New economics blogs
One is called The Idea Shop. Andrew David Chamberlain, the blogmeister, describes the focus as “economics made simple.” So far it looks promising. The other is a new blog on economics for undergraduates.
Tax and Spend
On my way in to work today, I heard a snippet of a President Bush speech on C-Span radio. “Tax and spend is the enemy of job creation,” he said.
That’s probably true. Unfortunately for the President, if tax and spend is the enemy of job creation, so is “borrow and spend,” the President’s recent formula.
The size of the budget and what it’s spent on is more important than how it’s financed. There are really only two choices for financing–taxes today and taxes tomorrow. Borrowing just means taxes tomorrow. The President likes to describe tax cuts as letting people keep more of their own money. I like that idea. Unfortunately, I agree with my hosts Tyler and Alex that the current administration has raised our taxes by increasing spending. So ultimately we’re keeping more of our money today and expecting to give back even more tomorrow.
Ironically, Bush has raised spending in what I would guess is a labor intensive way. By expanding homeland security, a lot of workers have been drawn into public employment rather than the private sector.
Last month’s job growth was “small” and almost all of it was in the public sector. That’s most likely a result of government spending pulling people into public sector jobs rather than the private sector.
This Friday is a big day for Bush and Kerry. The job numbers for March will be released. If they are weak again, Bush will have to keep talking about home ownership being up.
Does file-sharing hurt CD sales?
A new study by two researchers at Harvard Business School and the University of North Carolina, Chapel Hill, finds that sharing digital music files has no effect on CD sales. This is the first study that directly compares actual downloads of music files and store sales of CDs.
The authors, Associate Professor Felix Oberholzer-Gee of Harvard Business School in Boston and Professor Koleman Strumpf of the University of North Carolina, Chapel Hill, conclude that “File sharing had no effect on the sale of popular CDs in the second half of 2002. While downloads occurred on a vast scale during this period – 3 million simultaneous users shared 500 million files on the popular network FastTrack/KaZaA alone – most people who shared files appear to be individuals who would not have bought the albums that they downloaded,” say the authors…
Even in the professors’ most pessimistic statistical model, it takes 5,000 downloads to reduce the sales of an album by a single copy. If this worst-case scenario were true, file sharing would have reduced CD sales by 2 million copies in 2002. To provide a point of reference, CD sales actually declined by 139 million copies from 2000 to 2002.
Here is another interesting tidbit:
31 percent of all individuals who download music live in the United States. Other important countries are Germany with a 13 percent share of worldwide users, Italy with 11 percent, Japan with 8 percent and France with 7 percent. File sharers in the United States are particularly active. While they represent 31 percent of worldwide users, they download 36 percent of all files.
U.S. file sharers download files from all over the world. Only 45 percent of the files downloaded in the United States come from computers in the U.S. 16 percent of music files are downloaded from computers in Germany, 7 percent from Canada, 6 percent from Italy, 4 percent from the U.K. A legal strategy that focuses mostly on the United States is unlikely to change the supply of music files.
In other words, going after domestic uploaders, as the RCAA is doing, won’t cut off supply.
Here is one summary. Here is the original research.
My take: Yes I believe the result. Most downloaders are young or just sampling songs for kicks. But I doubt if this, legal developments aside, would be true five years from now. Over time I expect more people to forgo buying the CD, unless of course the law intervenes.
Addendum: Newmark’s Door offers some additional links. Larry Lessig argues for complementarity. Here is an article that copyright is too strict more generally, and yes The Grey Album is wonderful.
Was Nietzsche right?
In recent weeks there’s been a furor in the Washington D.C. area over lead in the District’s water supply. Today, the Washington Post (registration required) looks at why lead is bad for you and covers some of the science and public policy. That lead is bad for you is open and shut. Too much lead kills you and for kids, too much is not that much. But I am skeptical of recent studies that find that the worst effects of lead happen at the lowest levels of exposure.
Here‘s a typical newspaper account of one of those studies and a quote from a leading researcher on the topic:
“There is no safe level of blood lead,” said Dr. Bruce Lanphear, lead author of the lead study presented Monday at the Pediatric Academic Societies annual meeting.
