Ben Casnocha blogs my Zurich talk

by  Tyler Cowen in

Here is his very useful account, including a good photo.  Excerpt:

Cowen made an interesting point about young people. He said America
empowers youth as influencers — college students sit around and listen
to music, start fads, build web sites, etc. They may not be "working"
per se, but they are contributing enormously to American popular
culture. Indeed, most of our popular culture is created by young
people, and this is the culture that is exported abroad. If a country
cares about the influence of its culture abroad, they should ask how
much power is given to youth. He noted that Latin America and Asia have
huge youth populations, making it prime for a lot of cultural influence
in this next generation.

Another question I discussed was why Switzerland has such an excellent culture of museums, opera, theatre, and architecture, but has done so poorly in exporting popular music and cinema.  The use of cities and cantons to fund the arts may be a central factor.  Intense Tiebout competition leads to quality local services but fewer national public goods (to the extent such cultural exports are public goods).

Ben is an MR reader who emailed me and tracked me down, here is his blog.

Nicolai Foss has kind words for me

by  Tyler Cowen

Here is his post on economics and postmodernism.  Given the topic, how can I do better than to quote him quoting me?

Some performers manipulate the style of their product to shift the
incentives of critics to pay attention … Unclear authors, at least if
they have substance and depth, receive more attention from critics and
require more textual exegesis. Individual critics can establish their
own reputations by studying such a writer and by promoting one
interpretation of that writer’s work over another. These same critics
will support the inclusion of the writer in the canon to promote the
importance of their own criticism … In the economics literature,
enormous attention is devoted to the vagaries of John Maynard Keynes’
General Theory. The monetary writings of Milton Friedman or Irving
Fisher, far clearer and not inferior as practical guides to monetary
policy, do not receive equal attention from historians of thought.

That is from my 2000 What Price Fame?

Markets in everything: The ten weirdest items sold on ebay

by  Tyler Cowen in

Here is the list, but what about the atheist who asks to be paid to go to church?  My favorite:

8.  Item #248619068:  The Meaning of Life

Someone finally figured it out, and they put it up for sale on eBay.
Even with eight bids this incredible find didn’t fetch much, but it was
probably the best $3.26 the winning bidder ever spent.

Of course you can get it here for free…

The unit bias

by  Tyler Cowen in

Nominal variables matter, even when we are deciding how much to eat on our plates:

To test [the unit bias], the researchers left a bowl of M&M sweets in the
hallway of an apartment building with a sign that read “Eat Your Fill:
please use the spoon to serve yourself”. Some days they left a
tablespoon-sized scoop, other days they left a quartercup scoop that
was four times as big. Passers-by could obviously help themselves to as
little or as much as they wanted regardless of which spoon was
provided, but on average, 1.67 times more M&M’s were taken on the
days the big scoop was left compared with the tablespoon-sized scoop.

In
another experiment, the researchers found that, measured by weight,
significantly more pretzels were taken by passers-by when a
complimentary bowl of 60 whole pretzels was left in an apartment
building, compared with when a bowl of 120 half-pretzels was left. And
it was a similar story when either a bowl of 80 small Tootsie rolls (an
American snack bar) or a bowl of 20 large Tootsie rolls was left in an
office building.

In other words, throughout the study, people
took more food when the unit on offer was larger. “Consumption norms
promote both the tendency to complete eating a unit and the idea that a
single unit is the proper portion”, the researchers said.

Here is further information.  There is a lesson for macroeconomics in here, somewhere.

Trip thoughts

by  Tyler Cowen in

That was at the Hotel Real, the dish is called "Wiener Backhahn."  When we asked how to get to the restaurant, one Lichtensteiner (what do you call them in the English language?) said  "It is close.  Lichtenstein is very small.  (Pause)  But it is very beautiful."  Zurich has a high percentage of foreigners; it feels like 20 percent or more.  The Western side of the city is now "cool," and almost bohemian; eat at LaSalle.  The Swiss seem to have legalized prostitution.  The French-speaking Swiss generally favor joining the EU; the German speakers — 63% of the country — do not.  The German speakers also are more likely to speak good English than good French.  Crossing the border, German bookstores do not feature Freakonomics prominently; their economics sections are full of doom and gloom about Germany; are Levitt and Dubner too entertaining for them?  Some guy named Frank Schatzing has an 800-page German science fiction bestseller called Der Schwarm, just translated into English, is it any good?  Swiss food prices have gone through the roof.  I’ve experienced the $30 pizza, the $40 schnitzel, and the $42 breakfast, all good but none extraordinary.  Rural Switzerland now has plenty of Thai restaurants.  Switzerland was the first country where I first saw first-rate scenery, mountains, or for that matter cows.  Does this mean I still overrate the value of the Swiss landscape?  Paris was the first city where Natasha was able to go shopping and see the West; does she overrate it?  Do I overrate German bread and orange juice?  What was the first good blog you read?

