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Is Grand Central Station still a focal point?
We all know Thomas Schelling’s classic analysis of focal points. One of his original examples stipulated that two individuals are to meet somewhere in New York City, but they do not know the time or place. Where would they appear? Schelling suggested that a twelve noon meeting at Grand Central Station (actually called Grand Central Terminal), beneath the central clock, would be focal.
Focal points change, and of course trains have become a less important form of transportation. I have been to Manhattan many times, but have not been in GCS in a good twenty years. And when I take the train, I usually end up getting off at Penn Station. Stick with noon as the time, which place would you find focal today? I see a few options:
1. The clock at Grand Central Station remains focal. Where else to go? Note the clock stands above the designated information point as well.
2. The clock remains focal, but only because Schelling himself has kept it that way with his analysis.
3. Ground Zero.
4. The Empire State Building.
5. The US Air Shuttle Terminal at La Guardia.
6. A central point at Times Square.
7. The Metropolitan Museum of Art or perhaps at Picasso’s Les Demoiselles D’Avignon painting at MOMA.
I will opt for number two, but for my mom I would wait on the stairs of the Met. What do you think? Comments, of course, are open.
Addendum: Brock Sides picks a focal point for Memphis and for the world; on the latter I say in front of The White House.
Don’t put your faith in a central Tamiflu stockpile
Countries around the world are stockpiling Tamiflu, in anticipation of a possible avian flu pandemic. This is better than doing nothing, but Tamiflu is unlikely to protect most of us, should a pandemic arrive. Here are a few reasons why:
1. Tamiflu must be taken within the first two days of symptoms. Your chance of getting some Tamiflu that quickly, in a pandemic, will not be great (of course you could buy some on your own).
2. Tamiflu, if taken preventively, can prevent you from getting sick in the first place. But you would need two tablets each day. Only essential medical personnel, and select politicians, are likely to receive such treatments.
3. You show up at the emergency room with avian flu, and then they have to decide where you stand on the priority list. Will the hospital fear a lawsuit? How long will this take? Will it require federal or regulatory clearance?
4. Given the crush of the infected, will you be afraid to show up at the emergency room in the first place? Maybe you just have the common cold. See point #1.
5. Many Tamiflu supplies will be exhausted on false alarms, such as colds and other flus.
6. A Tamiflu stockpile is only good for a few years. If avian flu does not come soon, do you expect the stockpile to be replenished? Or would avian flu become the new "swine flu", never to be uttered by politicians again? The avian flu threat will likely be with us for at least ten years, in the form of a bird "flu reservoir" for possible mutation.
7. There is some chance that the virus will develop Tamiflu immunity over time, especially if Tamiflu is applied indiscriminately at the early stages of a pandemic.
8. Let’s say the virus arrives first in California. Will Tamiflu supplies all be sent that way at first? Will they ever later be shipped back to Kansas? How much of the stockpile — an inevitable political football — will be available at any point in time?
Did I mention that the U.S. won’t be getting any more new Tamiflu for at least two years? Right now we only have 4.3 million courses.
Comments are open. Yes we should buy more Tamiflu, but we need to think harder about what else to do as well.
iPod bleg
I am soliciting song suggestions to put on my iPod; all genres are welcome. There is no need to suggest famous songs, such as the classics of classic rock. Most pieces of classical music are too long for how I use the medium. Comments, of course, are open.
Should we confiscate Tamiflu property rights?
Tamiflu can combat avian flu, but the Swiss company Roche can’t get us more Tamiflu for well over a year. They won’t (can’t?) set up a U.S. manufacturing plant for almost two years. (Face it, in a pinch neither the Swiss nor anyone else will export much Tamiflu, no matter what the previous agreement.) Roche holds a patent on Tamiflu but India will go ahead and produce a generic version; Taiwan has been making similar noises. What should we do? Here is one argument for producing generic tamiflu. Andrew Sullivan concurs.
I suggest a different approach. Let’s offer Roche a large prize for speeding up the construction of the U.S. plant. This can include legal and regulatory waivers (Bush already has suggested this idea). We also make it clear upfront that if a pandemic comes, the U.S. government will purchase Tamiflu doses at a relatively high price. This latter round of payments can be made upfront, with a refund to the government if no pandemic arrives. Ex post, the government distributes the doses for free, with medical workers and key individuals in the supply chain (food, transportation, Typepad) given priority.
