Eight more years to go

by  Tyler Cowen in

The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets.  The measured effects can not be explained by observed risk characteristics.  The sophistication of financial choices peaks at about age 53 in our cross-sectional data.  Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.

Here is the paper.

Paul Graham on unions

by  Tyler Cowen in

The early twentieth century was just a fast-growing startup overpaying for infrastructure.  And we in the present are not a fallen people, who have abandoned whatever mysterious high-minded principles produced the high-paying union job.  We simply live in a time when the fast-growing companies overspend on different things.

Here is more, provocative throughout.  Thanks to Craig Fratrik for the pointer.

A Quarter for Your Thoughts?

by  Alex Tabarrok in

Earlier this year the US defense department warned of a new threat – Canadian spy coins.  Investigators have now uncovered the shocking truth.  Here’s the gist of the story from January:

In a U.S. government warning high on the creepiness scale, the Defense Department cautioned its
American contractors over what it described as a new espionage threat: Canadian
coins with tiny radio frequency transmitters hidden inside.

The
government said the mysterious coins were found planted on U.S.
contractors with classified security clearances on at least three
separate occasions between
October 2005 and January 2006 as the contractors traveled through
Canada.

…The government
insists the incidents happened, and the risk was genuine.

"What’s in
the report is true,” said Martha Deutscher, a spokeswoman for the security
service. "This is indeed a sanitized version, which leaves a lot of
questions.”

The shocking truth?  The Royal Canadian mint issue 30 million "poppy quarters" in 2004 to commemorate Canada’s war dead.   When contractors found the coins in their coat pockets and in the cup holder of a rental car they issued reports that they were being spied upon with new nanotechnology. 

The worried contractors described the
coins as "anomalous" and "filled with something man-made that looked
like nanotechnology," according to once-classified U.S. government
reports and e-mails obtained by the AP….

The supposed nanotechnology actually was a
conventional protective coating the Royal Canadian Mint applied to
prevent the poppy’s red color from rubbing off.

Thanks to Monique van Hoek for the pointer.

Is the minimum wage coercive?

by  Tyler Cowen in

Over at CatoUnbound, Dan Klein writes:

In 2006 there appeared a “raise the minimum wage” statement signed by 659 economists. I wanted to know why they favored the minimum wage, so I wrote up a questionnaire and sent it to them. But I also used the occasion to get their views on a very important matter: Did they view the minimum wage law as coercive?

Ninety-five graciously completed the survey. Very few of them simply accepted that the minimum wage law is coercive. More than half said the law is not coercive in any significant sense.[1]

But the minimum wage law (and concomitant enforcement) threatens the initiation of physical aggression against employers who pay less than the minimum wage. It threatens physical aggression against people for engaging in certain kinds of voluntary exchange. To me, that is coercion. Just imagine if your neighbor decided that he would impose a minimum wage law on us. Wouldn’t we all agree that he was coercing us? If it is coercion when he does it, why isn’t it coercion when the government does it?

Coercion is not always bad, all things considered, but surely Dan is correct.  Ed Glaeser, Richard Epstein, and others are due to respond.

What’s the optimal number of book reviews?

by  Tyler Cowen in

Virginia Postrel writes:

As an author, I want more book reviews; quantity matters more than
quality when you’re going for sheer exposure.  But as a reader, I only
want more interesting reviews, particularly of books I’m not likely to
learn about otherwise.

Newspaper book reviews, of course, are declining in number.  Here is New York Times coverage of the phenomenon.

I can think of three functions for book reviews:

1. They help people learn about good books.  If this is true, we should expect a market optimum.

2. No one much uses book reviews, but they make newspapers feel like more prestigious products.  In this case book reviews would be an inefficient form of product differentiation by making The New York Times appear more different from The New York Post than readers ideally would like.  There would be too many book reviews.

3. People use book reviews as a substitute for reading the books themselves.  I call this "book reviews as signaling."  Abolish the reviews and either a) people will have to go read the books (an even more wasteful form of signalling), or b) people will forget about literary matters altogether, which lowers signalling costs.

I use book reviews as I would use ads for books and blurbs for books.  I just want the bottom line.  I would be happier if newspapers published many more one-paragraph book reviews, but with very clear and definite evaluations.  Entertainment Weekly does just this, although I find their taste in books unreliable.  Nonetheless I am not alone in my preference, and I believe that few people read long book reviews.  That makes me think there is something to #2.

Poverty and discrimination

by  Tyler Cowen in

Kevin Lang’s Poverty and Discrimination is marketed as a text but it is far more.  Imagine a first-rate labor economist sitting down to tell us what he knows about the topics at hand.  This includes who is poor, does economic growth still eliminate poverty, how much does family structure matter, does changing neighborhoods help a family, what have been the effects of welfare reform, how strong is labor market race discrimination, and many others.  Lang’s discussions are consistently smart and insightful.  While Lang does not offer much of his own ideas and research, only an original researcher such as Lang could produce a survey of this quality and depth.

