Facts about gift-giving
A recent Australian article cites some facts about gift-giving:
1. 28 per cent of surveyed respondents admitted that they “recycle gifts.”
2. Women give Christmas gifts to more people than do men. The average difference is 12.5 versus eight.
3. Women devote more time to selecting the appropriate gift, 2.4 hours per recipient versus 2.1 hours for male gift shoppers. [I will surmise, without any systematic data, that the real difference is far greater.]
4. Women are more successful in finding desired gifts. 10 per cent of women’s gifts were returned to the shop, as opposed to 16 per cent for gifts given by men.
A good theory of gift giving should account for the greater popularity of gifts among females. I could not help but notice that during my recent honeymoon, my wife bought gifts for many of her friends. I bought family-related gifts, but did not buy a gift for a single friend.
The linked article notes one theory of gifts, called the search theory:
…gift giving makes sense in cases where the giver’s knowledge of where to find something the recipient wants is greater than the recipient’s own knowledge. Or if the giver is in a position to get it cheaper. So the rule is that the giver gives a gift only when her “search costs” for the gift are lower than those of the recipient.
This emphasis on the hassle involved in finding suitable presents helps explain why, even though it’s regarded as poor form to give money, parents are more likely to resort to money as their children get older. The parents’ search costs rise as they become less certain what their kids would like, whereas the kids’ search costs fall as they become more independent. This theory also helps explain why people who go on trips return with presents. Their gifts tend to be things that are dearer or harder to find at home. Even so, it’s hard to believe the theory accounts for more than a fraction of gifts.
The search theory explains some of observed practice, but not why women devote more attention to gift-giving. Perhaps women, having lower average wages, also have lower average search costs. More likely, women find it more worthwhile to invest in a tight network of extended family and close friends. Men might find it more worthwhile to invest in a goal-oriented mentality, which will discourage large amounts of time spent shopping. When it comes to shopping more generally, gifts or not, men take less time, are more decisive, more prone to impulse purchases, and less likely to look at the price tag. Read this account of gender differences in shopping. Buying gifts may require an attention to shopping detail that men simply do not have in the first place.
Arab stock markets are up
Middle Eastern stock markets have turned out to be some of the year’s best performers. The Saudi exchange is up by 74 percent and Kuwaiti shares have doubled in value, according to the 3-9 January issue of The Economist. Here is another on-line summary, as of late November. It is not just high oil prices, the All-Arab Index, which covers 79 stocks in 12 Arab countries, is up 50% in dollar terms for 2003. Furthermore the Egyptian market is up 60% for the year, you can follow the Egyptian market here. The U.S. officially accredited the Egyptian stock just this year. By the way, you can follow the Palestine Stock Exchange, and the associated Al-Quds index with 28 listed companies, through this page. I would not in general recommend this investment, but for the year it is up an improbable 12.15%. Not surprisingly, the capture of Saddam was good for most Middle Eastern markets.
I have been in many ways skeptical of the postwar Iraq policies of the Bush administration. But in light of this information it is more difficult to argue that we are destabilizing the entire Middle East, at least relative to previous expectations of investors.
Is deliberative democracy a good idea?
Richard Posner says no. The deliberative democracy idea is pushed by such scholars as Bruce Ackerman and James Fishkin. They call for the following:
In our soon-to-be-released book, we offer a new way of thinking about democratic reform, proposing a new national holiday–Deliberation Day. It would replace Presidents’ Day, which does no service to the memories of Washington and Lincoln, and would be held two weeks before major national elections. Registered voters would be called together in neighborhood meeting places, in small groups of 15 and larger groups of 500, to discuss the central issues raised by the campaign. Each deliberator would be paid $150 for the day’s work of citizenship. To allow the business of the world to carry on and as many as possible to participate, the holiday would be a two-day affair. If Deliberation Day succeeded, everything else would change: the candidates, the media, the activists, the interest groups, the spin doctors, the advertisers, the pollsters, the fundraisers, the lobbyists, and the political parties. All would have no choice but to adapt to a more attentive and informed public. When the election arrived, the people would speak with a better chance of knowing what they wanted and which candidates were more likely to pursue the popular mandate.
