Manufacturing fallacies

Some fallacies just keep coming back no matter how many times they have been exploded. Jobs in the manufacturing sector are disappearing and have been doing so for 30 years. The reason this has occured, however, is not because we have “sent the good jobs overseas” and it is not because our manufacturing sector is “rusting.” Jobs have disappeared because the manufacturing sector has been spectaculary successful. When measured in terms of what ultimately matters, output, the U.S. manufacturing sector has more than doubled in size over the past 30 years. We are now producing more “stuff” than virtually ever before and because of productivity improvements we are doing it with less labor. The graph below from The Economist is for the G7 countries, not just the U.S., but it conveys the correct idea. (For the US data see Robert Hall’s recent testimony before Congress).

“Job destruction” is a vital aspect of progress. If we had not destroyed millions of farm jobs most of us would still be working in agriculture today.

Franco Modigliani, in memory

Nobel Laureate Modigliani passed away several days ago. Read this tribute, which explains Modigliani’s views on religion, his flight from the Mussolini regime as a boy, and his opposition to Berlusconi. Here is one of the more personal bits:

When I saw the holes in his socks I liked and admired him even more. I thought, here is a man who doesn’t give a damn about appearance; someone who is all meat, no smoke.

Is “dollar pessimism” justified?

Brad DeLong reproduces and responds to a well-reasoned critique of the pessimistic view that he and Paul Krugman share about the prospects for the American dollar.

The main point of the critique:

These authors–and the conventional wisdom generally–miss two, closely related points. First, foreign investors’ risk exposure to dollar assets has essentially nothing to do with the current account deficit. Second, the ability of U.S. households, firms, and the government to service their liabilities has essentially nothing to do with whether those liabilities are owed to foreign or domestic investors.

Click on the link to read Brad’s response, it is not easily summarized.

My take: Given the composition of my assets, my implicit position in the dollar market is long, but probably more because of inertia than anything else.

This link will keep you busy for a long time

“The philosophers have only interpreted the world, the point, however, is to change it.” So said Karl Marx. Economists Ian Ayres and Barry Nalebuff agree, though not in a way that Marx would have imagined. Their new book: Why Not: How to Use Everyday Ingenuity to Solve Problems Big and Small offers their ideas on how to make the world a better place.

How do you feel about brake lights that indicate how fast you are decelerating?

Or how about “animal repelling devices”?

…[there are] a disturbing number of dead animals along [the road]. I personally did everything in my power to avoid hitting anything (there is a racoon on US301 that owes me his life since I nearly lost mine!) So I spent a lot of time thinking about it. Maybe a device that would be like a license plate on the front bumber, emitting ultrasonic sounds and infrared light? Wild colors, loud sounds, & flashing lights might displace the animals from the road area until things quieted down.

The new idea I need least: Movie titles at the end of movies, so you know what you just watched on TV.

The new idea I need most: A special signal for when your car is making a U-Turn.

The authors also want to offer Palestinians stock in Israeli companies, in return for a peace settlement. Here is a pre-publication New York Times review, which refers to “Daredevil Ideas from the Anti Dilberts.”

And sorry Barry, but I have to vote “no” on “colored salt,” I don’t care how bad my eyes get.

Does Hollywood like the free market?

Read this interesting paper by law professor Larry Ribstein, link courtesy of Ben Muse and The question is why so many movies appear to be so anti-business. A money quote:

This article seeks to provide a plausible explanation of films’ bias against capital. It is not business itself that filmmakers do not like, but the capitalists who control it. This may sound like Communism, but it is not the classic view of the struggle between capital and labor. Filmmakers display little concern with the problems of the workingman, and they do not usually blame firms’ social irresponsibility on the fact that capital rather than labor is in control. Rather, the filmmakers’ main problem with capital being in control seems to be that the filmmakers are not. The “workers” that are oppressed are often creative types, and middle managers who stand in for them, who are being denied adequate opportunity to display their creativity. The point of displaying the evil that firms do seems not to stop it, but to show how much we need the artists and seekers among us to do the finding…

We are told that as technology lowers costs, and moviemakers become less dependent on capitalists, the problem will diminish. If this is true, drama should be less anti-capitalist than costly special effects spectaculars. I am not sure I buy this, but the paper nonetheless makes for interesting reading. For an alternative perspective, see my earlier post on movies for entrepreneurs.

Jim Crow in professional sports

I have already written a post on this topic. My central query was why segregation lasted as long as it did in major league sports. I have since learned more:

1. Black players were common in professional football in the late 19th century and through 1933, when segregation was introduced by team owners.

2. The pressure to segregate came from fan demand, and was enforced by game commissioners, working through a collusive league structure.

3. John McGraw, manager of the New York Giants (baseball), regularly tried to sneak African-Americans onto his team, claiming that they were “Cuban.” The baseball commissioner was both strong and racist, however, so he failed in these attempts.

