Don’t forget to say thanks

Paul Schervish and John Havens at the Boston College Social Welfare Research Institute have projected that between 1998 and 2052, between $31 trillion and $41 trillion of [American] wealth (in 1998 dollars) will move from one generation to another. They estimate that during this fifty-four-year period, our economy will produce 10.1 million new millionaires.

The stock market crash did not require much of a revision in this estimate, according to an article on Schervish’s home page. Here is the home page itself, you will see that Schervish studies donor behavior. Here is the home page of John Havens.

Of course their numbers are, in some ways, gross underestimates. Let’s not forget the even more important bequests of decent institutions, the American Constitution, science, and technology. The next generation will enjoy something better than Stone Age conditions, not because they are so especially smart, but because of the shoulders they will be standing on.

All of a sudden, I don’t feel so bad about making these people pay for my retirement and the retirement of my baby boom generation.

The above quotation is from The Greater Good, by Claire Gaudiani, a keen treatment of the importance of philanthropy in American life. The author notes that many more people donate to charity than vote. It is also more people than eat fast food or would read a book.

Roosevelt and the Great Depression

I was amused to see Conrad Black writing with shock:

Jim Powell of the Cato Institute (cited approvingly in a recent column by Robert L. Bartley) argues in a new book that FDR actually prolonged the Depression!

Of course, Powell is correct. Imagine, increasing the power of unions to strike and raise wages during a time of mass strikes and mass unemployment. Imagine thinking that cartelizing whole industries thereby raising prices and reducing output could improve the economy. Not everything Roosevelt did was counterproductive – he did end prohibition (although in order to raise taxes) – but plenty was and worst of all was the uncertainty created by Roosevelt’s vicious attacks on business. (See, for example, the work of Bob Higgs especially this important paper and historian Gary Dean Best’s overlooked classic Pride, Prejudice and Politics.) Business investment failed to recover because business people legitimately feared a regime change like that which had occured in Germany and Italy. Sound extreme? Roosevelt himself threatened/promised this in his first inaugural:

…if we are to go forward, we must move as a trained and loyal army willing to sacrifice for the good of a common discipline, because without such discipline no progress is made, no leadership becomes effective. We are, I know, ready and willing to submit our lives and property to such discipline, because it makes possible a leadership which aims at a larger good… I assume unhesitatingly the leadership of this great army of our people dedicated to a disciplined attack upon our common problems….in the event that the Congress shall fail to take one of these two courses, and in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me. I shall ask the Congress for… the power that would be given to me if we were in fact invaded by a foreign foe.

Microsoft hires bounty hunters

Microsoft has put up “two $250,000 rewards, a total of $500,000, for information that leads to the arrest of the writers of two nasty computer worms — the Blaster worm and SoBig.” I am all for this as those guys sure wasted some of my time. As regular readers will know, I am also a fan of bounty hunters (see my earlier post; and my econometric paper – finding that bounty hunters reduce failure to appear rates and bring back fugitives much more succesfully than the public police).

Greenhouse effect skeptics

Here is an entire web site devoted to skepticism about the greenhouse effect, and whether the burning of fossil fuels is at fault. It offers the latest scientific research on the skeptical side, excellent visuals, and regular updates. I am an agnostic on this issue, and underinformed most of all, but I do feel that this alternative point of view deserves a better hearing.

How to commission music

Why not? And it might only cost you a few thousand dollars.

A doctor in Illinois commissioned a mass from Christopher Rouse. A Twin Cities musical version of the Beardstown Ladies stock club gets together after dinner to talk about movies and family life and which oboe concerto we should commission next.

Read here for more information, including a booklet of commissioning instructions and a phone number for assistance. The bottom line: Patronage today is more active, and more decentralized, than ever before.

Fires and insurance

Why do people put their houses in the path of so many fires? Matt Welch at suggests an answer:

“The frequency and the intensity of the forest fires in the Southern California chaparral are the greatest in the United States, with the possible exception of the wildfires of the New Jersey Pine Barrens,” wrote environmental essayist John McPhee, in his marvelous “Los Angeles Against the Mountains” section of The Control of Nature. “It burns as if it were soaked with gasoline… The canyons serve as chimneys, and in minutes whole mountains are aflame, resembling volcanoes, emitting high columns of fire and smoke.”

Of course, those canyons–at least the ones not owned by the state or federal government–also serve as glorious, high-end residential real estate, eligible for the state-mandated, below-market FAIR insurance. According to Kiplinger’s, the average FAIR policy here costs $350. Part of the reason for the low price is that FAIR plans don’t generally cover theft or personal liability. But another is that there is a two-fisted downward pressure on prices–political desire to keep rates affordable, and the massive disincentive for any private insurers to compete against the heavily backed, low-priced plans.