The Nutty Professor

by  Alex Tabarrok in

Here’s an amazing piece of the life of Timothy Leary from the NYTimes book review of Timothy Leary: A Biography.

…he finally went to jail, and was likely to be kept there for years
before he would be considered for parole. Characteristically, he
compared himself to "Christ . . . harassed by Pilate and Herod." In a
twist that could have occurred only in 1970, a consortium of drug
dealers paid the Weather Underground to spring Leary from the
California Men’s Colony at San Luis Obispo – he pulled himself along a
telephone cable over the fence, then was picked up by a car – and
transport him to Algeria. He duly issued a press statement written in
the voice of the Weathermen, the money line of which was: "To shoot a
genocidal robot policeman in the defense of life is a sacred act."

But
when he and his wife, Rosemary, arrived in Algiers, they found
themselves wards of the exiled Black Panther leader Eldridge Cleaver,
who was probably smarter than Leary, possibly crazier, and had little
use for him. As Leary acknowledged, rather shrewdly: "It was a new
experience for me to be dependent on a strong, variable, sexually
restless, charismatic leader who was insanely erratic. I usually played
that role myself."

Dan Hill asks

by  Tyler Cowen in

Why does the liklihood of free internet decrease as the hotel price increases?

My answer: The more expensive the hotel, the more likely it will have many business travelers.  Those people are less price sensitive, especially for add-ons.  The greater dispersion of valuations also increases the incentive to price discriminate and, in essence, charge them a higher rate.  If Internet service is averaged into the basic price, Internet users receive an implicit discount.  Why offer that discount to your business travelers?  Steve Landsburg wrote a short piece on this for Slate.

Here is Dan’s original question.

What are the thirty best travel books?

by  Tyler Cowen in

Here is the list, courtesy of WorldHum, via Bookslut.  I agree with most of it, recognizing that no single author (e.g., Thubron, Raban, Theroux) can receive more than one pick.  But where is Barry Lopez’s Arctic Dreams?  David Campbell’s The Crystal Desert?  For my first choice I would select either Naipaul’s Turn in the South or Robert Byron’s Road to Oxiana.  Surely they forgot Marco Polo’s Travels, which remains riveting.  Herodotus?  Can we count Democracy in America?  Gulliver’s Travels?  Dante’s Inferno?  Your further suggestions are welcome.

Why are there hidden fees?

by  Tyler Cowen in

Here is the bottom line:

Laibson and Gabaix’s explanation relies on a good bit of math, too, but
it can be summarized pretty simply using a hypothetical example.
Imagine two hotel chains. The first, Hidden Price Inn, has a very low
room rate of $80 a night, but makes liberal use of high "shrouded"
fees: Three bucks for a minibar Dr Pepper, $25 for parking, $12 for
eggs at breakfast. The unsophisticated traveler cheerily (if
unwittingly) forks over the fees, all the while patting herself on the
back for getting a cheap room.

Now imagine a second chain, Straightforward Suites. It charges much
more reasonably for the extra costs ($1, say, for that Dr Pepper), but
because it makes less on the extras, it has to charge slightly more for
the room-$95, instead of $80. Even an unsophisticated traveler can tell
$95 isn’t as good as $80.

Through an aggressive ad campaign, Straightforward could try to point
out how devious the approach of Hidden Price Inn is and how much less
deceptive its own prices are. But Laibson and Gabaix show that there’s
a catch in this strategy: Hidden Price Inn actually has two key types
of customers. Yes, there are the clueless consumers (the economists
prefer to call them "myopic"). But there are also the sophisticated
ones, who know that if they avoid the hotel restaurant, take a taxi
instead of using the parking garage, and call home with a cellphone,
they’ll actually get a better deal at Hidden Price than at
Straightforward.

Straightforward Suites’s ad campaign, then, might just end up
increasing the ranks of sophisticated consumers who will in turn dial
up Hidden Price Inn for a cut-rate room. Rather than play this
self-defeating game, Straightforward will most likely just lower its
own room prices and stick it to the customers on the extras.

Here is the full story, by Christopher Shea.  The pointer is from www.politicaltheory.info.  Here are earlier versions of the paper.

Does a gold standard involve resource costs?

by  Tyler Cowen in

Milton Friedman said yes, but on this question I am not convinced.  Friedman thought the costs would be as high as 2.5 percent of gdp.

The standard argument is that a gold standard means more gold held in vaults.  That’s less gold for tooth fillings or jewelry.

But the gold held in vaults involves an implicit option on conversion into jewelry.  What is exactly the value of that option?  Yikes, I feel confused after only a few sentences of this post.

