SUV safety debate
A theme in writings about SUV’s (see here for a recent New Yorker article) is that consumers tend to overestimate SUV safety and grossly misunderstand the factors behind auto safety. The basic point is that safety comes from avoiding risky situations and quickly responding to danger. It turns out SUV’s tend to lull drivers into a false sense of safety and they respond more slowly to danger (e.g., SUV’s come to a complete stop much more slowly than many other popular types of cars). Because SUV’s are cosmetically altered trucks, they don’t have many basic safety features now standard in small cars or minivans, so you are more likely to die in an SUV accident than in another car (an anti-SUV site collects some Insurance industry reports). Consumer Reports has for many years argued that SUV’s are quite likely to tip over.
One response I’ve seen is to avidly defend consumer choice (see here for Car and Driver’s Brock Yate’s defense, or here for Peter Klein’s comment), or to minimize the SUV’s dangerous design. I think this misses a basic point. When events are infrequent (like fatal auto crashes), or when cause and effect are hard to link, people can opt to believe anything they want. All economics tells us is that markets are extremely good at responding to possibly erroneous consumer beliefs.
My take on this entire issue is that the central issue is liability. In general, you can’t hold someone accountable for the fatalities created by the use of a car with less then optimal safety features, any more than you can hold somebody accountable for the extra risk created by using a less than best bicycle, motorcycle or other device. In short, there is not much people can do about SUV safety because some people will always want to make the trade-off between safety and other product features.
Since the insurance industry is still willing to insure SUV’s, I wonder if the risk associated with them is tolerable given our current legal and economic standards. I invite knowledgable readers to email me information about how much more it costs to insure SUV vs. other vehicles.
Ricardo’s Difficult Idea
A colleague reminds me of this wonderful (1996-pre political commentator) essay by Paul Krugman, Ricardo’s Difficult Idea, explaining why some otherwise intelligent people find the idea of comparative advantage so difficult to understand.
The end of the French cultural exception?
The French cultural exception may be coming to an end, but not because of American pressure. The EU, that darling of the French, has decided that film subsidies should not be tied so closely to domestic production. After all, that would be discriminatory. Under the new proposal, a government could demand only that fifty percent of the subsidized film, in revenue terms, is made at home. Currently the figure stands at eighty percent. So they could shoot French films in Greece and still get the subsidies. More generally, the proposed change would force French filmmakers into more co-production agreements with other European nations. Here is the full story from the Financial Times.
Many of the French fear that we would get a bland cinematic “Euro-pudding” as a result. Note, however, that the renowned film Amelie was a French-German co-production, yet it retained a distinctive French flavor. The more likely “problem” is that the domestic political coalition behind French subsidies will be disturbed and may not survive in the long run.
The decision is not yet final, but Brussels can strike down the subsidies without approval from the French government and is expected to do so. Several weeks ago Brussels ruled that the French can no longer ban the advertisement of novels on television. The French feared that blockbuster novels, fueled by aggressive TV campaigns, will drive out more serious literature.
It should be clearer than ever that the French will have to give up their vision of the American bogeyman. France and America have many common interests. The real fear of (many of) the French is modernity and commercial culture, not American culture per se. In fact American culture, and the American presence on the world scene, might in the long run give France an appropriate counterweight to an EU that is growing in power and influence.
The Poincare conjecture
Has the Poincare Conjecture been solved? Possibly. Read this recent news report about a new proof by an obscure Russian loner, Grisha Perelman. The Conjecture is one of the famous Millennium Problems in mathematics.
“This is arguably the most famous unsolved problem in math and has been for some time,” said Bruce Kleiner, a University of Michigan math professor reviewing Perelman’s work.
Here is the clearest statement I can find of what the whole thing means:
To solve it, one would have to prove something that no one seriously doubts: that, just as there is only one way to bend a two-dimensional plane into a shape without holes — the sphere — there is likewise only one way to bend three-dimensional space into a shape that has no holes. Though abstract, the conjecture has powerful practical implications: Solve it and you may be able to describe the shape of the universe.