The bottom line: These people are not paying the full social costs of their real estate decisions. In response we are offering welfare for the wealthy.

Thanks to Instapundit for the pointer, see also his commentary.

An incentive program to catch terrorists?

Tom Bell suggests the following on today’s

…we need to spur white-hat security hackers with the prospect of profit and to guide their efforts into safe and useful channels. We need, in other words, to set up a bounty program that will reward both pretend terrorism and real security. Program participants who successfully hack the U.S. air security system would win money for their efforts. Unsuccessful hackers would have to pay the guards who catch them.

Here are my worries:

1. It will, in the long run, lead to the discovery of knowledge that is used by terrorists (Bell does discuss this, see the link).

2. Public anxiety, one of the biggest costs of terrorism, would rise appreciably. We would be constantly aware of our own vulnerability and we would become increasingly insecure. Isn’t that what the terrorists want? Terrorism as a phenomenon would receive more attention, perhaps to the benefit of terrorists. The 20-year-old who cracked security with box-cutters made the front pages.

3. Let’s say it worked. Would net terrorism decline? I’ve always wondered why terrorists have this obsession with planes, rather than stadiums, which would appear more vulnerable. Of course we could use the idea with stadiums as well, but overall substitutability may be high. And yes, this argument could be used against any safety measure (why not allow box-cutters again?), but still I think we are using up a good deal of society’s “ability to tolerate anxiety” on a single and not our only vulnerable spot.

4. Something else I can’t quite put my finger on. It relates to why it is so hard to use incentives successfully within a bureaucracy. And yes, the white-hat hackers would need to be embedded in a highly regulated and ordered bureaucracy, whether we like it or not. But can you imagine the FBI or CIA pulling this off successfully?

Still, ideas like this are worth thinking about. I certainly don’t have better proposals, and it is hard to believe that pecuniary incentives should have as low a role, in fighting terrorism, as they do today.

Is there a cost-disease?, or Mozart by computer

There is, of course, William Baumol’s “cost disease” thesis, which is that productivity tends to stagnate in the service sector in general and in the government sector in particular.

That is from Arnold Kling.

Consider this, from The New York Times.

Dr. Baumol, director of the C.V. Starr Center for Applied Economics at New York University, likes to explain the disease by using Mozart as an example. In the centuries since the composer’s death in 1791, playing one of his quartets for string still requires four instruments and four players and the same number of minutes. No way has ever been found to make this process more efficient, even though huge gains in industrial productivity have occurred during the same time.

Now here is from the 7 November Wall Street Journal, lead article:

For more than 200 years, “The Marriage of Figaro” has been performed with a full orchestra. But when the Opera Company of Brookly stages the Mozart opera in January, the pit will be occupied by only 12 musicians – and one technician overseeing a computer program that plays all the other parts….

…Once confined to the computer sector and a few technologically savvy companies, productivity gains have spread into the nation’s vast service sector, from airports to pet stores and package deliveries.

The title of the article is “Behind Surging Productivity: The Service Sector Delivers.” Need I say more?

Capitalist Eggs

Our new colleague, Russ Roberts, author of the economic romance (really!), An Invisible Heart, gave a talk on economic growth where he briefly mentioned the staggering improvements in egg production over the past century. Here are some facts.

Last year the United States produced 86.7 billion eggs.

An early 20th century hen – or a third world hen today – laid perhaps an egg or two a week. Today’s hens lay approximately 5 eggs a week.

Prior to World War II a hen-house might hold 400 hens. Today, a typical hen-house, contains 150,000 hens.

Today’s “hen-houses” are really high-tech factories. The eggs are collected automatically on conveyor belts, graded by robots according to external factors like shape, color, size and also internal factors like consistency and yolk size. See here for a pictorial power-point presentation of the process.

Most amazingly, did you know that from the time it leaves the hen to the time it reaches your table an egg is unlikely to have been touched by human hands!

Addendum: I do not claim that capitalism is good for the chickens.

Who should get prizes?

Leszek Kolakowski just won a new prize, the Kluge Prize, which is worth $1 million.

This is the nature of the prize:

The prize…is meant to highlight fields of study as varied as anthropology, history, philosophy, sociology and religion for which there is no major international award. It was conceived by the librarian of Congress, James H. Billington, and financed by the philanthropist John W. Kluge, who had no say in selecting the winner, library officials said.

In other words, it is intended to supplement the Nobel Prize. Kolakowski, a brilliant author, polymath, and critic of Marxism, is more than deserving. See also Jacob Levy’s excellent post on the matter, rebutting the charge that the award was politically motivated by “right-wing” considerations. After all, Kolakowski teaches at Oxford, hardly a hotbed of radical right sentiment.