Note how avian flu differs from AIDS. AIDS is a relatively slow acting condition and the possibility of disease hangs around for decades. Avian flu, if it becomes a pandemic, will likely come and go in a few waves of a few months each, spread out over a year or two. That makes the case for abrogating property rights weaker. The key question is not price but whether you have a stockpile at all.
We should not focus on avian flu to the exclusion of other emergencies, including bioterrorism. Avian flu is just one possible pandemic of many. If we confiscate property rights this time around, there won’t be a Tamiflu, or its equivalent, next time. We also need to stop taxing our vaccine-producing infrastructure through liability law.
Respecting Tamiflu property rights would supply an international public good as well. Many other countries will confiscate Tamiflu property rights. If the U.S. holds the line, we are subsidizing global R&D and doing a greater service for the world than our critics are willing to admit.
Addendum: The worthier-than-ever Daniel Drezner notes that no country is well prepared for avian flu. Comments, by the way, are open, please stick to the subject at hand.
The Undercover Economist
Companies find it more profitable to increase prices (above the sale price) by a larger amount on an unpredictable basis than by a small amount in a predictable way. Customers find it trouble some to avoid unpredictable price increases — and may not even notice them for lower-value goods — but easy to avoid predictable ones…
Have you noticed that supermarkets often charge ten times as much for fresh chili peppers in a package as for loose fresh chilies? That’s because the typical customer buys such small quantities that he doesn’t think to check whether they cost four cents or forty. Randomly tripling the price of a vegetable is a favorite trick: customers who notice the markup just buy a different vegetable that week; customers who don’t have self-targeted a whopping price rise.
I once spotted a particularly inspired trick while on a search for potato chips. My favorite brand was available on the top shelf in salt and pepper flavor and on the bottom shelf, just a few feet away, in other flavors, all the same size. The top-shelf potato chips cost 25 percent more, and customers who reached for the top shelf demonstrated that they hadn’t made a price-comparison between two near-identical products in near-identical locations. They were more interested in snacking.
That is from Tim Harford’s new The Undercover Economist: Exposing Why the Rich are Rich, the Poor are Poor — and Why You Can Never Buy a Decent Used Car (don’t trust Amazon, the release date is November, not January). This book is one of the very best introductions to the economic way of thinking. "Required Reading," says Steve Levitt, what better endorsement could you want?
Here is Tim’s home page, including his FT "Dear Economist" columns. Here is Tim’s Private Sector Development Blog. Here is Tim’s recent FT piece on Thomas Schelling. Comments are open, in case you have other examples of comparable supermarket tricks.
Are savings overrated?
Here is another good exam question for my macro class:
Let’s do the calculations. Over the past 10 years, the U.S. has run up an accumulated goods and services trade deficit of roughly $3 trillion. Sounds like a lot of money, doesn’t it?
Now let’s suppose those dollars had been used for good rather than evil. That is, rather than buying imported cars, toys, and handbags, thrifty Americans would have saved their money. It’s reasonable to believe that about half of that $3 trillion would have gone into financing productive purchases here in the U.S.–new factories, power plants, office computers and the like–$1.5 trillion worth.
So what would be the payoff from all that thriftiness? A reasonable rate of return on investment, after depreciation, is roughly 7%. So $1.5 trillion in extra assets would have a return of about $100 billion a year.
That $100 billion is roughly 1% of an $11 trillion economy. Over ten years, then, complete elimination of the trade deficit might–might–have added a tenth of a percentage point to growth.
That’s a good measure of the size of the virtues of savings–roughly a tenth of a percentage point on growth. That’s 0.1 percentage points.
To put that in perspective, the estimates of long-term productivity growth have risen roughly a full percentage point over the past decade. The effects of technology more than swamp the effects of savings.
That’s Michael Mandel, from Business Week. True, false, or uncertain? Dig in, comments are open, and you don’t have to be in my class to offer an opinion.