Posner responds with his usual aplomb:
Reform does not well out of deliberation, but reflects passions and interests. Abolitionism, the suffrage movement, the civil rights movement, the opposition to the war in Vietnam, the rise of free-market ideology, welfare reform, and the gay-rights movement were not the product of discussion among voters debating on the model of the academic seminar (the implicit model, naturally, of academic reflection on the political process by the proponents of deliberative democracy, academics all). They were the product of moral and political entrepreneurs tapping into wells of discontent among minorities and eventually getting the attention of the politicians…
I have difficulty suppressing the uncharitable thought that there may be an element of bad faith in the deliberative-democracy movement generally (I do not mean in Ackerman and Fishkin particularly). I think that what motivates many deliberative democrats is not a love of democracy or a faith in the people, but a desire to change specific political outcomes, which they believe they could do through argument, if only anyone could be persuaded to listen, because they are masters of argumentation. I infer this secret agenda from the fact that most proponents of deliberative democracy advocate aggressive judicial review, which removes many issues from democratic control; are coy about indicating what policies they dislike but would accept; and are uncommonly fond of subjecting U.S. citizens to control by international organizations of questionable, and often of no, democratic pedigree. I sense a power grab by the articulate class whose comparative advantage is–deliberation.
My take: I would expect deliberative democracy to lead to greater conformity and a less efficient aggregation of information. Crowds can talk themselves into bad ideas very readily. The main purpose of democracy is to prevent very bad ideas and very bad leaders. We are more likely to resist such dangers in private, and through periodic and gradual evaluations, rather than in open public forums. I award the debate to Posner.
Thanks to www.politicaltheory.info for the link.
Cadavers for rent
In most of the world socialist ideas are practically passe, but in Africa they are still killing. In a few short years, Zimbabwe under Robert Mugabe has gone from being the breadbasket of Africa to being on the verge of mass starvation. Only a handful of stalwarts warned of the dangers when in the 20th century large parts of the world descended into economic insanity and political barbarism. At the beginning of the 21st century, virtually the entire world knows of the dangers and Zimbabwe yet descends.
Read Samantha Power’s Atlantic article How to Kill a Country for the full tragedy. I will quote only one semi-amusing aspect that illustrates, once again, some of the absurd consequences of price controls.
[Mugabe] fixed the price of a loaf of bread at half the bakers’ break-even price, and levied astronomical fines on any baker who charged more. Bakers stopped making bread until somebody noticed that sesame bread, a “luxury item,” wasn’t price-controlled; by sprinkling a few sesame seeds on their standard loaves, bakers were able to get back in business. A pair of mortuary workers were arrested recently for running a profitable “rent-a-cadaver” business: because Mugabe had decreed that drivers in funeral processions would get privileged access to the trickle of fuel coming into the country, these entrepreneurs had begun leasing bodies to Zimbabwean drivers.
Destroying money
Spain´s National Coin and Stamp Factory has just finished destroying 6.6 billion peseta coins, which of course have been replaced by the euro. Eleven large warehouses were required, each with police protection and convoys. The coins still have legal value, so it also was necessary to weigh the metallic piles before and after destruction, to make sure that no (or not much!) theft had occurred. It is estimated that over two billion euros worth of the old currency remains in the form of dormant coins. Pesetas can be exchanged for euros indefinitely.
Spain is the first country to complete the destruction of its own currency. Yet the Bank of Spain estimates that forty percent of all Spaniards still calculate in terms of the old monetary unit, especially for large transactions.
The destroyed coins will be turned into car parts, cutlery, medals, and new coins.
From El Pais, no link available.
The Savage Savage
The following graph is transcribed from Steven Pinker’s excellent book The Blank Slate and based on data from Lawrence Keeley’s War Before Civilization.
The concept of energy independence
Matt Yglesias speaks good common sense about why this concept is such a non-starter:
John Kerry’s call to make America independent from foreign oil provides me with yet another opportunity for one of my bitch-and-moan sessions about this bogus concept. Folks on both the left and the right like to pitch their energy plans as making American more independent from foreign oil, but the whole idea is, as I say, bogus. The problem is not that we’re dependent on foreign oil, the problem is that we’re dependent on oil. The current economy of the entire first world and, especially, the United States is predicated on the use of enormous quantities of oil in order to, among other things, power all our cars and trucks. The importance of “foreign” (read: Middle Eastern) oil in all of this isn’t that we can’t get oil from anywhere else, it’s that Middle Eastern oil is the cheapest oil around.
Hence, production decisions taken in the Middle East essentially determine the price of oil on the global market. This is the case for all countries, even countries that don’t import much (or any) Middle Eastern oil, because it’s a fungible commodity. The US could totally cease imports from the Gulf region and we would still be just as dependent as we are.