In general we would expect that new prizes are awarded to the relatively old; Kolakowski is 76. Remember Cato’s Milton Friedman Prize of last year? It was awarded to the 85-year-old Lord Bauer, who died right before the award ceremony.

Presumably a new prize is seeking to build up its reputation, so its first few awards should be sterling in quality, not very controversial, and designed to generate maximum publicity. Once a prize is more established, the prize givers can take more chances, or use the prize to certify the quality of younger achievers, or use the prize to spur greater achievement.

Robin Hanson wonders why we don’t use more prizes today, in lieu of grants, to encourage science. In the eighteenth century, prizes not grants were the dominant means of encouraging science. One drawback of prizes is that they tend to be awarded in the interests of the prizegiver, and not necessarily to stimulate maximum scientific output. Arguably prizes should be awarded when people are younger, not older, if only for incentive reasons. Still, prizes make the most sense when you cannot predict where new innovation is coming from, and thus you do not know who should get the grants. As our world becomes more complex, less hierarchical, and more decentralized, I predict a greater reliance on prizes to stimulate science.

New music merger?

Sony and BMG might merge, bringing together the world’s second and fifth largest music companies. That would pair Tori Amos and Michael Jackson (Sony) with Outkast (BMG). The resulting firm, supposedly designed to cut common administrative costs, would be almost as large as the industry leader, Universal. Here is the full story.

My take: Regulatory approval is not certain, arguably unlikely, but regulators should not worry about market power issues. This is a desperation merger in a fading industry. The real “industry sector” includes file sharing, once you count that, and the accompanying zero price, the concentration issues do not look so bad. On the other hand, shareholders should not worry if they don’t get regulatory approval. I would expect a mess more than any significant cost savings, as the merger does not address the underlying problems faced by either company.

The future of energy

…the power generation capacity found under the hoods of cars in Germany or America is ten times that of all of the nuclear, coal, and gas power plants combined in those countries.

A compelling and clever fact. The author, Vijay Vaitheeswaran, argues that our energy future is one of decentralization, relative plenty, and lower levels of pollution. His new book is titled Power to the People: How the Coming Energy Revolution Will Transform an Industry, Change Our Lives, and Maybe Even Save the Planet.

We are told that the future will bring hydrogen fuel cells, micropower in lieu of a centralized power grid, and paeans to the visionary genius of Amory Lovins. I am all ready to sign up, except the evidence is missing, at least within the book. The author offers a compelling picture, and it may well be true. But if he is right, why isn’t the price of oil falling over the last few years? Will fuel cells really limit pollution, once we take into account the energy needed to construct the cells? What unknown contingencies could stop his predictions from coming true?

I recommend this book for its enthusiasm and sweeping vision. I also very much liked his treatment of the California power crisis, which is more sophisticated than Paul Krugman’s, among other interesting bits. But I am not yet ready to go short on the shares of either the power companies or the price of oil.

Can more rain make the road safer?

Here’s the scoop:

In an analysis of more than 1 million fatal crashes in 48 states, Daniel Eisenberg, a post-doctoral researcher at UC Berkeley’s School of Public Health, was surprised to find that the more it rained or snowed in a month, the fewer deadly traffic accidents there were. Specifically, in any given month, an additional 10 centimeters of rain is linked with a 3.7 percent decrease in the fatal crash rate.

“I had expected to see a positive relationship between the amount of precipitation and the rate of fatal traffic accidents, but my analysis revealed a more complex connection between the two,” said Eisenberg.

He also discovered that the risk of an accident on a rainy day increases with the length of the dry spell preceding it. If there has been rain or snow day after day, the danger due to wet conditions falls.

In other words, if you are used to dangerous roads in recent times, you will drive more carefully. But we are weak, feeble creatures who forget about past dangers all too quickly. Click here for the full story.

The researcher suggests an additional explanation for the phenomenon:

“Oil and debris accumulate on the road when it hasn’t rained for a while, making the roads slicker when it first starts to rain,”

Eisenberg finds another interesting result:

…overall, precipitation had a larger impact on nonfatal traffic accidents.

“For any given day in the state, on average, each centimeter of precipitation increases the risk of fatal crashes by about 1 percent, but for nonfatal crashes, the increased risk is 11 percent,” said Eisenberg.

So, on any given day, rain or snow will lead to increases in nonfatal injury crashes and fender benders much more so than to increases in accidents that involve death.

“People who slow down when the weather is bad may not slow down enough to avoid all crashes, but, on average, they at least reduce the severity of the collision,” said Eisenberg.

In other words, to kill yourself being drunk, very stupid, very unlucky, or a very bad driver are the critical ingredients, not the rain.