Edward Calabrese would not agree. Calabrese is a toxicologist at UMass-Amherst and a leading scholar of hormesis, the phenomenon that most if not all toxins are actually good for you at sufficiently low doses. This does not imply that you should start adding mercury to your eggs or lead back into your pots. But the impact of toxins appears to be U-shaped–good for you at sufficiently low levels then bad as exposure increases. Whatever doesn’t kill you makes you stronger.
Hormesis also implies that linear models or threshold models of toxic impact are misspecified and understate the impact of toxins over some ranges of exposure.
Here’s a Scientific American article on Calabrese and hormesis.
Here’s my take on the economics and policy implications of hormesis.
Twenty questions
Co-blogger Alex Tabarrok is interviewed by Will Baude of Crescat Sententia. Read Alex on why he blogs, the Alien and Sedition Acts, his 7-point plan for financial security, why we do not have comments, and many other interesting matters.
Electronic voting
Many people fear electronic voting. What if there is an error? Don’t we need a paper trial? How can we be sure that the election won’t be stolen? My response is simple. Ever buy gas? When you buy gas do you pay cash or use a credit card? And when the terminal offers to print you a receipt do you take it, save it, and check it against your monthly Visa bill? Or do you press “no receipt” and drive away?
I have never once checked a gas receipt against my monthly credit card bill and I suspect most people don’t either. The credit card companies have big incentives to record transactions quickly and accurately. The system isn’t perfect but it’s good enough so that I don’t worry about being ripped off and, the key point, the electronic system is certainly more accurate than the primitive process of counting out paper and metallic tokens and handing them over to a minimum-wage cashier who repeats the process by counting out change. I see no reason why electronic voting should not be far superior to punch cards or other manual machine.
Obviously, we need to be careful, which brings me to a suggestion. How about open-source software for voting machines? Opening the source makes life easier for outsider hackers but harder for inside-hackers and open source is less-susceptible to bugs. Open-source would also be well, open – as in an open society.
I would say turn this project over to Linus Torvalds but he’s a Finn and we have to be careful about them but surely there are some skilled programmers who would like to lay the core for voting in the twenty-first century?
Addendum: Yup, here is an open-source voting project.
Are video games art?
Some time ago I asked whether video and computer games would provide the next artistic explosion. I concluded: “I’m still waiting to see the payoff.”
The New York Times ($) has nominated one such game, www.worldofawe.net as an aesthetically worthy experience, click on the link if you are curious. The game combines elements of music, travelogue, diaries, narrative, and digitally constructed artwork. One of the artworks has been included in the recent Whitney Biennial.
My take: Judge for yourself, but for me it is an interesting novelty more than a sustaining attraction. That being said, I didn’t like Faulkner at first either.
A nation turns its lonely eyes to you
Traveling last week and removing my shoes as I snaked through the rope-lines made me wonder whether the airline security people might not benefit from a consultation with the remarkable Temple Grandin. She works at finding ways at making cattle comfortable as they are led to slaughter. Oliver Sacks profiled Grandin, who is autistic, in his marvelous An Anthropologist on Mars.
Bootleggers and Baptists
The Arizona Daily Star reports that Nogales, Arizona will be opening a new state-of-the-art truck inspection station:
The governor touted the new Motor Carrier Inspection Station as a state-of-the-art facility that will improve homeland security while not slowing down international traffic between the United States and Mexico.
It gives state and U.S. federal officials a one-stop shop to inspect drivers’ immigration papers, the safety of their semi-trucks, and the quality and safety of cargo crossing into the country.
But a legal challenge hangs over the new facility:
Attorneys about to argue a federal lawsuit against the NAFTA plan allowing Mexican trucks into the United States aren’t satisfied. They will plead their case before the the U.S. Supreme Court on April 21.
The problem with the new station: It isn’t required to check emissions on incoming trucks.
