A simple ethical conundrum

by  Tyler Cowen in

A few days ago I was in a London taxicab when I noticed a possibly expensive purse in the seat next to me.  I climbed out of the cab and without much thought (shame on me) gave it to the driver.  I explained someone had left it there.  Of course I was intent on treating the driver like a decent human being.  But wait, I know I am honest and maybe he isn’t.  But wait, maybe I couldn’t have gotten the purse to the woman very easily.  But wait, I could have posted notice on this blog and had you help me track her down.  But wait, isn’t it my obligation to simply leave the woman no worse off than she was in the first place?  But wait, what is the default point for defining "in the first place"?  But wait, what would the driver have thought if he saw me taking the purse out of his cab?  But wait, isn’t a purse really really important?  But wait, what if the purse belonged to the driver?

What I really think of the new popular economics books

by  Tyler Cowen in

I recently published an article in the Swiss arts magazine Du on the wave of popular economics books.  Yes I am an economist but I am also interested in the implicit philosophies and theologies of these books.  My piece is in German and not on-line but here are a few bits from it.

About Freakonomics I wrote:

The implicit theology of Freakonomics is that of original sin. The book is full of stories of liars: “people lie, data don’t” can be taken as the book’s motto…

Levitt and Dubner seek to puncture naïve optimism. It is the reader who needs reforming, and the proposal is to drive naivete out of our systems. We must recognize original sin (recall the bite into the apple on the book’s cover), give up on utopian dreams, and stick to what can be proven by science. That means an acceptance of ongoing human depravity, but Freakonomics goes further. It preemptively protects us against encountering that depravity and lying in our own lives. We have been warned, and we need no longer fear disappointment from our encounters with the real world.

It should come as no surprise that Dubner – the one who actually wrote the book – also penned an entire book about his personal theology. Dubner is ethnically Jewish but his parents had converted to Catholicism and raised him as a Catholic. Over the course of his life he rediscovered his Jewish heritage and religion and chronicled that process in his fascinating Choosing My Religion: A Memoir of a Family Beyond Belief. It is theology, Dubner’s main obsession, which gave him the background to write a popular economics book that touched so many Americans.

And how about Tim Harford?

Harford’s voice is always gentle, sometimes cynical, and usually whimsical and reassuring in his language. He points to the ironies of life. He is hardly one to deny that people lie, but such peccadilloes are a sideshow rather than the center of his moral universe. We still can make our way in the world and carve out a small piece of personal happiness and perhaps a small bit of virtue as well. Harford often reminds us that hedonism has its place in human affairs; his latest book opens with a discussion of the prospect of “a rational [you-know-what].”

In other words, Harford serves up British secularism rather than American original sin. Harford’s “Dear Economist” column…views human foibles as inevitable yet endearing; in Harford’s world no judgment is ever too harsh or too one-sided.

As an economist, Harford seems more interested in “invisible hand mechanisms” than are Dubner and Levitt. Freakonomics informs us that what appears to be ordinary is in fact full of corruption. Harford’s Undercover Economist is keener to show that the apparently corrupt can, at the macro level, lead to entirely acceptable and indeed sometimes humane results.

There is much more, here is one final bit:

Popular economics books reveal their true colors most clearly when they talk about sex. In Freakonomics sex is not holy but rather sex and reproduction lead to the birth of criminals…For Harford sex is a slightly naughty pleasure, and a pleasure to be mocked, but at least it is a real pleasure; this American reviewer again cannot help seeing the British tinge of his work.

Northern Rock has been nationalized

by  Tyler Cowen in

The media here seem more shocked than I am.  But imagine — a country dedicated to liberal economics (more or less) nationalizes one of the largest firms in its most vibrant economic sector.  Martin Wolf has a good piece on the event.  The real question is whether the UK (and other countries) will feel compelled to move to a system of regularized depositor liquidity rights and larger deposit insurance guarantees.  Right now British depositors receive a lower guarantee, both de jure and de facto, and can wait for months for access to their funds from a failed bank; read more here.  For all its drawbacks and screwy incentives, arguably the biggest advantage to deposit insurance is simply that it makes bank nationalizations unlikely.  Simply letting the bank fail is not always a credible alternative, because of contagion effects, bank runs, and the simple workings of democracy.  The bank did face an offer from Richard Branson but it seems that the numbers did not add up and the government would have been left holding the bag anyway.  Felix Salmon adds commentary.

