Why Eric Rasmusen does not worry about the housing bubble

by  Tyler Cowen in

Housing is a special form of wealth…If its price falls after a bubble, the cost of consumption is falling at the same time as the amount of wealth. In fact, the country has become richer, because all the same real assets exist, but their replacement cost has fallen.

Also, since houses are mortgaged, the wealth loss is shared by household and banks, while the consumption cost gain is entirely to households. The real wealth of households will thus have risen, and consumption should increase (I am thinking that banks are owned by richer people, who save more). Am I right on this?

Here is the link.  Here is my previous post on this topic.  So is Eric right not to worry?

The economics of polygamy, continued

by  Tyler Cowen in

Perhaps this topic needs a little public choice analysis:

Many Sub-Saharan African countries are extremely poor. It has been argued that the marriage system (in particular polygyny) is one contributing factor to the lack of development in this region. Polygyny leads to low incentives to save, depressing the capital stock and output. Enforcing monogamy might seem like an obvious solution. However, such a law will have winners and losers. In this paper, we investigate the transition from a polygynous to a monogamous steady state.  We find that the initial old men will be big losers. The reason is that they had married many wives in anticipation of the brideprice that future daughters will fetch. However, due to the marriage reform, the value of daughters depreciates rapidly, as the brideprice changes from positive to negative. This increases savings and thereby the aggregate capital stock. The interest rate falls and the initial young suffer a loss in capital income. Thus, all men alive during the reform period experience a loss in utility. Young women and all future generations will benefit.  However, the future gains are not enough to compensate the losers. This may explain why many African countries experience strong resistance to changing their marriage laws.

Here is the paper, and thanks to Alina Stefanescu for the pointer.  Here is Alex’s previous post on polygamy, which leads you back to mine as well.  Here are more links.

Jesse Shapiro on media bias

by  Tyler Cowen in

Here is the Slate summary, which includes a link to the paper.  Excerpt:

1) If a media outlet cares about its reputation for accuracy, it
will be reluctant to report anything that counters the audiences’
existing beliefs because such stories will tend to erode the company’s
standing. Newspapers and news programs have a visible incentive to
"distort information to make it conform with consumers’ prior beliefs."

2) The media can’t satisfy their audiences by merely reporting
what their audience wants to hear. If alternative sources of
information prove that a news organization has distorted the news, the
organization will suffer a loss of reputation, and hence of profit. The
authors predict more bias in stories where the outcomes aren’t realized for some time (foreign war reporting, for example) and less bias where the outcomes are immediately apparent (a weather forecast or a sports score). Indeed, almost nobody accuses the New York Times or Fox News Channel of slanting their weather reports.

Here is my earlier TCS piece on media bias.

Mac to PC Prize

by  Alex Tabarrok

Apple’s switch to Intel based machines makes it possible to actually run Windows (rather than emulate Windows) on a Mac.  Who made this possible?  Was it Apple?  Microsoft?  Intel?  No, it was Jesus, Jesus Lopez.  David Pogue writes about the patch and the innovative prize that motivated the programming.

Colin Nederkoorn created "a contest Web site, OnMac.net.
The challenge: to figure out how to install Windows on an Intel-based
Mac. The prize: a pot donated by interested parties all over the
Internet, seeded by $100 from Mr. Nederkoorn.

The doubters:
plentiful. "You do realize that it’s not technologically possible
without rewriting the bootloader?" wrote one respondent. "Take your 100
bucks and save it."

The winner: Jesus Lopez, a  San Francisco-area  programmer who collected a pot that had grown to $13,854.

…It runs most Windows software beautifully, but the rough edges are a
reminder that these are the earliest days in the Age of FrankenMac….

Thanks to Daniel Akst for the pointer.

Addendum: Chris Rasch points out that Apple is now also getting on the bandwagon.  (I like this warning, "Windows running on a Mac is like Windows running on a PC. That means
it’ll be subject to the same attacks that plague the Windows world….")

Opposite day: markets in not nearly enough things

by  Tyler Cowen in

Which markets do you feel are missing?  Your choice must be technologically feasible and not obviously ridiculous from the cost side.