Or try this:
[the] work has huge implications for our understanding of partial differential equations. PDEs (as they are known in the trade) are the mainstay of physics and engineering. Mazur notes that physicists and engineers use PDEs to model everything from the flow of water to the buildup of heat in aircraft engines. “I would expect this work to have enormous applications in many fields of science,” he says.
There may also be applications for scientists studying DNA…Some kinds of DNA wrap themselves into knot formations that can be insanely difficult to decipher. But Mazur says Thurston’s classification [referring to related work] may provide a way to calculate the exact nature of any knot – so in theory it could be used to work out the structure of knotty DNA molecules.
The upper reaches of mathematics can often seem absurdly detached from life down here on planet earth, but Mazur points out that you can never know where things might lead. He cites the case of James Clerk Maxwell. In the late 19th century Maxwell worked out the equations of electromagnetism. “At the time it would have been easy to write off Maxwell’s ideas about invisible forces as a mystical abstraction,” Mazur says. But Maxwell’s work laid the foundations for the development of radio, and hence the communications revolution. Every time we turn on the TV or pick up a cellphone or log onto a WiFi system we are reaping the rewards of Maxwell’s equations.
Another bottom line: Perelman will receive a million dollars if his result stands up. Alex says this is another win for bounty hunters!
Does the case for free trade require factor immobility?
Paul Craig Roberts has been claiming that the traditional case for free trade requires immobile factors of production. Michael Kinsley offers his [critical] understanding of the argument as well. I take the bottom line to be as follows. If labor can migrate, trade will not always benefit both countries, in all conceivable circumstances. Those laborers will move to the country with the strongest absolute advantage. This may lead to a brain drain at home, and perhaps crowding and lower wages in the recipient country. In other words, there are potential externalities from the migration of labor.
Another scenario is that American capital flows, say, to China, instead of Chinese labor coming to America. America will not experience overcrowding, nor will China have a brain drain. Still the real wages of some American workers might fall. Chinese labor will be concentrated in some sectors more than others. Certainly some American workers will be worse off, though economists will continue to insist that wealth as a whole will go up.
None of these arguments are new and they do not represent a novel critique of free trade. The first version of the argument suggests, at best, that we cannot currently move to complete free immigration. It does not dent the case for free trade. The second argument simply points out that wealth-improving policies do not benefit everyone.
The ever-insightful Daniel Drezner offers some further commentary on the new anti-free trade arguments. He also notes that the “factor mobility” scenario does not involve fundamentally new considerations from the “factor immobility” scenario.
The bottom line: We should take care to minimize the negative externalities from foreign trade and investment, and this is best done by well-functioning labor markets and sound macroeconomic policy. Basically Roberts is peddling snake oil. His argument boils down to old-style protectionism, dressed up in new rhetorical garb, not new substance.
By the way, as an economist, I sometimes receive irate emails telling me I have never had to compete with subsidized foreign workers. It is then suggested that if I faced such competition, I would not favor free trade. This description of the facts is not true. Most of my Ph.d. class at Harvard came from other countries, and many of them were heavily subsidized by their governments. I was not subsidized by the American government and yet I had to compete with these people for jobs.
Addendum: See further remarks by Joseph Salerno. See also Truck&Barter., which offers further links of value.
Free trade and factor price equalization
I agree with the sophisticated points that Tyler makes above regarding free trade. The more basic point, however, is that contra Paul Craig Roberts and Charles Schumer, the theory of free trade does not rely on factor immobility. In fact, the theory shows that free trade and factor mobility have similar effects. Free trade in commodities tends to create factor-price equalization – i.e. the same prices for wages and capital of equal productivity everywhere in the world even when the factors themselves are immobile. But factor price equalization is exactly what would be produced by factor mobility. You can be against free trade or be for it but being against the theory in one form and against it in another is just wrong.
