Results for “What I've Been Reading”
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The Great American Novel — my pick

1. It must reward successive rereadings and get better each time.

2. It must be canonical and grip the imagination.

3. It must be linked to American history and letters in some essential way.

4. It must span the intellectual, the emotional, the religious, and the metaphysical.

5. It must be fun.  You must be sad when the book is over, and wish it had been longer than it was.

6. It must be about a large white whale and have numerous Biblical allusions.

That leaves us with Moby Dick at the top. 

The most indicative chapter for the book’s strangeness is "A Squeeze of the Hand."  Has anyone done a better literary treatment of a homosexual ******-****, much less when writing about whale spermaceti?  Excerpt:

As I sat there at my ease, cross-legged on the deck; after the bitter exertion at the windlass; under a blue tranquil sky; the ship under indolent sail, and gliding so serenely along; as I bathed my hands among those soft, gentle globules of infiltrated tissues, woven almost within the hour; as they richly broke to my fingers, and discharged all their opulence, like fully ripe grapes their wine; as I snuffed up that uncontaminated aroma,  – literally and truly, like the smell of spring violets; I declare to you, that for the time I lived as in a musky meadow; I forgot all about our horrible oath; in that inexpressible sperm, I washed my hands and my heart of it; I almost began to credit the old Paracelsan superstition that sperm is of rare virtue in allaying the heat of anger: while bathing in that bath, I felt divinely free from all ill-will, or petulence, or malice, of any sort whatsoever.

Squeeze! squeeze! squeeze! all the morning long; I squeezed that sperm till I myself almost melted into it; I squeezed that sperm till a strange sort of insanity came over me; and I found myself unwittingly squeezing my co-laborers’ hands in it, mistaking their hands for the gentle globules. Such an abounding, affectionate, friendly, loving feeling did this avocation beget; that at last I was continually squeezing their hands, and looking up into their eyes sentimentally; as much as to say,  – Oh! my dear fellow beings, why should we longer cherish any social acerbities, or know the slightest ill-humor or envy! Come; let us squeeze hands all round; nay, let us all squeeze ourselves into each other; let us squeeze ourselves universally into the very milk and sperm of kindness.

Here comes the best part:

Would that I could keep squeezing that sperm for ever! For now, since by many prolonged, repeated experiences, I have perceived that in all cases man must eventually lower, or at least shift, his conceit of attainable felicity; not placing it anywhere in the intellect or the fancy; but in the wife, the heart, the bed, the table, the saddle, the fire-side, the country; now that I have perceived all this, I am ready to squeeze case eternally. In thoughts of the visions of the night, I saw long rows of angels in paradise, each with his hands in a jar of spermaceti.

Get the picture?  But do read the whole (short) chapter at the link, just in case you are confused about the context…

The method of the novel, if you can call it one, is madness.  It is a collage of impressions, tales, facts about whaling, erotic interludes, and observations about social science.  Occasionally the plot resurfaces but this can involve less rather than more tension.  Moby Dick also can be read as pure commentary on the Bible or Shakespeare.  Melville knew who his competitors were. 

I’ve talked to many people who find the book offputting.  Delve right in and embrace the strangeness.  Take the ostensible masculinity and interpret it, and all the other foibles, as over-the-top.  Dig out the implicit theology.  Think of it as a new literary model.  And best of all, read only one short chapter a day.

Tomorrow you get the near runners-up.  Do feel free to offer your first place picks in the comments.

The World’s Banker

Then Suharto looked at [James] Wolfensohn. "You know, what you regard as corruption in your part of the world, we regard as family values."

That is from Sebastian Mallaby’s The World”s Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations.  This study of Wolfensohn is not only the best book on the World Bank, but it is one of the best books on both leadership and the economics and politics of bureaucracy.  It is also the most biting critique of NGOs I have read, and oddly, the most convincing extant defense of the Bank.  Here is Dan Drezner on the book.