Robert Aumann, one of two new Nobel Laureates
Here is one summary of Aumann’s work on game theory:
Robert J. Aumann’s has been one of the leading figures in the mathematical surge that has characterized Neo-Walrasian economics and game theory in the past forty years. Aumann entered into economics via cooperative game theory –
In Neo-Walrasian theory, Robert Aumann is perhaps best known for his theory of core equivalence in a "continuum" economy. Aumann introduced measure theory into the analysis of economies with an infinite number of agents – formalizing the "perfectly competitive" scenario. In his classical 1964 paper, Aumann proved the equivalence of the Edgeworthian core and Walrasian equilibrium allocations when there are an uncountable infinite number of agents – thereby providing the limit case for future work on core convergence. In order to prove this result was not vacuous, Aumann went on to prove the existence of equilibrium (1966) in this "perfectly competitive" scenario. On his way, he contributed to mathematics itself by providing a definition of the "integral" of a correspondence (1965), which was previously absent.
Previously, Aumann (1962) had swung Ockham’s razor and helped remove the axiom of completeness of preferences from the Walrasian theory of choice. In another classical paper with F.J. Anscombe in 1964, Aumann formalized the notion of "subjective probability", a concept that had been earlier forwarded by Leonard Savage, that profoundly changed the theory of choice under uncertainty.
His contributions to game theory have perhaps been no less path-breaking. Aumann entered game theory in 1959 to carefully distinguish between infinitely and finitely repeated games. With Bezalel Peleg in 1960, Aumann formalized the notion of a coalitional game without transferable utility (NTU) – one of the organizing beacons of his later research. With Michael Maschler (1963), he introduced the concept of a "bargaining set". In 1974, Aumann went on to identify "correlated equilibrium" in Bayesian games. In 1975, Aumann went on to prove a convergence theorem for the Shapley value. In 1976, he formally defined the concept of "Common Knowledge". Also in 1976, in an unpublished paper with Lloyd Shapley, Aumann provided the perfect folk theorem using the limit of means criterion.
Here is a strange but fascinating interview with Aumann. It covers John Nash, religion, and the Cold War, among other matters. Here is his home page, with links to articles.
My favorite Aumann paper is his 1976 piece on agreeing to disagree. He proved the startling result that if two rational, truth-seeking people have common "priors," in a Bayesian sense rigorously definable, then those two individuals should not disagree once they exchange opinions. Imagine I think there are 200 balls in the urn, but Robin Hanson thinks there are 300 balls in the urn. Once Robin tells me his estimate, and I tell him mine, we should converge upon a common opinion. In essence his opinion serves as a "sufficient statistic" for all of his evidence. (This analysis also led Aumann to clarify the important game-theoretic concept of "common knowledge.") Yet people disagree all the time. Does this mean that priors are rarely common? That we are rarely rational truth-seekers? A bit of both? Robin Hanson is doing much work on this topic. Here is my paper with Robin, we argue you that if you disagree with your "epistemic peers," you are probably not a truth-seeker.
Congratulations to both Aumann and Schelling, comments are open…
Thomas Schelling, new Nobel Laureate
Note my biases, Schelling was my mentor at Harvard.
Tom is an unassuming guy, who looks as if he sells Hush Puppies at the local mall. But he is one of the sharpest people you will meet. He delivers the killer point, argument, or anecdote with striking regularity. Even in his eighties he is sharp as a tack. He has a deeply philosophical and humanistic approach to economics. What are his contributions?
1. The idea of precommitment. You can be better off, either individually, or institutionally, if your choices are limited in advance. This is a key idea in monetary policy (many governments seek to tie the hands of their central banks), the theory of bargaining (try buying a used car, and see if the salesman doesn’t talk about "the boss upstairs"), and industrial organization (firms may invest in capacity to precommit a market position and deter rivals). You find the precommitment frequently in movies as well, especially where kidnapping is involved; what is that Mel Gibson flick again? Here is an excellent Jon Elster piece on the ambiguities of precommitment. Here is my piece on similar themes.
2. The paradox of nuclear deterrence. Ever see Dr. Strangelove? Tom developed the idea that deterrence is never fully credible (why retaliate once you are wiped out?). The best deterrent might involve precommitment, some element of randomness, or a partly crazy leader. I recall Tom telling me he was briefly an advisor to Kubrick. Here is someone else’s essay on the paradox of deterrence.