Cads vs Dads II
Social psychologists have found that women prefer to have sex with a “Cad” when considering a brief affair but for longer term relationships they prefer “Dads.” Leading Tyler to ask in an earlier post, Why do women like cads?
Patrick Vlaskovits, a reader, hypothesizes that Cads have better genes than Dads. Patrick writes:
Why is a Cad a Cad? I think it is because: He can be. His genes are so good, so much in demand, that women are willing to mate with him knowing that he might not stick around. Same reason why a Dad is a Dad. He knows if based solely on looks (proxy for gene competition), he will lose to the Cad every time. So, he must compensate for his lower quality genes by investing more resources in the female and offspring.
Symmetry is an important aspect of beauty and has been shown to be a signal of good genes so the theory can be tested by looking at how mating strategies vary with symmetrical features. Psychologists Steven Gangestad and Jeffrey Simpson report that this has been done with birds:
In a recent review of 18 bird species, Møller and Thornhill (1997a) have documented an association between extra-pair paternity and the extent to which attractive males engage in direct parental care. Specifically, when the rate of extra-pair paternity is high (and, thus, when males can benefit more from trying to attract extra-pair mates), attractive males perform a smaller proportion of offspring feedings than do less attractive males. Exerting greater extra-pair mating effort should yield larger payoffs for more attractive males, and this is evident in the time they fail to spend engaging in a competing activity: providing direct parental care.
Gangestad and Simpson suggest that the theory also applies to humans:
Over evolutionary history, men who had indicators of genotypic quality should have experienced larger gains in fitness payoffs than men who lacked these indicators. Moreover, men should have evolved to conditionally “decide” to allocate more versus less effort to mating or parenting, depending on the degree to which they possess these features.
Note, however, that the context in which men play the Cad v. Dad strategy, human society, is much more variable than that faced by birds. The Cad strategy will not work well in times and places where extra-marital sex is uncommon. Ever heard of an Amish Cad?
French revenge on Hollywood?
Henri Crohas’s company, Archos SA, makes a small hand-held device, like a bulky Palm Pilot, that can record and then play back scores of movies, TV shows and digital photos on its color screen or a TV set. The gadget — which in effect does to movies what Apple Computer Inc.’s iPod does to music — already has sold 100,000 units world-wide during the past six months, beating the big consumer electronics makers to the U.S. market.
Archos’s device, which costs about $500 to $900 depending on the model, ignores an anticopying code found on a majority of prerecorded DVDs. That means consumers can plug the Archos device into a DVD player and transfer a movie to it. Users also can transfer recorded TV programs and digital music files to the Archos device.
Yes this item is from a small company in France, here is the full story. Stay tuned for further developments. The bottom line is that the Internet is not the only means of pirating music and movies.
You are a better bargainer than you think
Negotiators tend to think they are more transparent than they truly are. They believe that their negotiating partners can discern their thoughts, and negotiating positions, when in fact the partners are clueless. See the experimental evidence from this recent paper by Leaf van Boven, Thomas Gilovich, and Victoria Medvec. There is good evidence that we send involuntary signals of our own trustworthiness. Still, we do not always have a good sense of how those signals are interpreted by others.
The basic result may stem from a kind of excess sympathy. The negotiator tries to put herself in the position of the “other mind,” but cannot eradicate the knowledge of her own bargaining position. So the model of the other mind contains more self-knowledge than is rationally justifiable. Related results have been found in other areas. Individuals overestimate how much others pick up on the cues from their facial expressions. Similarly, individuals who are laughing think they appear more expressive than they do to others. As for bloggers, well, they probably think that readers pick up more of the nuances of their writing than is the case.
The Endangered Species Act
Lynne Kiesling offers a thorough discussion of how the act does little to protect endangered animals. I had started my own post on this topic, but stopped writing once I came across Lynne’s, which is replete with excellent links. Juan Non-Volokh offers an equally biting critique of the Act.
