Hermosillo, Mexico

by  Tyler Cowen in

To paraphrase Samuel Johnson, when a man is tired of Mexico he is tired of life and death.  My short time here has been just splendid:

1. From the air one sees many enclaves of small condominiums and townhomes, a’ la Orange County.  This is the Mexico of the future.

2. When it comes to median income, this is the wealthiest part of Mexico I have seen.  It is not a city of peaks and excess, but real poverty is hard to find.

3. The town is neat and orderly and the streets lie in a near-perfect grid.  Imagine Mexico run by the Swiss or the Singaporeans.

4. Downtown there appear to be more Chinese than Mexican restaurants.  The Chinese, however, came here in the 1880s, and have since had little contact with Szechuan grannies.  Imagine them having imported the menus for Chinese food, but not the recipes, and trying to recreate those titled dishes using their imagination and Mexican ingredients.

5. The weather is truly perfect.  In January, that is.

6. My guide insists on telling people I am from the more-recognized "Carolina," even though he knows full well I live in Virginia.

7. The town square has lovely fig and orange trees; both fill with squawking blackbirds as night approaches.  Otherwise there is absolutely nothing to see here in the way of tourist sights.

8. Sonoran beef compares favorably to that of Argentina.  Eat in Jardin Xochimilco, better yet are the street places.

9. The flour tortillas are much grainier (and better) than what we receive in the States.  They are wonderful toasted over burning sugar cane.

10. Try the coyota, the town specialty.  It is the most delicious baked sweet I have sampled, ever.  Scroll down to this recipe.  A coyota alone is worth the price of the trip, which was only $120 and 75 minutes from LA. 

Secret blogs

by  Tyler Cowen in

I have been intrigued to learn how many of you have secret blogs.  A secret blog is read by others, but the readers (ostensibly) don’t know who is writing it.  I have been told I should start a secret blog (what was the underlying psychological hypothesis behind this suggestion?) 

What might such a blog consist of?

1. Detailed, quantitative macroeconomic forecasts.

2. Steamy erotic writing.

3. A running and uncensored narrative of my inner mental life (NB: not the same as #2).

4. Exclusive attention to the economics of love, marriage, and sex, in slightly more risque form.

5. The posts I write for MR but reject out of either prudence or fear you will be bored.

The bottom line: This idea will have to wait. 

But if you are willing to write about your secret blog, or "your friend’s" secret blog, comments are open and anonymous remarks are welcome.  Why do people write secret blogs?  And do they subconsciously wish to be discovered by at least a select few?

Edward Lazear

by  Tyler Cowen in

Ed Lazear has just been nominated to be Bush’s new CEA head.  Lazear deserves a lengthy, link-rich post, but sadly from northern Mexico he is not going to get it.  Here is a home page.  Here is a speech praising Ed.  Here are his most cited pieces on the web.  A few points of mine:

1. He has pioneered the theory of tournaments with Sherwin Rosen.  The key point is that you should compensate people for their performance relative to their peers (rather than for their absolute performance) only under specialized conditions.  Most importantly, there should be general shocks to labor productivity or your ability to measure labor productivity.  In other words, if you are not sure how good your exam is, or how well you taught the class, grade your students on a curve.  This will help some of your mistakes wash out.  I think of this as his best-known piece, although there is much competition.

2. He has a seminal piece on why law firms are organized as partnerships, and on other "up or out" schemes, including tenure.  Such contracts are sometimes more incentive-compatible.  A firm will always want to cut your wages, if it can get away with it.  But with "up or out," they only want to get rid of you if in fact you stink.  This can lead to greater harmony on both sides of the relationship; you also might invest more specialized human capital in the value of the firm.  Lazear has applied similar insights to issues of mandatory retirement.  Here is an interview with Ed on personnel management.

3. He has argued that piece-rate incentives may boost productivity significantly.

4. His recent work tries to establish the conditions under which The Peter Principle will hold.  He is a famous economist, capable of earning huge sums by consulting, but he has not "cashed in" intellectually.  In his late fifties, he remains at the top of his profession.

5. He headed Bush’s recent tax panel, which produced a remarkably well-reasoned and non-partisan document.  He appears to have rejected supply-side ideas that cuts in income tax rates are self-financing and he has not caught the obsession over a flat tax.

6. He has studied culture and language.  He believes that diverse immigration is better than concentrated immigration from a few locales.  He is quite capable of incorporating behavioral assumptions into economics and moving beyond the simple rational man model.  Nonetheless he sees considerable scope for economic reasoning; here is his piece on economic imperialism.

7. He has argued that unemployment insurance should become more like a loan program.

8. Lazear defends high executive salaries as a means of stimulating competition for the top jobs.  This is an offshoot of his work on tournaments.

9. Here is a summary of his work on how class size affects the quality of education.

10. Here is his recent piece on the efficacy of educational testing, a matter of interest to the Bush Administration.  The bottom line is somewhat complex, read it.

11. Here is his piece on when retail stores dominate auctions.  This is a favorite for those of us who like micro puzzles.

12. A long time ago he wrote this piece on social security and pensions.  Too bad I can’t open it on this old Mexican Adobe Reader.  Maybe a reader can offer its bottom line in the comments section.

