Scream it from the Rooftops

by  Tyler Cowen in

Shark’s Fin and Sichuan Pepper: A Sweet-Sour Memoir of Eating in China, by Fuchsia Dunlop, due out in mid-April.

She is one of the writers I revere most.  And yes, I know she is usually a cookbook writer, but I do mean her writing, not just her recipes.  The more general point is you should expect to see many of the best writers, today, in new media and genres, not in the old.  I saw notice of this, by the way, in the vastly superior to almost anything else London Review of Books.

Trading in space

by  Tyler Cowen in

Money has no value in space. When seven astronauts are living together in a cramped atmosphere the psychology of small isolated groups kicks in. Whoever has squirreled away the most M&Ms, tortillas or coffee has the most bargaining power. Those are items that are most prized at the end of a mission if someone runs short in their own stash. Astronauts’ meals are color coded on shuttle missions — and reliable sources tell ABC News some astronauts aren’t above switching the colored dots on their dehydrated meals if they have run out of say, lasagna, on day six and have way too much creamed spinach left.

Here is more and the story is interesting throughout.  Are they not allowed to bring money on the ship or does money temporarily lose its function as a general medium of exchange?  Does the use of money, or the promise of money, break down spaceship norms?  They’re allowed to bring iPods, so can songs become a medium of exchange?  Or does preventing a general medium of exchange produce network externalities (increasing returns) to enhance the liquidity of all the other goods which need to be traded?  You do in fact get the tortillas being squirreled away.  Can this be a case where the emergence of a general money would be inefficient?

Pollo Campero

by  Tyler Cowen in

The
company, part of the Corporación Multi Inversiones, a diversified
privately owned group with interests including finance, real estate,
construction and agriculture, does not post earnings. But, according to
reliable sources, total income last year was between $380m and $400m (£199m) (€254m). That is about 1.2 per cent of Guatemala’s gross domestic product [emphasis added].

…the best example of how it has adapted its image is China,
where the company used its heritage to appeal to the local crowd – even
though Guatemala is not usually associated with things most foreigners
identify as Latin American, such as soccer and Salsa.

“Chinese
people are obsessed with Latin pop culture but they don’t really
distinguish between countries,” says Mr Weaver. “So we tried to
associate ourselves with figures such as Ricky Martin as well as with
Latin American and Spanish football,” he says.

So far, thanks
also in part to a new “extra crisp” line of chicken, sales are
reportedly strong. Juan José Gutiérrez, Pollo Campero’s chief
executive, recently told La Opinión, the US Spanish language daily
newspaper, that: “The Latin concept is well received and they loved our
chicken.”

Here is more.  It is very good chicken, I like the branch in Falls Church, on Colombia Pike.  I might add that there is a notable trend of successful Latino multinationals.  If Pollo Campero shows nothing else, it is too early to pronounce the Latino market-oriented reforms to be failures.

Progress on Dual Tracking?

by  Alex Tabarrok in

One hundred leading European officials in health regulation, the
pharmaceutical industry, and the health media will gather in Stockholm
March 27 to discuss a new proposal that would enable patients to gain
faster access to life-saving drugs not yet approved by regulators.

One track of this new proposal, known as "Dual Tracking," provides
that patients and their doctors try to minimize risk by using only
approved drugs as they do now. On the other track, patients and doctors
can choose not-yet-approved drugs that have passed safety trials.
Patients would be able to balance their own preferences for risk with
substantial new opportunities for health improvement. (Quoted here.)

See Bart Madden’s More Choices, Better Health (pdf) for a very good explanation and defense of the dual tracking proposal.

The permanent tax revolt

by  Tyler Cowen in

…the fractional assessment of homes was easily the largest single government housing subsidy in the postwar era, and it was among the largest categories of social expenditure of any kind, direct or indirect.  Fractional assessment of residential property provided a subsidy that was forty times greater than federal spending for public housing.  It was ten times greater than the home mortgage interest deduction.  It was five times as costly as more controversial "welfare" programs like Aid to Families with Dependent Children.  Although fractional assessment did not show up on official government budgets, on the eve of the tax revolt it was providing more benefits than any other social policy in America except for the twin blockbusters of the federal budget, Social Security and Medicare.