Book Forum: Harford and Kevin Grier on Cities

by  Alex Tabarrok in

Kevin Grier at Kids Prefer Cheese continues our book forum on the Logic of Life with a discussion of The World is Spiky.

Here is my summary of Tim’s argument. Cities are expensive, and that
expense is above and beyond paying the necessary rents to gain access
to their unique amenities. Cities are marked by knowledge spillovers, a
positive externality (don’t get mad Bryan)
where human capital grows faster when one is around more humans. And
the internet, rather than reducing the positive effects of cities on
productivity, actually enhances them. Thus, rather than subsidizing
rural areas, perhaps we should consider subsidizing cities.

Luckily
for Tim and his prospective book sales, he tells this story in a much
more entertaining way than I just did. But I still have some questions,
suggestions, and quibbles.

The claim is made that salary
differences don’t match up with cost of living differences and the
reason for this is knowledge spillovers, but it is not spelled out
exactly how that would work. An alternative seems to me that zoning
restrictions create these big rents and pre-existing property owners
are sucking a lot of the consumer surplus out of people with high
valuations on cool experiences…..

Tim discusses
“failing cities” and describes (correctly I think) why people still
live there, but gives no explanation for why they failed if indeed
cities produce these positive externalities. There is no discussion of
some of the very biggest cities in the world; Mexico City, Lagos,
Jakarta. It would be nice to know where the argument works, where it
doesn’t and how to know which is which…

More here.

The Power of Vouchers

by  Alex Tabarrok in

Many studies of education vouchers have looked at the achievement of children who are given vouchers and who transfer to private schools.  Generally these studies have found small but meaningful improvements (e.g. here and here).  A voucher program, however, is about much more than transferring students from lousy public schools to better private schools it’s about creating incentives to improve the public schools.

Florida’s Opportunity Scholarship Program rated schools.  Students at schools that received an F in multiple years became eligible for a voucher that allowed them to attend a private or higher-rated public school.  In Feeling the Florida Heat? (ungated version) a paper sponsored by the Urban Institute Rouse et al. look at what happened at failing schools.

…we find that schools that received a grade of “F” in summer 2002 immediately improved the test scores of the next cohort of students, and that these test score improvements were not transitory, but rather remained in the longer term. We also find that “F”-graded schools engaged in systematically different changes in instructional policies and practices as a consequence of school accountability pressure, and that these policy changes may explain a significant share of the test score improvements (in some subject areas) associated with “F”-grade receipt.

Thus, this paper shows two things.  First, that the test scores of the students in the public schools improved when vouchers gave the schools better incentives to perform.  Second, at least some of the improvement comes from changes in how students are taught.  The author’s note, for example:

…we find that schools receiving an “F” grade are more likely to focus on low-performing students, lengthen the amount of time devoted to instruction, adopt different ways to organize the day and learning environment of the students and teachers, increase resources available to teachers…

It is not true that "nothing can be done to improve the schools."  Incentives matter.

Notice that Florida’s program worked even though the program was very weak.  It offered vouchers only to students in the worst schools and only after those schools received F grades in multiple years.  The vouchers were relatively small and could not be topped up.  In addition, the program lasted only a few years before it was declared unconstitutional by Florida’s supreme court.

A true voucher program would be national, would not discriminate among students, would offer funding equal to that spent on students in public schools and would be permanent. Competition in such a system would be more intense and even more productive than in Florida’s program.

It’s an Election, not a Revolution

by  Tyler Cowen in

That’s the title they gave my latest NYT column.  Excerpt:

To put it simply, the public this year will probably not vote itself
into a much better or even much different economic policy. To be sure,
the next president – whoever he or she may be – may well extend health
care coverage to more Americans. But most of the country’s economic
problems won’t be solved at the voting booth. It is already too late to
stop an economic downturn. Health care costs will keep rising, no
matter who becomes president or which party controls Congress. China is
now a bigger carbon polluter than the United States, so don’t expect a
tax or cap-and-trade rules to solve global warming,
even if American measures are very stringent – and they probably won’t
be, because higher home heating bills are not a vote winner. A
Democratic president may propose more spending on social services, but
most of the federal budget
is on automatic pilot. Furthermore, even if a Republican president
wanted to cut back on such mandates, the bulk of them are here to stay.