I’ve also been reading Orhan Pamuk’s Snow, a fictional tale of Turkish secularization and religious opposition.  I’ll cite Pamuk, Jose Saramago, and W.G. Sebald as the Continental writers of the last thirty years who will still be read fifty years from now.

Public Finance and Public Policy

Public Finance and Public Policy, the new textbook by Jonathan Gruber, is not only the best public finance textbooks I’ve ever read it is one of the best textbooks I’ve read in any field.  Gruber and Worth Publishers have clearly put a huge amount of money and effort into this book – the content is superb and so is the presentation (graphs, organization, supplementary material – e.g. check out these cool powerpoint presentations.).

Gruber is especially good at discussing empirical research.  What is the effect, for example, of social security on private savings, on the living standards of the elderly, on the incentive to retire?  What do we learn from the international evidence?

(Quick answers: Social security crowds out about 35 cents of private savings for every social security dollar.  As a result, social security has reduced the eldery poverty rate although not quite as much as naive trends would suggest.  Social security does reduce the labor force participation rates of the elderly but less so in the United States than in most European countries where there are huge disincentives for working beyond the normal retirement age.  (Get the book or this powerpoint presentation for more details – note you need to view the PP in SlideShow mode to get the full effect.)

Gruber covers all the major programs – education, social security, unemployment insurance, Medicaid and Medicare, the tax system etc. – and in each case he carefully explains the institutional details and then he evaulates the empirical evidence focusing on the most telling pieces of evidence (rather than trying to cover everything that has ever been written as in a review paper).

Gruber is so good on the empirical research that this book would be a useful supplement to an applied econometrics class.  Just flipping through it and reading the boxed Empirical Evidence sections gives a good feel for what the cutting edge questions and techniques are in empirical research. 

Congratulations to Gruber on a tour de force!

The hot new papers in Industrial Organization

Hart, Oliver and Holmstrom, Bengt. “A Theory of Firm Size and Scope,” available at

Mullainathan, Sendil, and Scharfstein, David. “Do the Boundaries of the Firm Matter?” American Economic Review (May 2002) available at

Rotemberg, Julio. “Altruism, Reciprocity, and Cooperation in the Workplace,” 2002, available at

Rotemberg, Julio. “Fair Pricing,” available at

Baker, Malcolm and Wurgler, Jeffrey. “A Catering Theory of Dividends,” Journal of Finance (2004), available at

Baker, Malcolm and Ruback, Richard. “Behavioral Corporate Finance: A Survey,” found at

Hall, Brian and Murphy, Kevin J, “The Trouble with Stock Options,” Journal of Economic Perspectives, Summer 2003, also at

Murphy, Kevin J. and Zaboznik, Jan. “CEO Pay and Appointments,” American Economic Review, May 2004, also at

Jense, Michael, Murphy, Kevin J., and Eric Wruck. “Remuneration: Where We’ve Been, How We Got to Here, What are the Problems, and How to Fix Them,” available at

Crandall, Robert W. “An End to Economic Regulation?” available at

Crandall, Robert and Whinston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,” Journal of Economic Perspectives (Fall 2003 ), 3-26, available at

Happy reading…!

How to Sell Nothing for Fun and Profit

I’ve recently been reading about the work of Felix Gonzales-Torres, an artist in the 1990’s who made a big splash in the art world. Like many artists, he really loathed the art world and the system of galleries, museums and universities but he ultimatey realized you have to deal with the world of art professionals if you want an income or recognition for your work.

So how do you make art that will sell but at the same time says f*** you to the art world? The solution: create works of art that literally will disappear but sell the right to reproduce the work. Two of his more well known works: piles of posters that gallery visitors can take with them or chunks of candy the viewers are encouraged to eat. I always wondered how you can make money with such art, until I learned that his gallery sold a certificate giving the "owner" the right to reproduce the work anytime they want.