That is from the new book The Permanent Tax Revolt: How the Property Tax Transformed American Politics, by Isaac Martin.  The main thesis of this book is overstated, namely that the professionalization of property tax assessments is the root cause of American exceptionalism on tax politics; nonetheless I found this a very informative and stimulating read.

Why are commodity prices rising so fast?

by  Tyler Cowen in

Well, today they’re not, they seem to be plummeting.  Still they have been rising rapidly for years.  Paul Krugman surveys some views, click through to the Frankel post as well.  Yes I do think high and rising commodity prices have been a bubble — but not just a bubble — and no I don’t think that low real interest rates are much of a factor.  (Recall Cowen’s Third Law: "All propositions about real interest rates are wrong.")

My basic explanation for rising commodity prices is simple.  Most commodities are produced under conditions of short-run rising costs, often quite steeply rising short-run costs.  Furthermore many production processes cannot do without these commodities in the short run.  Coal, copper, and the like are not always easily substitutable for a factory within the medium run.  (Furthermore until you are sure that the price increase is permanent, why re-gear at all?  Why switch from copper plumbing to plastic plumbing, when price of copper might fall again?)

Now China has become wealthy quite fast but the country didn’t become wealthy by producing more commodities.  That’s Albert Hirschman’s "unbalanced growth."  So demand for most commodities has outstripped the supply, production can’t make up the difference in the short run, and commodity prices can rise sharply.  Don’t forget that logistics and transport are a big part of the production process and so infrastructure often constrains the flow of supply.

In the long run price will adjust (even if you believe we are near "peak oil" this is true for most commodities.)  People will substitute or find new sources of the commodity or find new ways of producing the commodity more efficiently.  Infrastructure improves.  But yes those adjustments can take ten years or more.  And in the meantime we have a commodity price boom and on top of that a bubble to make these items look even more expensive.

One final kicker: lots of commodities are produced by governments and/or their production is heavily controlled by governments, most of all oil.  Then supply adjustments will be especially slow and cumbersome.  Read this article about coal:

…94 percent of India’s coal mining is in the hands of government-owned companies. The biggest, Coal India, produces four-fifths of the country’s coal. Because the government is worried about social unrest, the prices for coal and electricity are kept low.

See the problem?

The bottom line: The best long-run bet is still that there is nothing special about risk-adjusted rates of return on commodities.  That probably means falling real prices and falling real costs over time.  The Chinese demand aberration is a temporary blip superimposed on very consistent longer-run trends.

Why have burglaries declined?

by  Tyler Cowen in

Eric H. points to the question of why burglaries have declined steadily, when other crime rates have been more volatile.  Here is one bit:

Criminologists have a lot of theories why burglaries are so different…"If you’re going to do a burglary, you need to have some buyers," Mathis says. "Everybody has everything now."

Mathis says there’s just too much on the street already. Everyone he knows already has a digital camera, iPod knockoffs and pirated DVDs shipped in from China. "And if it’s not new, a lot of people don’t even want to fool with it," Mathis says. Forget about last year’s video games and old laptops, Mathis says. And don’t even bring a VCR or boxy TV to the street.

"You can get a TV for nothing almost," he says. "People are giving them away now."

In other words, we have fewer burglaries because of low wages in China.  You’ll note that the standard Baumol-Bowen model of the cost-disease predicts an ongoing decline in burglaries.  Goods become cheaper over time, and thus not worth stealing, while services grow more expensive over time.  It is usually harder to steal services so burglary rates should fall.

The article also cites the decline of heavy drug use, better locks and deadbolts, and more widespread use of locks, plus less cash left around the house.  Some experts cite greater neighborhood vigilance.  Note that robberies are not falling in similar fashion, which suggests that criminals prefer to get the victim away from home turf advantage.