3. Focal points. People coordinate by directing their attention to commonly recognized points of importance. If a meeting time for lunch is not specified, you might assume 12 noon. If someone mentions "economics blog," of course MarginalRevolution.com comes to mind. And so on. Much social coordination occurs in this manner. I once asked me class: "If you had to hide a one hundred dollar bill in a book, so that your friend would find it, but you could not announce the book, which volume should you choose?" Many said The Bible but of course the game theorist picks Schelling’s The Strategy of Conflict.
4. Behavioral economics and the theory of self-constraint. One of Tom’s best pieces is "The Mind as a Consuming Organ," American Economics Review, 1984. Here is a lecture of his on self control. Will Wilkinson cites a bit of that essay. Tom made it respectable for economists to talk once again about happiness.
Tom has been an underrecognized father of behavioral economics. His work on addiction, memory, and personal control was pathbreaking and came nearly twenty years before the "behavioral revolution" in economics. He analyses the tricks people use to control their wills. For Tom, self-control is often a more important determinant of happiness than is wealth. Tom once told me his work sprung from his own attempts to quit smoking, which he did finally manage. Several times.
5. The economics of segregation. Tom showed how communities can end up segregated even when no single individual cares to live in a segregated neighborhood. Under the right conditions, it only need be the case that the person does not want to live as a minority in the neighborhood, and will move to a neighborhood where the family can be in the majority. Try playing this game with white and black chess pieces, I bet you will get to segregation pretty quickly. Here is a demo model for playing the game.
6. Later in his life Tom turned his attention to issues of global warming. He has been skeptical of the idea that global warming involves insuperably high economic costs. Here is a short essay by Tom on the topic. Here is his excellent AER piece on the same topic.
Tom is not well-represented on the web, here is one photo, but the associated links are mostly broken. Here is Tom’s piece on Hiroshima. Here is the Wikipedia bio, note Wikipedia already reports he won the prize. Here is a great interview with Tom. Here is Tom’s work on the Copenhagen Consensus.
A few bio facts: Like so many other prestigious American economists, Tom worked for the Marshall Plan in its early stages. He spent most of his career at Harvard, first in the economics department, later in the Kennedy School. He had close ties with the Rand Corporation. He was an advisor to Kissinger during the Vietnam War but quit in disgust. He is now emeritus at University of Maryland. I have always interpreted Tom’s political views as those of a conservative Democrat.
Here is a piece I wrote with Dan Klein and Timur Kuran, Salute to Schelling: Keeping it Human. In this piece, recently published, we asked the Committee to give the Prize to Tom. Here are Tom’s books, they are all worth reading.
Comments are open, you can add more; Tom could have won more than one Nobel Prize for all his contributions.
My favorite things Tennessee
Music: Who is really from Tennessee? Putting the Sun Records and Nashville crowds aside and focusing on birth, you have Lester Flatt, Dolly Parton, Tina Turner, and Aretha Franklin. Honorable mention to Chet Atkins and Isaac Hayes. Add in Bessie Smith and yes I enjoy Justin Timberlake too. Brownie McGee and Sleepy John Estes round out the blues representation. A strong category, and if you count "recorded in Tennessee," it hits the stratosphere.
Elvis Presley song: (Marie’s the Name) His Latest Flame.
Author: James Agee, Let us Now Praise Famous Men. Tennessee Williams does not fit, despite his name. There is not much to choose from here.
Film, set in: Here is a list, but I don’t much like Nashville or The Coal Miner’s Daughter. How about the final scene of Goldfinger?
Director: Quentin Tarantino. He is overrated but Reservoir Dogs is a classic.
Artist: Robert Ryman, here is one image, and no need to write and tell me this is ridiculous. Red Grooms is an alternative pick. There is William Edmondson, if you wish to go the "Outsider" route.
Comments are open…
Artistic achievement late in life
…After 1660, with the monarchy restored, Milton’s political dreams lay in ruins under the double blow of the collapse of the Puritan Republic and the failure of said republic to uphold freedom while it lasted. Milton retired to private life and returned to his true vocation, the writing of poetry. He had gone blind while serving as secretary to Cromwell, and now sat composing his poems in his head, and dictating each day to his daughters the portion that he had composed. It was in this retirement that he produced his three long poems, Paradise Lost, Paradise Regained, and Samson Agonistes. He died 8 November 1674.
Milton was born in 1608. Here is my previous post on age and achievement; read the comments on Coase and Stigler.