The work is ingenious – the materials themselves were aesthetically interesting (such as anti-violence posters) and at the same time undermined the idea that there is a single "piece of art" like a drawing or painting. It’s also egalitarian – in remaking the work, the "owners" are supposed to give away the work for free. But here’s the biggest irony: by selling these certificates, the artist has switched from one form of ownership to another. Gonzales-Torres stopped selling physical objects and developed intellectual property rights for his work. He passed away in the 1990s from AIDS, but I wonder if he would have taken a cue from Linux and Java to develop some kind of subversive open source art.

Could the iPod fail?

Above and beyond the ephemeral value of superior style, what is the source of Apple’s long-term competitive advantage? True, they have more artists signed up, but this is likely a short-term phenomenon. And there is a more serious problem as well:

MP3s downloaded from Sony’s Connect service can only be played on Sony’s MP3 Walkman, and not on the more popular iPod (and vice versa).

Behind the scenes, the battle waging for commercial dominance is reminiscent of the early 1980s cut-throat competition to establish video standards between VHS and Betamax. And lest we forget, VHS won despite being technically inferior.

Although Apple has been the pioneer in the MP3 market, with Sony/BMG controlling 25 per cent of the music market it will be interesting to see whose digital distribution platforms will survive. Will all those expensive iPods we have been rushing out to buy wind up piled high in car-boot sales alongside Betamax video players and 8-track cassette machines?

Here is the full account.

Going out on a limb: I’ve never been convinced that the “iPod as we know it” could make money, especially once the market becomes more competitive for hardware. Right now the songs are being used as a loss leader for the gadget. And dare I cite Apple’s history of being a leader with ideas but failing to lock up the market? But hey, I’m the same guy who said the Dow was overvalued at 7000 and the single European currency would never happen.

Addendum: Andrew McGuinness recommends this reading on the topic, especially the excellent section five.

The optimal gas needle

I learned yesterday that my gas needle is broken. It moves rather quickly to three-quarters of a tank, but is very sticky once it gets to half a tank. It used to be very sticky when it started on full. I could drive for two hours and it would remain on full the entire time.

I started wondering (actually I’ve been wondering this for years now) how an optimal gas needle should be structured. Assume that if a buyer has a bad experience with a car, such as running out of gas, he blames the car manufacturer with some probability. You might then expect that a car needle will stand on “Empty” long before the tank is empty. The needle makes you prematurely fearful and you are less likely to run out of gas.

You also might expect that the needle will be sticky at the top end of the register. Why?

When you fill your tank with gas, you have the clearest idea of exactly how much is in the tank. You are most likely to use observations from that point to gauge the fuel efficiency of the car. All other observations will be noisier. So the automaker wants to make a good impression about fuel efficiency right off the bat. This doesn’t require driver irrationality, only that you measure fuel efficiency with some imperfection. You’re never sure if the car gets great mileage or if the needle is just biased. But you attach some probability to the former. Economists call this a “signal extraction” problem. You suspect the needle is biased but you never know quite how much. (The technically-minded will note that once you introduce these information asymmetries, the assumption of rational expectations no longer rules out all kinds of errors; I first learned this from reading Joe Stiglitz.)

Furthermore some people refill their gas tank well before it gets to the bottom; they are just nervous nellies. These people will rarely observe the needle when it is on its path of swiftest descent. They observe how much they pay at the pump, but of course gas prices change all the time. They too will face a signal extraction problem and may overestimate the fuel efficiency of their car.

Some people will see through this entire business. But for them it doesn’t matter how the needle is structured. So a “sticky at the top” needle is most likely to induce a repeat purchase of the same kind of car.

Is this good? It may slightly limit competition in the car market. People stick with a brand because they think it offers better gas efficiency, when in fact it doesn’t. On the other hand, the practice makes the buyer feel good about his purchase. People think they bought a car with good mileage. The nervous nellies can rest easy. And the more irresponsible types are less likely to run out of gas.