Hooters Air is going out of business, but on the other hand the works of Brazilian guitarist Bola Sete are now widely available.  Markets in pre-ordered parking spaces are underway.  So I will nominate "simply paying the tiny but time-consuming library fines of people ahead of you in line (why don’t I?)."

List your wish in the comments, or tell us why someone else’s pick already exists.

Addendum: Yes a toilet lock is already on the market.

Second addendum: It is too easy to name illegal markets, instead try to spot entrepreneurial opportunities.

Against accountability in the arts

by  Tyler Cowen in

The value of “accountability” is often counterproductive when applied to direct subsidies for art. To be sure, accountability is critically important in many contexts. For instance CEOs should be accountable to shareholders. But we do not stress accountability in every sphere of human activity. For instance, tenured college professors are not (usually) accountable to university administrators for the content of their ideas. Instead we believe that an ethic of academic freedom will best promote the mission of the university. Supreme Court Justices are not accountable for the content of their decisions, although Congress may respond by passing new laws, or the Constitution may be amended.

Along these lines, direct subsidies stand the greatest chance of making a positive difference when they are insulated from many pressures of accountability. We should return to the stylized facts about artistic discovery, namely that there are many failures for every success. Too much direct accountability causes the funder to be excessively afraid of failure. This limits risk-taking and in the longer run limits the number of successes. Accountability works best when the quality of the average outcome is a good indicator of the tails of the distribution; this is not generally the case with the arts.

By the way, here is the last paragraph of the book:

Given that so much of the aesthetic is hidden, what appears to be the subordination of poetry to philosophy is an illusion, albeit a creativity-enhancing illusion. Rather than subordinating poetry to philosophy, at most I have subordinated the public conception of art to philosophy. Poetry remains secure in its diverse and hidden niches, and indeed is healthiest when philosophy directs the public conception of art toward a regime of markets, indirect subsidies, and decentralization. In this sense we can put philosophy at the service of art, and not at war with it. I wish to overturn the victory that Socrates pretended to award to philosophy over poetry, and to paint an alternative vision of the broader compatibility between the two enterprises.

Zimbabwe Fact of the Day

by  Alex Tabarrok in

Zimbabwe continues its descent. 

The country’s money is devaluing so fast that you have to lug around plastic bags full of it if you’re doing a small grocery shop. To buy anything bigger, you’ll need to fill a suitcase. …A telephone bill last month – more than 15 million Zimbabwe dollars – would have bought five houses five years ago. Nice houses, in Harare’s rich suburbs.

This week, $15 million is worth just £41 – enough to buy a tank of black-market petrol. Next week – who knows?

Here’s a previous post on Zimbabwe, cadavers for rent.  Hat tip to Newmark’s Door.

The Tullock paradox: why is there so little lobbying?

by  Tyler Cowen in

Tim Harford writes:

…the economist Thomas Stratmann has estimated that just $192,000 of contributions from the American sugar industry in 1985 made the difference between winning and losing a crucial House vote that delivered more than $5 billion of subsidies over the five subsequent years.

That is one example of many.  Our government controls trillions, but lobbying expenditures are a small fraction of gdp.  One explanation, which Tim cites, is that our government is not for sale.  This is true for most major programs, such as social security.  Voters have the dominant say. 

But how about the details of smaller policies?  Why aren’t the benefits of those redistributions exhausted by lobbying expenditures?  My preferred explanation involves competition.  In principle, more than one coalition is capable of winning a political game.  If your winning coalition demands too high a bribe from interest groups, you will be undercut by another coalition able to deliver the policy for less.  Government is not a unitary agent.  This also helps explain, by the way, why democracy is stable rather than wracked by intransitive cycling.  If you just write down different voting profiles, it appears any winning coalition can be outdone by another (at least for a multi-dimensional policy space).  But if you add differential costs of organization to the mix, and make collecting the votes part of an explicit but imperfectly contestable market, you are much closer to getting a unique or near-unique outcome. 

Ideas in this post are drawn from a paper by Roger Congleton and Bob Tollison.  Here is a recent paper on the same topic.

Does Nation Building Work?

by  Alex Tabarrok in

Nation-building Military Occupations by the
United States and Great Britain, 1850-2000

Payne, James. 2006.  Does Nation Building Work? The Independent Review. 10 (4).

