such as Monterey Park or Flushing, Queens.

Dan Drezner poses the query, and considers immigration restrictions as a factor, though without endorsing that hypothesis.  Immigration can’t be the key reason, since I can learn to cook the stuff (really), there is plenty of excellent Chinese food in Tanzania (really), and most French food in America is cooked by Mexicans (that you already knew), albeit with instructions.  The main problems are simple:

1. Cantonese food requires super fresh ingredients, lots of vegetables, and amazing seafood.  That’s three strikes right there, especially below the gourmet price level.

2. Sichuan and Hunan foods are oily, often very spicy, and most of all use lots of animal fat.  Nor do they hesitate to serve up chicken kidneys, pig’s maw, and the like.  This is essential for these cuisines to taste good but it all goes against the American grain.  To cite one example, Mexican food cooked with fresh lard tastes much better than with vegetable oil, yet most Mexican families, within a generation and a half, make the switch to vegetable oil (que triste!).

3. Even today most Chinese cities are huge gardens with massive swathes of small-plot farmland, right within the city.  Shanghai too.  The short food supply chain makes many things tastier, as they are sold fresh in daily markets.  The cuisine is designed around that system, whereas mass-produced American cuisine meshes with long-distance trucking.  This clash of culinary civilizations penalizes true Chinese styles, though I’ll still predict that real Sichuan will be the next big food trend here in the U.S.  In my household, it already is.

Since there is excellent and reasonably authentic Chinese food in densely populated Chinese-American communities, consumer demand (see #2) is probably the major factor.

For the comments I’ll stipulate no rehashing of the usual immigration debates; you all have enough chances to do that.

p.s. On MR it’s China Day!