That means they aren’t being held to the same standards as U.S. trucks and will only worsen air quality standards, said John Weissglass, the San Francisco-based attorney representing the International Brotherhood of Teamsters in the lawsuit. In 2002, the Teamsters, watchdog group Public Citizen, and environmental groups sued the U.S. Department of Transportation to stop the NAFTA plan, citing environmental concerns, which eventually forced the government to conduct a $1.8 million study looking at the plan’s environmental impact.
They say politics makes strange bedfellows, but the Teamsters and Public Citizen? Bruce Yandle of Clemson explains it with a theory he calls Bootleggers and Baptists. The bootleggers like prohibition because it gets rid of competitors. But a politican who wants to listen to the bootleggers needs a more high-minded cause to sell to the public. The Baptists give the politicians cover with the argument that drink is from the devil–it leads to social unrest, unemployment, higher social costs and so on. Same with Mexican trucks. Who can justify keeping out lower cost Mexican trucks just to keep the wages of Teamsters high. Enter Public Citizen. This isn’t about greed. It’s about keeping American air clean.
The appeal of self-righteousness partnering with self-interest also explains why companies often support regulation of their industry. They’ll claim a concern for safety or the environment but often such regulations fall more heavily on smaller competitors and will drive them out of business.
There’s nothing wrong with politicians having both high-minded and low-minded motives. The real problem is that the bootleggers always push the form of the regulation to create higher profits.
NAFTA was supposed to allow Mexican truck companies to compete in the US. We’re still waiting. Before the environmental issue, the alleged worry of the Teamsters was safety. My take on that claim is here.
Microsoft, bundling and all that
Brad DeLong argues that he has been harmed by getting IE for free with Windows.
Remember the days when there was not one single dominant browser that came preinstalled on 95% of PCs sold? Back then there was ferocious competition in the browser market, as first a number of competitors and then Netscape and Microsoft worked furiously to upgrade their browsers and add new features to them….Progress in making better browsers was rapid, because browser-makers wanted to make a better product and any new idea about what a browser should be was rapidly deployed to a large enough user base to make it worthwhile for web designers to try to use the new feature.
But why was competition in the browser market so furious? Hmmm… couldn’t have been because each firm knew that the winner would be a monopoly, could it? The alternative to Microsoft winning the browser war was not competition between many firms but a different dominant monopolist. Focusing on the economics, i.e. without getting into arguments about which firm was the better innovator etc., is there any reason to prefer one monopolist over another?
The double monopoly problem, first explained by Augustin Cournot in 1838, suggests that Microsoft might be the better monopolist. The double monopoly argument says that if two products are going to be monopolized its better if they are monopolized by one firm than by two (or more). The reason is that the single monopolist will take into account complementarities between the two products. The better the brower, for example, the more operating systems Microsoft will sell and vice versa. Separate the two products and you lose this added incentive to lower price and/or improve quality. (If you know the tragedy of the commons argument, the double monopoly problem is the same thing with the customers serving as the common resource).
An unappreciated aspect of this argument is that the reason that Microsoft might make the better monopolist is the same reason it will likely win in any battle with a stand-alone competitor. Microsoft has more to lose from losing and more to win from winning than does the stand-alone and will therefore put more resources into winning. This explains why the European directive requiring Microsoft to sell two versions of its operating system, one with and one without the media player, is pointless. Microsoft will simply sell the two versions at the same price – then which one would you choose?
Aside: I also think that Brad doesn’t appreciate enough the power of potential competition. Low marginal costs and ease of distribution in the software market mean that one of the now relatively small competitors to IE could grow very rapidly. Microsoft knows this and cannot rest on its laurels/behind (your choice). Consider how rapidly the browser substitutes known as RSS readers are growing.
Cuban art
Before leaving for Paris I had the chance to give a talk on Latin American art in Tucson. While preparing I spent some time browsing Google Images for fun. One of my favorite Cuban painters is the expressionist Tomas Sanchez, I like the lusciousness of how he paints forests.
Here is another Sanchez. Manuel Mendive has a more primitivist style, here is my favorite Mendive. If you would like something more avant-garde, try Jose Bedia.