But surely the real value of that option depends on the price level and also the division of gold into monetary and non-monetary uses.  I therefore suspect there is some price level path where the option value on holding gold is equal, in risk-adjusted terms, to the returns on other assets.  (A Mr. Smarty Pants TroubleMaker type might here cite Truman Bewley in response.)  Probably that means deflation.

The gold in the vault is then no longer barren.  It is no more barren than the gold held in your bureau, which is presumably an "option on wearing it to a fine dinner party."

The Friedman argument, to me, seems pre-Black-Scholes.  Here are some related skeptical arguments.

That all said, I do not favor a gold standard.  For behavioral wage-and-price-stickiness reasons I think mild inflation is better than a high probability of deflation.

The Pigou-Brennan-Buchanan club

by  Tyler Cowen in

Greg Mankiw asks for members in the Pigou club and lists a growing and illustrious set of people.  I’ll opt in, though I would wish to change the name of the club.  Geoff Brennan and James Buchanan, in their The Power to Tax, wrote one of the best and most important books on public finance in the twentieth century.  Their message is simple: if you don’t always trust government, beware of "efficient taxes."  Those same taxes will make it easier for government to extract excess revenue from the population.  For instance lump sum taxation is not in every way a dream come true.  It can turn into outright confiscation beyond reasonable levels.

I’ll fess up to the following.  We have been fiscally irresponsible and must pay the bills.  Global warming is a major problem and a carbon tax is at least possibly a partial solution.  So the Brennan and Buchanan point, circa USA 2006, is less relevant than at many other times or in many other places.  But hey, clubs are universal and forever and forever (at least my treehouse club was, when I was six).  I’ll join, but I suspect Greg would not be fully on board with Pigou’s politics.  There is a reason why Pigou taxes come from…Pigou.  That same reason is why the concept should be broadened just a wee bit…

The minimum wage: theory before history

by  Tyler Cowen in

Greg Mankiw and Brad DeLong are having some back and forth over the minimum wage.  I’m willing to admit, unabashedly, that I form my judgments on this matter by theory more than "raw evidence."  When the evidence is unclear, or points in multiple directions, I favor the most plausible explanation.

Unlike like most market-oriented economists, however, I am not obsessed with the story of the downward-sloping demand curve for labor, to the exclusion of all other possible mechanisms.  I am more likely to see markets as extremely flexible and to look to the quality of job as a critical variable.  If minimum wages go up, I expect some mix of two scenarios:

1. The employer restores the previous net wage by worsening working conditions.

2. The employer upgrades the quality of job and thus marginal products, to meet the new level of minimum wage.

Now #1 is not much of an argument for boosting the minimum wage.  But is #2?

It sounds good but the employer had decided in the first place not to create those higher productivity jobs.  So those jobs must cost more and we should expect a negative effect on employment, albeit perhaps a slight one.

It is also the case that those jobs will go to the "most easily upgradable" workers among the low-wage working set.  I suspect those are the low-wage workers with relatively high human capital and high levels of adaptability.  Among the class of low-wage workers, the effects are probably anti-egalitarian.  That again does not make the minimum wage sound so great, even though the employment effects could be small or perhaps even zero.  I might add this also explains why the most articulate low-wage workers probably, for reasons of self-interest, favor increases in the minimum wage.

I don’t buy into the Card-Krueger monopsony scenario, at least not outside of rural Nebraska.  If you wish to defend it (does anybody? — even Krugman scorned it), comments are open.

I invite all participants to the debate to indicate the relative weights they place on "theory" vs. "history."  I’ll invent an imaginary, meaningless scale and opt in at "0.7" in favor of theory.  If the evidence were clearer, of course, my weights would change.

Corruption

by  Alex Tabarrok in

Joel Waldfogel covers an interesting new study of corruption in the motor vehicle department in India.  Some eight hundred Indians were randomly assigned to one of three groups: the first group got a cash bonus for getting a license, the second group was given driving lessons, the third group was a control.

If government worked well we would expect the second group to be the most likely to get a license in the shortest period of time.  Instead, the first group bribed their way to a license.  In addition to taking the shortest period of time, most of the first group never even had to take a test!

Waldfogel has more details.  He misses, however, what I think is the most important finding of the study.  The delay in the Indian DMV is "endogeneous," i.e. it’s not due to torpor or constraint but instead is a result of corruption.

How can the Indian bureaucrats make the most of their control over licenses? First, make the line long.  But that can increase the bribe-price only so much – especially given how cheap it is to hire someone in India to wait in line for you.  The real value is in the license itself so the Indian examiners randomly fail many applicants, even those with good driving skills.  Paying the bribe, therefore, is really the only route to a license.  The net result is long lines and unsafe drivers.

Corruption like this is endemic throughout the world.  Libertarians should take note, however, the problem in this case is not so much that there is too much government but that government is too weak.