4. Early football leagues were chaotic and had little power, including little power to enforce segregation in the early days of the sport.

5. Paul Brown, coach of the Cleveland Browns football team, decided to play black players in 1946.

6. The Los Angeles Rams quickly followed suit, in part because they wanted public funds for a stadium, and needed to avoid possible legal problems.

7. The Washington Redskins were the last football team to integrate, and only when they received “artfully applied pressure” from the Kennedy Administration.

8. Bill Walsh, the very successful coach of the San Francisco 49ers, hired a racially conscious sociologist to his staff, in recent times, to manage race relations on his team.

All points are from the recent and excellent Tackling Jim Crow: Racial Segregation in Professional Football, by Alan H. Levy.

How and why does democracy matter?

Last week Casey Mulligan presented his paper on democracies and autocracies at George Mason; the work is co-authored with Ricard Gil and Xavier Sala-i-Martin.

The main result is surprising: democracies don’t allocate their public budgets much differently than do autocracies. Of course this result requires that we adjust for national income and other relevant factors. The data cover 142 countries from 1960-1990.

The authors do find notable differences between democracies and autocracies. Autocracies are more likely to use the death penalty, restrict free speech, and spend on the military. The paper doesn’t mention death squads, but autocracies are more likely to do that too. At the same time, spending on social programs, spending on education, and various taxation issues do not differ significantly across the two kinds of regimes.

The authors also use some case studies. Chile, Spain, Greece, and Portugal have all moved from autocracy to democracy in recent times. Yet again changes in economic policy are hard to find.

How should these results be interpreted? One hypothesis suggests that special interest groups rule under both systems, and that voting doesn’t matter much. More plausibly, to this economist, autocracies have to be concerned with public opinion too. Autocrats want to secure their stream of rents, which leads them to restrict political competition. At the same time, the autocrat will try to secure a content populace. David Hume wrote long ago that governments are founded on opinion and consent.

I still see a strong case for democracy, not only on moral grounds but also practically. Once people get the democratic idea into their heads, and have a high level of wealth, democratization is extremely difficult to stop. Just look at Taiwan and South Korea. It is better to go with the tide of the times rather than to fight it.

Do girls cause divorce?

OK, you probably already read Steven Landsburg on But this article of his is too good a link to pass up. It turns out that divorce is considerably more likely when the child is a girl, rather than a boy. Here are two choice bits:

In the United States, the parents of a girl are nearly 5 percent more likely to divorce than the parents of a boy. The more daughters, the bigger the effect: The parents of three girls are almost 10 percent more likely to divorce than the parents of three boys. In Mexico and Colombia the gap is wider; in Kenya it’s wider still. In Vietnam, it’s huge: Parents of a girl are 25 percent more likely to divorce than parents of a boy.

Here is another:

Take a typical unmarried couple who are expecting a child and have an ultrasound, which more often than not reveals the child’s sex. It turns out that such couples are more likely to get married if the child is a boy. Apparently, for unmarried fathers, the prospect of living with a wife and a son is more alluring than the prospect of living with a wife and a daughter.

It seems that fathers enjoy marriage more when there is a son around the house, confirming an old stereotype. The original research was done by Gordon Dahl and Enrico Moretti.

Shutting up talkers

Robin Hanson suggests that time is a scarce, yet unpriced resource in group conversations, conferences, and seminars. We are all familiar with the conference participant who talks too much, this is really just tragedy of the commons. So let’s attach a price to talking.

Robin argues that each person should receive a fixed number of tokens. Every now and then a buzzer will go off randomly. If you are talking when the buzzer goes off, you lose a token. If you lose all your tokens, you can’t talk any more. So presumably you will speak only when you feel it is important, to conserve your time. My note: I don’t see why the randomization is necessary, why not just use something like chess clocks to limit how much each person talks?

Robin and I have talked of trying this out. Would it work? I can see a few problems:

1. It may violate fairness norms to shut up a person who has lost all of his tokens.

2. Without rationing, smarter people can persuade/bully their way into talking more, and this is better than giving everyone equal time. (Note: you can have non-egalitarian variants of the scheme, or perhaps allow people to donate their tokens to the smart.)

3. The methods and procedures of implementation may distract from the discussion. Imagine the buzzer going off in the middle of your briliant point.

4. Conferences are not about ideas production, they are about the production of publicity, and the device does not work toward this end.

I am most concerned with #2 and #4, but I still see merit in the idea. If and when we try it, I will let you know, let me know if you have ever tried some version of the proposal.

Here are some other wild ideas that Robin likes, most or all of them wilder than the buzzer idea.

Addendum: Here is Robin’s own description of the idea.

New economic policy blog from England

The Adam Smith Institute has recently started its own blog. The focus is on current events, in both Britain and around the world, the perspective is market-oriented.