Here is one place to buy some reasonably priced Cuban art.
And how about the economics in Cuba?
State-run galleries sell selected works to tourists and pay artists a percentage, but successful artists like Sandra Ramos and The Carpinteros (Dagoberto Rodriques and Marco Castillo) prefer to deal directly with collectors, inviting them into their homes and studios where they do business in dollars that allow them to support their entire families. The opening week of the biennial is a feeding frenzy of foreign buying with collectors arriving in tours organised by US museums or European travel agencies. (The US allows importation of Cuban art and educational materials.)
With such considerable interest in the biennial, the State has been quick to recognise the potential of the market: an art auction at the biennial raised more than $100,000 to benefit a children’s cancer hospital, with an anonymous collector from Monaco paying $11,000 for a drawing by Kcho, an artist whose signature motif is a simple boat that might be interpreted as an allusion to Cubans’ efforts to escape the island. Somehow Kcho has been co-opted as a quasi-official artist, painting backdrops for Castro speeches and occupying a huge government house.
The bottom line: Censorship or not, if you tax everything else heavily, a good deal of talent will go into the art market. Alex and I wrote about this in our paper An Economic Theory of Avant-Garde and Popular Art, or High and Low Culture (PDF).
Buckley visits Galbraith
William F. Buckley drops in on John Kenneth Galbraith whom he says absurdly is “the most influential U.S. intellectual of the 20th century.” The two old friends then proceed to have a rather doddering conversation.
Buckley asks, “What is it about Bush’s policies that makes them unworthy of conservative benediction?”
“Their ignorance,” Galbraith responds.
“What is Bush ignorant of?”
“Ricardo, for instance.”
Score one for Galbraith.
Later, however, Galbraith delivers what he sees as a crushing blow. “There is not one member of the faculty of Harvard University who is pro-Bush.”
Score several points for Bush!
Actually, it is not even true, Greg Mankiw is Bush’s CEA chair.
The creative commons
Larry Lessig has followed his principles and put his new book, Free Culture, online for free with full rights to redistribute, copy, or otherwise reuse or remix so long as you do so for non-commercial purposes and credit Lessig. Some enterprising bloggers have already taken advantage of the license to record each chapter in MP3 format. Surprisingly, the Lessig book is being simultaneously published by Penguin, which seems like a big risk for them – and having told you where you can get the book for free, will you now buy it at Amazon earning us our vigorish?
I haven’t read Free Culture yet but Lessig’s earlier book, The Future of Ideas, was excellent. Believe it or not, the Future of Ideas, is an argument for the virtue of the commons based upon insights from Austrian economics. A strange but compelling combination.
Addendum: Read Russell Roberts interviewing Larry Lessig here.
Piece work
Violinists at a German orchestra are suing for a pay rise on the grounds that they play many more notes per concert than their musical colleagues – a litigation that the orchestra’s director yesterday called “absurd”.
The 16 violinists at the Beethoven Orchestra, in the former West German capital Bonn argue that they work more than their colleagues who play instruments including the flute, oboe and trombone.
The violinists also say that a collective bargaining agreement that gives bonuses to performers who play solos is unjust.
Here is the full story. Here is a useful site on the labor theory of value. How about paying composers by the number of notes as well?
Bastiat’s house is for sale
The Dufaur de Gavardie de Monclar family, who jointly own Bastiat’s property in Souprosse, inform us that they have reluctantly decided to put it up for sale, as no one member of the family is able to purchase it. It consists of a fine 17th century manor house, with early 20th century alterations, approached via a long tree-lined driveway, a barn and an outbuilding, all set in grounds of 28,000 m².
The main house has a surface area of 200m², on three levels, that is 600m² of living space. The barn, with a timber-frame roof of outstanding architectural interest, has a surface area of 400m² and consists of three levels. The outbuilding is a house on two levels, with a surface area of 100m².
The whole property is for sale for 426,900 euros.
Here is the link, thanks to the Mises blog for the pointer. Here is a short biography of Bastiat that also contains links to many of his works. Perhaps I will stop by the house to pay my respects.