So don’t forget the subtitle of this blog: Small ideas for a much better world.

Addendum: Of course as in most game theory you can spin alternate stories. Does this tempt you to switch disciplines? Just read Thomas Nagel’s recent essay on why there is something rather than nothing. Nagel is extraordinarily bright, but this is enough to bring you back into the fold.

Are we getting happier over time?

The field of happiness studies has moved out of psychology and into economics. It is folk wisdom that money is no guarantee of happiness. And arguably it is happiness that we care about, not wealth. So rather than looking at aggregate wealth, an alternative research strategy asks people if they are happy. This may sound naive, but in fact people’s answers are correlated with their health, how much they smile, whether their friends rate them as happy, and information from brain scans. We should not so hastily dismiss questionnaire evidence about happiness.

Andrew Oswald, of the University of Warwick, is one of the leading researchers in this area. His home page offers a good range of readings in the area. One forthcoming paper of his, for the Journal of Public Economics, addresses the question of whether we are becoming happier or not. He finds the following:

1. Americans as a whole have not become happier over the last several decades.

2. American blacks have become happier over the last several decades.

3. American women have been the biggest happiness losers since the 1970s.

4. Being unemployed has a “happiness cost” of about $60,000 a year.

5. Being black has a “happiness cost” of about $30,000 a year. Both these figures can be interpreted in terms of a low happiness value for extra dollars, rather than a huge happiness penalty for being unemployed or black.

6. A lasting marriage is worth about $100,000 a year in terms of happiness.

7. Happiness is U-shaped with age, with the minimum coming at about 40. (Hey, wait a minute, I am 41 and happier than ever before!)

8. Relative income matters per se.

My take: I find least persuasive #1 and #7. Americans are happier as a whole because they are living longer and have access to much better medical care. Your chance of dying of a heart attack at age 50 is much lower than before. That being said, if you take a pre-selected group living under normal circumstances, they may not come across as much happier as their predecessors from earlier decades. So many of the benefits of the modern world come in the form of avoiding tragedies.

By the way, this excellent book review defends the role of the market in bringing us happiness.

A richer world also makes us happier by giving us better jobs. Read Oswald on how to find a job to make you happy. Here is his advice:

1. Work for a non-profit

2. Be a woman.

3. Be old (he suggests that your earlier failures tame your expectations with age).

4. Don’t get overqualified.

5. Avoid a place where the boss controls the pace of the work.

I’ve got #1 and #5 down to perfection, and I am working on #3.

Thanks to Mark Brady for directing my attention to the paper and the links.

What have we learned about income distribution?

I’ve been reading the new book The New Geography of Global Income Inequality, by sociologist Glenn Firebaugh. The data work is intensive, here are a few things I have learned:

1. Knowing what country an individual lives in explains about 70 percent of the observed variation in income across individuals (p.11).

2. If we could magically eliminate all income inequality within nations, the world’s total income inequality would shrink by at most one-third. Most of the relevant inequality is across different nations (p.11).

3. Global income inequality is falling, contrary to what many critics charge (pp.17-18). So the world’s poor are catching up to the world’s rich (p.18), on average.

4. Most poor countries are not catching up, most of all Africa. The world’s poor are catching up, on average, once we weight countries by population. The growth of China, and to a lesser extent, India, has driven the improved prospects of the poor and the decline in cross-nation inequality (passim).

5. If we compare the United States to Western Europe, there is considerably less inequality within the United States.

As you might surmise, I found this book to be excellent and highly instructive. It reads more like an extended article than a book, but nonetheless it delivers on the substance.

Addendum: Daniel Drezner offers some interesting remarks, with links, on Paul Krugman’s recent writings on inequality.

Subsequent addendum/clarification: Firebaugh (p.193) writes: “average income is much more unequal across nations in Western Europe than across states in the United States.” He does not (and could not) argue that “within a single nation equality” is less in Europe. Here are Gini coefficients for the various European nations and the United States.