Friedrich Hayek is well-know for writing an essay “Why I am Not a Conservative,” here is Madsen Pirie’s take, from ASI, entitled Why F A Hayek is a Conservative. Pirie is one of the main bloggers on the site.

Self-deception conference

Tomorrow I am attending a conference on self-deception, directed by Robin Hanson and me. We will have numerous luminaries, including Robert Trivers and Thomas Schelling, in attendance. By the way, blogging will continue.

Here are a few self-deception pointers for the day:

However much I examine my vanity, I can’t see in it the same disagreeable tone of the vanity of other people, all of which is just a further stage of vanity.

by the poet Carlos Drummond de Andrade.

Or, did you know that Stalin, when revising his official biography for publication, ordered that this sentence be inserted:

Stalin never let his work be affected by the least shadow of vanity, presumption or idolatry.

Thomas More once wrote:

Most men like their own writing best of all.

All of these bits are from Lies We Live By: The Art of Self-Deception, by a very underrated Brazilian economist named Eduardo Giannetti. Few economists are so well-read in the humanities, so ironic at the right moment, and so on the mark in their understanding of human psychology. If anyone out there knows Eduardo’s email address, please forward it to me, I would like to write him.

Economics and literature

I just received my copy of The Literary Book of Economics, compiled and edited by Michael Watts of Purdue University.

I love the book, it contains excerpts from literary works that present economic themes. On opportunity cost, you get to read Robert Frost on “The Road Not Taken”.

On equality, you get to read Kurt Vonnegut’s “Harrison Bergeron”, one of the most biting critiques of egalitarianism ever penned. The story is truly short, just a few pages, do click on the link and read it if you have the time.

Here is the opening to the story:

THE YEAR WAS 2081, and everybody was finally equal. They weren’t only equal before God and the law. They were equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else. Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General.

Or are you familiar with the economic proposition, sometimes associated with Aaron Wildavsky, that the demand for safety rises with wealth and income? British poet Alexander Pope first stated that idea in 1737, for his short poem “Imitations of Horace,” click here.

You don’t have to read this book in one fell swoop, it offers 348 pp. of wonderful browsing. In addition to the authors cited above you get John Milton, Ayn Rand, Thomas Mann, John Steinbeck, Victor Hugo, and George Orwell. Highly recommended.

Java-based ID cards in Taiwan

Everyone is getting one.

Each card contains a microprocessor with 32 kilobytes of memory that allows data such as allergy information, emergency contact numbers, medication, and personal insurance to be stored.

Let’s not forget Thailand:

In an even larger scheme in Thailand, the government plans to issue a Java-based national ID card to all 61 million citizens, according to a report in the Bangkok Post. The card will contain biometric identification, as well as insurance, tax and welfare benefit information. The scheme is expected to be launched later this year.

For more information read here.

My favorite book on privacy is David Brin’s thought-provoking The Transparent Society, for an interview with Brin, summarizing the book, click here. He says you’re not going to have your privacy anyway, get used to it, besides most people don’t even care about you, and this new world will prove liberating. I also am taken by Richard Posner’s point that few people truly want privacy, rather than want to selectively control how their images are presented to the outside world; they use talk of “privacy” as a rhetorical device to attempt to gain such control.

Will the current lawsuits against file-sharers work?

Lawrence Solum tells us no.

Here is an early part of his insightful, multi-tiered post:

On the one hand, the RIAA simply cannot bring enough lawsuits to create a real deterrent effect. First, the number of suits is so small that the actual risk of becoming a defendant times the cost of settlement equals a miniscule amount. Second, the perception among users of P2P programs is that one can avoid any risk of suit by keeping the number of files shared on any one service below a threshold (usually thought to be 1000 files). On the other hand, there is no evidence that the RIAA is changing copynorms.

His recommendation?

When the RIAA sends the message, “copying is theft,” they are fighting the norms. No one believes that copying is the moral equivalent of theft, because everyone thinks that private, noncommercial copying is just fine. Even the RIAA seems to have thought that when they agreed to the provisions of the Audio Home Recording Act that permit noncommercial analog copying. And the fact that copynorms diverge from norms about theft is rooted in the underlying economic reality–consumption of intellectual property is nonrivalrous, whereas consumption of tangible property is rivalrous.

So here is an alternative message that the RIAA could try:

Share with your friends, not with strangers!

In other words, the RIAA could try to get the public to see that P2P programs are the moral equivalent of giving away hundreds of videotapes or compilation tapes. Those activities are not socially acceptable. They may not be socially unacceptable either. Mass giveaways are rarely a social problem, because the cost is high enough to deter the behavior without either legal or social sanction. That is what the P2P technology changed. P2P enables the low cost mass gift.

It is worth reading Solum’s whole post, I might add he is one of the smartest bloggers out there.