Why isn’t there a book like this on every topic?

I do have a few quibbles.  For my tastes there is too much talk about identification problems and not enough about data quality.  Some topics are undercovered, such as the link between mental illness and poverty.  I would have added much more on poverty as a behavioral phenomenon of dysfunctional psychology and high time preferences.  The old scolding conservative account of poverty has much truth to it, but you wouldn’t know that from reading this book. 

This book is academic substance, beginning to end, and for that reason it won’t be a fun read to everybody.  But with that caveat, and noting the $60.00 purchase price, it joins my list (Sacred Games, The Savage Detectives, Prophet of Innovation) of must-reads for the year.

Here is the book’s home page.  Here is Arnold Kling on the book.

Grant McCracken on France

by  Tyler Cowen in

Yes Sarkozy is on the verge of winning, but will there be much change?  It is worth reading Grant McCracken:

This may be the only Western culture in which the phrase "creative destruction" is fully paradoxical.  All of us balk for a moment at the phrase, but the French, I think, must just shake their heads and say, "no, it’s creative or it’s destructive."  This is a culture that approaches perfection, and for a world like this all of the things that make other Western economies go, innovation, responsiveness, competition and innovations, these, in France, are wrong.  These contradict the the French style of life.   

The English could invent punk because there wasn’t very much to keep them from the aesthetic violence it required.  The Germans could rebuild the nation state because all it demanded of them was that they tear down a place stinking of cabbage and soft coal.  Americans could push us all down the bobsled of post modernity because all it meant was surviving the bouleversement of Silicon Valley in the late 1990s. 

But the French, for them change must feel lapsarian, a fall from an exquisitely accomplished grace.  The rest of us blunder from a uncertain present into the maw of a chaotic future, but then as one of my French respondents said, "it’s not like you’ve got very much to lose."  The French, you see, pay dearly for change, and sometimes they just can’t bring themselves to budge. 

Travel book panic

by  Tyler Cowen in

As the weeks before a trip approach, I assemble piles of books on the dining room table.  Each pile is constructed with care.  There is a travel guide pile, a fiction pile, a "needed for work" pile, and a "maybe I won’t take this one at all" pile.  The most important is the "I’ll probably read this one before the trip comes along" pile.

The books take on a life of their own.  At times I lose track of the planned trip and I think of it as little more than a chance to read, free of the usual interruptions.

The excitement mounts.  I frequently visit the piles and think about how it will be to experience those books.

But the day or two before the trip, panic sets in.  The piles seem totally inadequate.  Totally inadequate for my reading.  Totally inadequate for my development as a human being.  Most of all, totally inadequate for the trip.

I rush to Borders and buy a whole new set of books.

Hrak!

What I’ve been reading

by  Tyler Cowen in

1. House of Leaves, by Mark Danielewski.  This experimental novel, written with varying typefaces, page layouts, and interjected footnotes, is a fun mock of the academization of literature.  It has a large cult following but can be enjoyed by the general reader.  Don’t be intimidated by the heft, a third of the pages are essentially blank.  It felt great making so much progress so quickly.

2. The Grid: A Journey Through the Heart of Our Electrified World, by Phillip F. Schewe.  Better than no book at all, but this important topic still awaits its definitive treatment.

3. The Triumph of the Thriller: How Cops, Crooks, and Cannibals Captured Popular Fiction, by Patrick Anderson.  A good guide and overview, the author argues that Raymond Chandler is overrated relative to say Macdonald or Kehane.

4. Vasily Grossman, Life and Fate.  This Soviet-era masterpiece, which covers the Battle of Stalingrad, bored me.  I have no complaint about its quality, I simply felt the time in my life is past to further digest those themes in an emotionally meaningful way.

5. Michael Chabon, The Yiddish Policemen’s Union: A Novel.  This comic detective story is based on an alternative reality in which Israel loses the 1948 war and the surviving Jews settle in Alaska.  It’s the first book of his I’ve liked, though I don’t think it has much substance.

6. Don Boudreaux recommends ten books.

Beggars and rent exhaustion

by  Tyler Cowen in

Tim Harford, The Undercover Economist, reports:

Rent exhaustion is no economists’ fantasy – go to any place with
rich tourists and poor locals (Dar es Salaam, the first African city I
visited, fits the description nicely), and you’ll see lots of people
waiting for the one generous tip or overpriced taxi fare.  If the
tourists become more generous or gullible, the local guides don’t get
richer, they just multiply.  The bigger paydays become less frequent.

Tyler
Cowen – an economics professor with a popular blog – argues in his
forthcoming book, Discover Your Inner Economist, that for these reasons
you may wish to give money away by wandering around a poor country, far
away from the tourist trail, and handing cash to people who look busy.

Vicious fights over prime begging spots are yet another example of rent exhaustion in this context.  If the begging spot is worth say $50 a year, beggars will devote up to $50 a year to keep the spot.  Here is my previous post on whether you should give money to beggars.