The return of Horatio Alger
Paul Krugman published a December article in The Nation called “The Death of Horatio Alger.” He argued “America actually is more of a caste society than we like to think. And the caste lines have lately become a lot more rigid.”
Recent research by Kerwin Kofi Charles and Erik Hurst looks at intergenerational mobility in more detail. Here is a brief summary of the article, and here is a pdf of an earlier version of the paper.
The published version, “The Correlation of Wealth Across Generations,” in the December 2003 Journal of Political Economy, tells us the following:
1. “Age-adjusted parental wealth, by itself, explains less than 10 percent of the variation in age-adjusted child wealth.”
2. 20 percent of parents in the lowest quintile of the parent’s wealth distribution have children who end up in the top two quintiles of their generation. One-quarter of the parents in the highest wealth quintile end up with kids in the two lowest quintiles.
3. The age-adjusted intergenerational wealth elasticity is 0.37. What does this mean? If parents have wealth 50 percent over the mean in their generation, the wealth of their children will be 18 percent above the mean in the childrens’ generation.
4. Income levels account for about one-half of the parent-child wealth relationship. In other words, high income parents tend to produce high income children, to some extent. The children earn much of their wealth. Education and financial gifts account for very little of the correlation across parents and children.
5. Parents and children allocate their financial portfolios similarly, whether for reasons of genes or learned behavior. These common patterns of investment and savings are the second biggest factor behind the intergenerational wealth correlations we observe.
Note that the figures above do not include income from bequests. In this regard they underestimate some of the intergenerational correlation. On the other hand, large numbers of individuals do not receive bequests until they are at least in the 50s, so the figures measure the opportunities open to them in the earlier stages of their lives. And note that the data are recent, the wealth of the children is measured in 1999.
So what is the bottom line? Yes, there is some correlation in wealth across the generations. But most of that correlation (almost seventy percent) comes from continued hard work and savings. The authors do not examine Krugman’s claim that mobility once was greater, but it seems premature to suggest that the American dream is gone.
Addendum: Cardinalcollective.com offers some useful discussion and links, here is Daniel Drezner’s treatment, again replete with links.
Arthur Miller fails the test
On his recent visit to Cuba a group of writers practically begs Arthur Miller for help, for words of support, for some protection against their oppressive government and Miller is stumped. He’s so enthralled with Castro and his “fantastic shrimp” and “spectacular pork” that he is clueless to their plight. Morality does not require that we risk our lives, as some Cuban writers do, to speak truth to power but it does require that we honor those who do. What then to think of someone who laughs off their plight while enjoying wine with their oppressor? No Brad, it’s not just you, what Miller did was despicable.
A meeting had been arranged the previous afternoon, no doubt through the writers union, with some fifty or so Cuban writers. Initially the organizers had expected only a few dozen on such short notice, but they had had to find a larger space when this crowd showed up. We encountered a rather barren auditorium, a speaker’s platform and an odd quietness for so large a crowd. What to make of their silence? I couldn’t help being reminded of the fifties, when the question hanging over any such gathering was whether it was being observed and recorded by the FBI.
It was hard to tell whether Styron’s or my work was known to this audience, almost all of them men. In any case, with the introductions finished, Styron briefly described his novels as I did my plays, and questions were invited. One man stood and asked, “Why have you come here?”
Put so candidly, the question threw my mind back to Eastern Europe decades ago; there too it was inconceivable that such a meeting could have no political purpose. Styron and I were both rather stumped. I finally said that we were simply curious about Cuba and were opposed to her isolation and thought a short visit might teach us something. “But what is your message?” the man persisted. We had none, we were now embarrassed to admit. Still, as we broke up a number of them came up to shake hands and wordlessly express a sort of solidarity with us, or so I supposed. But in some of them there was also suspicion, I thought, if not outright, if suppressed, hostility to us for failing to bring a message that would offer some hope against their isolation. But back to the dinner with Fidel…
There were fantastic shrimp and spectacular pork, dream pork, Cubans being famous for their pork….