The bottom line: Lazear is a superb economist.  I do not know him, but I often hear him spoken of with a more general respect, and not just for his intellect.  The key question is who will be listening… stay tuned, and comments are open in case you have additional remarks on this appointment…

Naive Macroeconomics 101

by  Tyler Cowen in

I do not worry much about particular levels of the current account, the dollar, or the measured savings rate per se.  I used to say "deficits do not much matter, and the level at which they would matter will never be reached in the United States."  I do not say this any more, but hey I’ve gotten used to that too.

I pin great hopes on the growth rate.  Furthermore I tend to think that the best forecast of next period’s growth rate is often this period’s growth rate.  That is why I am distressed by recent news of a 1.1 percent quarterly growth rate.  I do not see any way to put a positive or neutral spin on this.  Beware.

For further commentary, check out Macroblog and Brad DeLong.

What is so special about China’s exports?

by  Tyler Cowen in

Dana Rodrik writes:

..what is so special about China’s exports is not that they are voluminous or that its large pool of labor gives it a huge labor cost advantage. What stands out is that China sells products that are associated with a productivity level that is much higher than a country at China’s level of income. This helps account both for why China’s trade is viewed as problematic in advanced countries, and for China’s rapid economic growth.

The economically relevant question for sustainability is not whether trade-GDP can keep on rising, but whether China will manage to latch on to higher- and higher-income products over time, and continue to fuel its growth thereby.

Anyone interested in China should read this paper.  The key question is how the Chinese managed this trick.  My gut suggests two factors: the predominance of joint ventures (the best of foreign technology and management, yet with domestic diffusion of best practices), and the benefits of a very large population.  Your best producers will do wonders for the quality of your best ventures.  I am not persuaded by Rodrik’s praise of Chinese industrial policy.

Thanks to the New Economist blog for the pointer.   They also link to a good discussion of U.S. productivity.

Addendum: Here is a link to some dissenting opinions.

Is blogging a fad?

by  Tyler Cowen in

Arnold Kling says no:

My prediction is that in niches where the ratio of information value to entertainment value is high, blogs will prove to be superior mechanisms for disseminating news. For example, local politics tends to have lower entertainment value than national politics. To me, that implies that at some point we will start to see elections for school board or city council influenced more by coverage in blogs than by coverage in newspapers.

Here is his description of how the blogosphere works (should work?):

This filtering process makes all of us more efficient. Information with low value does not travel far. Information with high general value tends to travel the farthest. Information with low general value but high local value tends to reach interested people but then die out because as it gets passed along its value decays below the threshold. Everyone tends to receive information with a high value to them, and they avoid having to read information that has low value to them. If the filtering system works well, I get to read lots of economic insights, and I never have to read anything about, say, Olympic figure skating.

Here is my earlier post on how blogs influence the world.

Why don’t Asian restaurants have good desserts?

by  Tyler Cowen in

I’ll let you all bicker as to whether the stylized fact is true only in the USA, or across the world.  I don’t know if the following explanation is true, but finally I have heard an explanation which might plausibly be true:

…many traditional desserts require a great deal of work to make, at least when compared to stir-frying some shreds of this and that together.  Most restaurateurs are simply unwilling to go to the trouble, particularly since the profit margin on desserts is generally smaller than that on the main dishes.  The same phenomenon occurs in other ethnic restaurants.  In the old country, desserts and snack foods are made in specialized shops where the volume keeps labor costs down [TC: and freshness up…btw, the emphasis is added].

That is from A. Zee’s Swallowing Clouds: A Playful Journey Through Chinese Culture, Language, and Culture.  The author also suggests that the Chinese prefer to eat desserts apart from regular mealtimes; for some reason this is supposed to lower the quality of restaurant-based desserts.  I prefer the first explanation.  Indian sweet shops are fantastic, but U.S.-based Indian restaurants have only so-so desserts.  Comments are open, I am eager to hear your opinions…

My misguided and delusional plan to visit every major urban area in the New World

by  Tyler Cowen in

I am willing to fly to Nova Scotia for the heck of it.  There is a direct flight from Haiti to Suriname.  I expect Colombia will be the hard part.  Salvador, Brasil is the outstanding gem.  I’ve heard Villahermosa is lots of concrete and not so much fun.  Honduras is only a matter of time.  Santa Cruz, Bolivia to northern Argentina can be done overland; I love Latin American buses.  Santiago, Cuba will require a Democratic President.  I wonder how easily you can get from Guyana to French Guiana.   I have never visited Birmingham or Mobile, Alabama.

Is the Steve Levitt meme spreading?

by  Tyler Cowen in

Here is today’s story from The New York Times.  They say "yes."

By the way, I am at a Liberty Fund conference, enjoying the company of Daniel Drezner, Megan McArdle, Virginia Postrel, Nick Schulz, and Grant McCracken, among others.  The topic is the eighteenth century critique of luxury, and the responses from Adam Smith, David Hume, and Bernard Mandeville.  Tomorrow we consider Bob Frank’s critique of status-seeking.  Hermosillo and brain tacos come Sunday.

Addendum: Here is Hollywood does Freakonomics, starring Will Ferrell, Chris Rock, and Steve Martin.