The only way to make us more independent of the insidious foreign oil would be to either radical alter the geology of the earth, thus somehow making oil from somewhere else cheaper to extract, or else, more realistically, to reduce our economy’s dependence on oil. One could envision, say, a massive campaign to power our cars with hydrogen fuel and to build large numbers of nuclear power plants to create the hydrogen fuel (if you don’t build the nuclear plants, though, you’ll just wind up using oil to make the fuel that replaced the oil in your cars — this would be good for the environment, but do nothing to the economics of oil), but if we did this we’d have to put all the waste somewhere and would probably become dependent on foreign sources of uranium or something.
I agree, although I would not so rapidly dismiss the idea of making oil from somewhere else cheaper to extract.
Speedy pork makes Hungarians proud
$4 million to sponsor a driver in Formula One next year. Eszther at CrookedTimber.org offers the full story. This example may seem extreme, but it reflects the real rationale for much of what government does. People simply like the idea of their government providing some good or service. The fact of government provision enters their utility function above and beyond the effectiveness of the policy at procuring stated ends. In other words, we want a government that we can be proud of and feel good about. Unfortunately we often seek this end without proper regard for the associated social costs, in this case alternative uses of the $4 million. Hungary is not a rich country.
Other times we simply favor the process of a government taking some course of action. So much of life is about favoring a certain kind of process, for its own sake, regardless of the outcome. Talking with friends is fun no matter what does or does not come of it. We all daydream for similar reasons. This same attitude, applied to government policy, often leads to wasteful and disastrous outcomes. We like the idea of “the government promoting national reputation,” again without much regard for whether the ends are effectively achieved. Once again, behavior that is rational for the individual can be very costly for the collective.
Possible good news about global warming
Soot plays a much bigger role in global warming than we may have thought. This is good news because soot is probably easier to control than carbon dioxide emissions. Read the lengthy analysis by Randall Parker at FuturePundit, replete with useful links.
House of Sand and Fog and Preferred Children
Economists like to say that behavior reveals preferences. I just finished watching House of Sand and Fog, which reveals a most discomforting preference, albeit in extreme form. Be warned: I’m going spoil the plot, so don’t read any further, unless you’ve seen the film or don’t care to.
The movie is about a woman (Jennifer Connelly) who loses her home as a result of tax delinquency. An Iranian immigrant (Ben Kingsley) buys the home at auction, hoping that the difference between the auction price and the market price will pay for his son’s college tuition. The woman and the Iranian immigrant get into a violent confrontation, resulting in the accidental shooting of the man’s teen age son. Here’s where revealed preference comes into play: When the Iranian man sees that his son has not survived being shot, he kills his wife and himself. The character does not believe life is worth living if his son is dead… however, his newly wed daughter is still alive!! Conclusion: The character believes life is only worth living for his son, not his daughter.
Just another case of twisted movie logic? Maybe not. I’d venture that this is an extreme case of favoring sons over daughters. Steven Landsburg discusses some strong evidence that this is the case, even in contemporary America – census data shows that couples with female children are 5% more likely to divorce. In Viet Nam, having a female child increases the chance of divorce by 25%!! A lot of people seem to believe daughters are not worth sticking around for, and Kingsley’s character takes this to an extreme.
Readers are invited to email me extreme or strange examples of films, or other popular culture, showing characters favoring sons over daughters.
Mexican tax reform fails
Reforming Mexico’s tax system, which is rampant with corruption and inefficiency, has been a pillar of Fox’s agenda since he was elected in 2000. Mexico raises less revenue through taxation than nearly any other Latin American country, just 12 percent of its $600 billion gross domestic product. Fox has argued that improving tax collection is essential to increasing government investment in such key areas as education, health and welfare programs to alleviate the poverty that afflicts more than half of Mexico’s 100 million people.
The failed plan would have levied a six percent tax on food and medicine, a highly unpopular notion. More generally, the VAT would have been lowered but applied with fewer exemptions. Here is a summary of why the plan failed politically. Now the Fox reformist agenda is considered dead.
The big loser, of course, is Fox. But the reforms were by no means a complete positive. Fox claimed he needed the additional revenue to help the poor, but then why tax food and medicine? If Mexico wishes to raise more revenue, why not simply eliminate VAT exceptions?