Why do Japan and China keep on buying dollars?
The dollar has fallen about twenty percent against the Euro in the last year but China and Japan continue to accumulate large dollar surpluses. At the same time, many economists worry that they will dump their holdings, sending the dollar into a free fall.
Michael Dooley, Peter Garber, and David Folkerts-Landau suggest that this financial policy is no accident. They view the Chinese and Japanese as pursuing deliberate full employment policies. They buy and hold dollars, not as an investment, but rather to subsidize their own exports. Read this summary of the argument, or buy an NBER working paper here. Garber puts the point bluntly:
“The fundamental global imbalance is not in the exchange rate,” Garber told the IMF forum in November. “The fundamental global imbalance is in the enormous excess supply of labor in Asia now waiting to enter the modern global economy.”
Garber estimates that there are 200 million underemployed Chinese who must be integrated into the global economy over the next 20 years. “This is an entire continent worth of people, a new labor force equivalent to the labor force of the EU or North America,” he explains. “The speed of employment of this group is what will in the end determine the real exchange rate.”
Garber likens the global labor imbalance to the collision of two previously independent planets — one capitalist and one socialist. “Suddenly they were pushed together to form one large market,” he says. The best way to restore equilibrium is for the former socialist economies to pursue export-led growth — and for the United States to act as a buffer and absorb the world’s exports.
Brad DeLong says he doesn’t believe the argument because the U.S. trade deficit is too large relative to the American economy. Brad predicts a revaluation of the Asian currencies within three years. Garber predicts that the new arrangement can last until another 200 million migrating Chinese find jobs. Either scenario would be better for the U.S. economy than some of the scare stories suggest. A weaker dollar in Asia would help correct the U.S. trade imbalance and it is unlikely that the Chinese would allow the yuan to rise so rapidly that the dollar would plummet. And if the current arrangement can continue, so much the better. The bottom line is this: the world economy, in real terms, is drawing on a massive “free lunch,” namely migrating Chinese labor.
Wacky Warnings
The Michigan Lawsuit Abuse Watch has posted the winners from their Wacky Warning Labels contest. First prize was for a warning on a bottle of drain cleaner which says: “If you do not understand, or cannot read, all directions, cautions and warnings, do not use this product.” Fifth prize went for a fishing lure which warns, “Harmful if swallowed.” Check out who won second prize.
Against Broken Windows
James Q. Wilson’s broken windows theory is simple: broken windows, or other symbols of public disorder, invite crime. Thus, if you clean up the neighborhood, crime should go away. The NY Times discusses research conducted by Felton Earls, Rob Samson, Steve Raudenbush and Jeanne Brooks-Gunn testing this theory. They drove an SUV through *thousands* of Chicago streets and recorded with a video camera just about everything that was visible on the street – garbage, loitering, grafitti, etc. They also had data on crime and the attitudes and behavior of residents. Analysis of data showed that public signs of disorder such as garbage were not linked to crime. Instead, concentrated poverty and the willingness of residents to self-police (“collective efficacy”) explained the incidence of crime. The Times quotes Earls:
“If you got a crew to clean up the mess,” Dr. Earls said, “it would last for two weeks and go back to where it was. The point of intervention is not to clean up the neighborhood, but to work on its collective efficacy. If you organized a community meeting in a local church or school, it’s a chance for people to meet and solve problems.
“If one of the ideas that comes out of the meeting is for them to clean up the graffiti in the neighborhood, the benefit will be much longer lasting, and will probably impact the development of kids in that area. But it would be based on this community action – not on a work crew coming in from the outside.”
This point should be taken to heart by all students of crime. Yes, of course, police are necessary for public order and safety. But the police are finite resource – they can’t possibly monitor every street and corner. Thus, on a fundamental level, public safety comes from a community’s ability to regulate itself. The next time you hear a call for more police, or more prisons, or more public works, think about this insight.