U.S. Occupations

Austria 1945-1955 success
Cuba 1898-1902 failure
Cuba 1906-1909 failure
Cuba 1917-1922 failure
Dominican Republic 1911-1924 failure
Dominican Republic 1965-1967 success
Grenada 1983-1985 success
Haiti 1915-1934 failure
Haiti 1994-1996 failure
Honduras 1924 failure
Italy 1943-1945 success
Japan 1945-1952 success
Lebanon 1958 failure
Lebanon 1982-1984 failure
Mexico 1914-1917 failure
Nicaragua 1909-1910 failure
Nicaragua 1912-1925 failure
Nicaragua 1926-1933 failure
Panama 1903-1933 failure
Panama 1989-1995 success
Philippines 1898-1946 success
Somalia 1992-1994 failure
South Korea 1945-1961 failure
West Germany 1945-1952 success

British Occupations

Botswana 1886-1966 success
Brunei 1888-1984 failure
Burma (Myanmar) 1885-1948 failure
Cyprus 1914-1960 failure
Egypt 1882-1922 failure
Fiji 1874-1970 success
Ghana 1886-1957 failure
Iraq 1917-1932 failure
Iraq 1941-1947 failure
Jordan 1921-1956 failure
Kenya 1894-1963 failure
Lesotho 1884-1966 failure
Malawi (Nyasaland) 1891-1964 failure
Malaysia 1909-1957 success
Maldives 1887-1976 success
Nigeria 1861-1960 failure
Palestine 1917-1948 failure
Sierra Leone 1885-1961 failure
Solomon Islands 1893-1978 success
South Yemen (Aden) 1934-1967 failure
Sudan 1899-1956 failure
Swaziland 1903-1968 failure
Tanzania 1920-1963 failure
Tonga 1900-1970 success
Uganda 1894-1962 failure
Zambia (N. Rhodesia) 1891-1964 failure
Zimbabwe (S. Rhodesia) 1888-1980 failure

Global Markets in Everything

by  Alex Tabarrok in

Surrogate motherhood meets globalization.

When Reshma gives birth next month in this small
Indian town, the newborn will be immediately handed over to its
biological parents, non-resident Indians who live in London and who
have been unable to bear a child on their own. In return for renting
her womb, Reshma will be paid $2,800 – a significant sum by Indian
standards.

…"These amounts are still nearly three times cheaper than what surrogacy in the UK would cost us," [the parents] say.

A little strange but I have a lot of respect for the surrogate mother and her husband:

"I have two cherubic children of my own," says
Reshma, who withheld her real name for fear of disapproval by
neighbors. "That couple has none. Imagine how much happiness this baby
will give them."

…Reshma’s husband Vinod – not his real name – says
his paltry $50 montly pay as a painter would not be enough to educate
his two children. He says the extra money will allow him to invest in
his children’s education and to buy a new home.

Thanks to Pablo Halkyard for the pointer.

The future of ports and vessels

by  Tyler Cowen in

It is a fun game to write out only the last paragraphs of good books:

Where vessel size had once been limited by the locks in the Panama Canal, containerships had grown so large that twenty-first-century naval architects were constrained by the Straits of Malacca, the busy shipping lane between Malaysia and Indonesia.  If a containership ever reaches Malacca-Max, the maximum size for a vessel able to pass through the straits, it will be a quarter mile long and 190 feet wide, with its bottom some 65 feet below the waterline.  If it should sink, it will take nearly $1 billion of cargo with it.  Its capacity will be 18,000 TEUs, or 9,000 standard 40-foot containers, enough to fill a 68-mile line of trucks each time it arrives in port.  Where it will call is a serious question, because few ports anywhere are deep enough to accommodate it.  The answer may well be brand-new ports built in deep water offshore, with Malacca-Max ships linking offshore platforms and smaller vessels shuttling containers to land.  If they ever come about, these enormously costly ships and ports will create yet more economies of scale, making it still cheaper and easier to move goods around the globe.

That is from Marc Levinson’s The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger.  Here is a link to Virginia Postrel’s post on the book.  Here is a photo of a Malacca-Max ship; sadly there is no elephant nearby.