Here is further information.  British burglary is falling too.

All you can eat?

by  Tyler Cowen in

Allegedly tipped off by senior officials close to the matter, the Financial Times suggests that Apple is in talks with music labels to follow an approach first pioneered by Nokia and Universal Music Group.

Dubbed Comes With Music, the upcoming service has customers pay more for a cellphone in return for as many a la carte
music downloads as the customer likes over the course of a year. In
this implementation, customers can either renew a subscription once it
expires or else keep the tracks they’ve downloaded, even if they switch
to competing phones or music services.

Here is the article.  One point is that songs will get shorter and their best riffs will be held to higher standards of immediate accessibility.  If the marginal cost of a song is free, people will sample lots more and they will give fewer songs a second listen (higher opportunity cost); of course the opening bits of a song are already free in many cases but this will make sampling even easier.

Second, this will redistribute more of the market surplus away from song providers and toward hardware providers.  Say everyone bought the "all you can eat" version and Apple received zero revenue per song (there are few songs that will swing a decision to subscribe or not).  TAddendumhat helps Apple in its bargains with individual song providers.  If you have a hit song, and Apple controls iTunes, there’s an element of bilateral monopoly.  So Apple is better off if it can precommit to not caring whether they have your song or not.  On the music company side, there would be a tendency toward consolidation, and bargaining over catalogs rather than songs, to offset Apple’s new bargaining advantage.

What other effects can you think of?

Addendum: Some sources are claiming this is just a rumor.

Liability Law and Firm Size

by  Alex Tabarrok in

I would like to tile my front porch steps and have been shopping.  Lowe’s and Home Depot have plenty of tile but although they advertise installation they won’t install it outdoors.  The salespeople, however, will surreptitiously recommend small family contractors.  Call Jose, they tell me handing me a number.  Why won’t the big firms install outdoor tile?

As best as I can figure the answer is liability.  A few slips, falls and an enterprising lawyer or two and Lowe’s could be out millions of dollars.  The revenues aren’t worth the risk so small firms step into the breach.  The key, of course, is that the small firms won’t be sued because they are judgment proof.

Roberta Romano was here yesterday and offered another example.  The big auditing firms won’t do SOX audits for small firms because the revenues are low relative to the risks.  The smaller firms must turn to judgment proof auditors of less reliable reputation. 

In one sense, this is a good workaround for a liability system that seeks out deep pockets.  Consumers are better off than they would be if neither Lowe’s nor the judgment proof firms offered services and they are also better off than if Lowe’s was required to offer services, because the price at which Lowe’s would do so voluntarily would be prohibitive (consumers would be forced to buy insurance they didn’t want at the price). 

But more deeply the resulting system is inefficient.  Consumers don’t get the insurance that the liability law is supposed to provide and they must turn to lower quality, higher cost service providers even when they would prefer larger firms with solid reputations. 

On the way to the airport

by  Tyler Cowen in

Here are my tips for how to survive a trip to or from NYC’s LaGuardia airport, always a daunting experience.  You will notice the piece is on Mark Bittman’s new New York Times food blog, which you should be reading anyway.  Don’t forget these words of mine:

Just think how much you are saving: what’s really scarce in life is your time and the mere willingness to get up and go. Just do it.

Elsewhere in the world of food blogging, there is a new blog on the economics of food and wine.

The realignment of the regulatory powers

by  Tyler Cowen in

Two thoughts: First, the very active role of the Fed in the Bear Stearns crisis must,
in the long run, give rise to a fundamental revaluation of the role and
powers of the SEC, the entity technically responsible for investment
banks.  The SEC now appears relatively toothless.

Second, the more commitments made by the Fed, the more we lose the
(quasi) independence of our central bank; for a large commitment
Treasury sign-off is needed.  The realignment of the regulatory
universe will eventually emerge as a big story from the current crisis,
though it is hardly commanding much attention right now.

Paul Volcker comments.