Mexico’s low tax collections have been the country’s blessing and curse for many decades. The Mexican economy has been one of the most dynamic of the twentieth century, growing at an average rate of more than five percent per annum. The fiscally starved government, however, has become almost completely corrupt. One reason is that public sector salaries are so low. The time probably has come to improve the quality of the public sector, it now seems that Fox is not the politician to bring the country there. In his three years in office he has yet to win a single major legislative victory.
Productivity and unemployment
I am growing increasingly annoyed with people who argue that the dark side of productivity growth is unemployment. The Economist, which ought to know better, says we are overproductive. CNN Money discusses the problem of productivity, the President blames productivity growth for unemployment. Even someone as sophisticated as Brad DeLong writes “with productivity surging, it’s hard to be pessimistic about GDP growth, but it’s easy to be pessimistic about unemployment” which seems to suggest that if only productivity growth were lower, employment would be higher.
And yet the “dark side” of productivity is merely another form of the Luddite fallacy – the idea that new technology destroys jobs. If the Luddite fallacy were true we would all be out of work because productivity has been increasing for two centuries. Sure, some say, that may be true in the long run but what about the short run? Even in the short run there is no necessary connection between productivity growth and job loss. In the computer industry, for example, productivity growth has led to falling prices and a bigger not smaller industry. If demand is inelastic then productivity growth can create short-term unemployment, especially at the level of the industry experiencing the growth – less likely but not impossible is that productivity growth leads to short-term economy-wide unemployment.
The more typical case, however, is that productivity growth leads to higher real wages and lower unemployment. Indeed, in the now fairly standard real business cycle models a boom is caused by a positive productivity shock and a recession by a negative shock. Empirical evidence supports the idea that positive productivity shocks lead to lower unemployment.
Why then do we see in very recent data a correlation between productivity growth and unemployment? One reason may be reverse causation. When firms fire workers they tend to fire the least productive first leading to an increase in average productivity. Workers may also work harder when unemployment threatens (an efficiency wage explanation). Thus, an increase in unemployment can cause an increase in productivity per hour. But in such a situation diminished productivity would certainly not lead to higher employment!
Bottom line in my opinion is this: productivity growth and unemployment are mostly unrelated. If productivity growth were currently lower we would have lower real wages and unemployment would be just as high. As a rule – and as a rule to follow – productivity growth is an unalloyed blessing.
Are there libertarian heroes?
Radley Balko at Foxnews.com offers one list of suggestions for last year´s heroes. His list focuses only on politicians. Let us not forget businessmen, scientists, and humanitarians as standing among the most important libertarian heroes of all.
The new German economic reforms
Earlier in December Germany passed some much-needed economic reforms. Germany hopes to avoid its growing reputation as the “sick man of Europe.” It has been plagued by slow growth and double-digit unemployment for decades now. The key measures of the reform included the following:
1. An $18.9 billion tax cut, adding $11 billion to a previously planned cut. Note that this is a tax cut, not a spending cut.
2. A weakening of job protection rules, especially for firms of less than ten people. This is the best element of the package.
3. Stronger financial incentives for the jobless to take work. That being said, most of these changes are small adjustments in the numbers rather than a real kick in the pants.
4. Consolidation of some unemployment and social help benefits. Nowhere do I see this described as a real spending cut, although perhaps it will eliminate some costs of administration in the long run.
5. Restrictions on various tax exemptions and a greater unification of the tax code. Read: some small tax increases. This includes an explicit tax increase on tobacco, an elimination of tax deductibility for some commuting expenses, and a tax amnesty designed to raise a burst of revenue. Of course the long-term implications of amnesty encourage more tax cheating.
Here is (not very useful) summary in English of the new policies. Here is a longer and more detailed German treatment, also read this from the FAZ as well.
My take: These measures are better than nothing but they address only a small fraction of the German problem. Looking at who voted for them — the Social Democrats — is enough to illustrate their weakness. That being said, Germany appears to be in the midst of a mild recovery of expectations, so if these reforms get the credit all to the better. It might make further improvements possible.
Perusing the German articles is revealing, whether or not you read German. The country has policies called the “Werbungskostenpauschbetrag,” “Vermoegensbeteiligung,” and of course the “Bewirtungsaufwendungen.” As Mark Twain might have suspected, simply pronouncing and spelling out these words is likely to put a dent in your growth rate.
My New Year´s resolutions
1. To learn how to use high-quality, non-stick cookware.
2. To read more in Spanish.
3. Not to blog (much!) on my honeymoon. I´ve put a few posts in the can, so to speak, but for a few days you will be hearing more from Alex and Fabio than from me. I´ll be back in full force soon!