Yes, the election does matter. Even small differences on
economic issues affect millions of Americans. But the record of the
Bush administration should prove sobering to all those who expect the
American political economy to turn around in the next four years.

Many
conservative and libertarian economists supported President Bush,
thinking they would be getting policy drawn from the work of Milton Friedman
and Martin Feldstein, two respected market-oriented economists.
Instead, in economics, the Bush years have brought an increase in
domestic government spending, and some poorly-thought-out privatization
plans. For all the talk of an extreme right-wing revolution, government
transfer programs like Social Security and Medicare have continued to grow. And despite big mistakes involving the Iraq war, Mr. Bush wasn’t punished by voters in 2004.

There is much more, and it is a more political column than I usually write.  My final conclusions:

And if you’re still worrying about how to vote, I have two pieces of
advice. First, spend your time studying foreign policy, where the
president has more direct power, and the choice of a candidate makes a
much bigger difference. Second, stop worrying and get back to work.

And there are points I could not cover for reasons of space, such as the constraining need to provide an AMT fix, or the ability of a party to sound more intelligent when it is out of power.

Addendum: Here is coverage from Mark Thoma and commentators; do they support or contradict Mark’s last sentence?  And here is commentary from John V.

China fact of the day

by  Tyler Cowen in

It’s not quite a fact, but here goes:

According to China Mobile, there were already 400,000 cracked iPhones using its cellular network by the end of 2007.
That number, if accurate, is astonishing. It would mean that there
are more unauthorized iPhones in China than there are authorized
iPhones in Europe. It would account for the largest part of the
so-called “missing” iPhones.

It’s a fact if you believe China Mobile, which I do.

Claims my Russian wife won’t even deign to laugh at

by  Tyler Cowen in

If you get up late in the morning on weekends, you must think sleep is very valuable.  And if sleep is very valuable, that means we should go to bed early.  Because if you go to bed early, you always have the option of sleeping later — that is sleeping more — and getting even more sleep than if you had gone to bed late.  (You can’t just shift your sleep into any hours block you want, given the coordination issues.)  And if sleep is very valuable, the option to sleep more must be valuable as well.  Therefore it’s time to go to bed.  Now.  Early.

No response was forthcoming.  The argument, of course, gets at whether "sleep" or "postponement" enters the utility function as the final good.  There are some economic papers on procrastination, but overall postponement, or for that matter its closely allied cousin "preemption," is an understudied topic in economics.

Don’t burn it

by  Tyler Cowen in

Tom Stoppard weighs in on the burn it/don’t burn it debate about Nabokov’s unfinished work: "It’s perfectly straightforward: Nabokov wanted it burnt, so burn it."

That is from Bookslut, but Stoppard is wrong.  Dead people don’t count in the social welfare function. (If they did, how many of them would prefer non-democratic or racist outcomes?  And would we count that?  We shoudn’t and we don’t.)

Don’t destroy the output.  Nor is there an incentive problem.  If we release Nabokov’s papers as a book, maybe the next Nabokov will burn the manuscript in the first place.  We’re no worse off, compared to not releasing such manuscripts.  Kafka told Max Brod to burn his works, but we’re all glad Brod didn’t.  Think of the current generation as a player in the multiple selves game of the author (he could have burnt it himself long ago) and then the right answer is obvious.

Johannes Fedderke and the importance of good governance

by  Tyler Cowen in

File him in the category underappreciated economists.  Does good governance matter for growth?  Could there be a more important question for economists? The standard cross-sectional growth tests do not show much of a robust effect.  But Johannes, along with co-authors Robert Klitgaard and Kamil Akramov, has a 150-page paper showing that if you take all the relevant heterogeneities into account yes, Adam Smith and Doug North were right after all.

Or do you prefer simple regressions which meet the eyeball test?

Here is the full paper.  Here is Johannes’s long paper on South African economic history.

What I’ve been reading

by  Tyler Cowen in

Descubre al Economista que llevas dentro.  That’s the Spanish language translation of my Discover Your Inner Economist, due out in Spain February 19.

You can order copies through some of these sources.

The translation is very well done and accurate, though it is odd to read myself sounding like a Spaniard instead of a colloquial Mexican.  Whenever I go to Spain I am in fact shocked to discover that there is an entire European country in which the people speak Spanish.  And they speak it well.

If you want to come to my talk in Madrid next week, here is the link.