The tricky problem of sticky wages
Rick Hartenstein is the Pharmacy Director at Ochsner Clinic Foundation in New Orleans. He writes me with a question:
An article in our local paper this morning discussed the phenomenon of sign-on bonuses at fast food restaurants. Since this will almost certainly drive up wages in the area, and hospitals are highly dependent upon low wage jobs, I was wondering what you would advise our Human Resources VP to do. I am an almost daily reader of MR and really appreciated the blogs during the hurricane (I was here at the hospital for 8 days). Any other observations on wages and prices for us? One thing is sure – the areas of the city that housed the majority of lower wage workers are obliterated. We have massive vacancies in these types of jobs as do other employers.
My response was as follows:
The rise in wages is a good sign because it means that employers are trying to draw workers back to New Orleans. If employers were packing up and leaving then wages would be falling so there is some hope. For the hospital Human Resources VP I would suggest that the situation is probably temporary so rather than higher wages he or she may want to follow the lead of the restaurants and offer "signing bonuses" and/or bonuses to be paid after say 6 months on the job. The reason for this is that it may be very difficult to reduce wages later on – reducing wages typically causes a lot of discontent. Furthermore, if you keep the wages of older employees constant but, as wages fall, offer newer employees lower wages you will have two people doing the same job being paid different wages. That is not good for morale either. In addition, to signing bonuses the hospital might want to think about what it can offer in terms of relocation services, housing, transportation and so forth. Again, these would be useful temporary measures to draw workers to the hospital without creating a permanent expectation of higher future wages.
Comments are open if you have other suggestions for Rick.
When do creators do their best work?
Randall Jarrell similarly observed that "[Wallace] Stevens did what no other American poet has ever done, what few poets have ever done: wrote some of his best and newest and strangest poems during the last year or two of a very long life."
In contrast:
[Jean-Luc] Godard has directed scores of movies in a career that continues today in its fifth decade, but there is a strong critical consensus that his most important single work is his first full-length movie, Breathless, which he made in 1960 at the age of 30.
Those two passages are from David W. Galenson’s forthcoming Old Masters and Young Geniuses: The Two Life Cycles of Artistic Creativity. Here is a related working paper. Here are many other interesting papers.
My question: Which economists have done extremely important work after the age of 50? Have done their best work after 50? After 40? Comments are open, I welcome your suggestions but it is not easy…
New food bleg
This coming weekend I will be in Memphis, Tennessee, looking for barbecue. I know or know of the famous places, can you suggest a dump instead? Don’t even bother if they have their own web site. How about a place with an open barbecue pit? I also will be driving down Rt.61 to Clarksdale, Mississippi, how about something there or along the way? Comments are open.
How to walk through a museum
Donald Pittenger offers some observations on how to visit or walk through a museum. Here are my tips:
1. In every room ask yourself which picture you would take home (if you could take just one) and why. This forces you to keep thinking critically about what you are seeing. More crudely, you have to keep on paying attention.
2. Almost all museums (MOMA is one exception) hang large numbers of second-rate paintings by first-rate artists. Try to find them. Don’t think it is all great, it isn’t.
3. You are probably better trained at shopping than looking at pictures. Do some basic research on prices and pretend you are shopping for pictures on a budget. This will improve the quality of your viewing.
4. Go with a variety of people (but not all at once). It forces you to see the art through their eyes.
5. If you are visiting a blockbuster exhibit, skip room number one. There is too much human traffic, as the people have not yet admitted to themselves they don’t care about what is on the wall.
A key general principle is to stop self-deceiving and admit to yourself that you don’t just love "art for art’s sake." You also like art for the role it plays in your life, for its signaling value, and for how it complements other things you value, such as relationships and your self-image. It then becomes possible for you to turn this fact to your advantage, rather than having it work against you. Keeping up the full pretense means that you must impose a high implicit tax on your museum-going. This leads you to restrict your number of visits and ultimately to resent the art and find it boring.
Comments are open, in case you have further suggestions for how to visit a museum.
Markets in everything: putting the homeless to work
It is called Bumvertising.
Bumvertising™, or the use of sign holding vagrants to advertise, is a development of PokerFaceBook.com’s
most recent advertising campaign. Homeless men are able to provide a
valuable and tangible service to a company, while receiving an
additional revenue stream in combination with their normal donations
from begging.
Here is a photo gallery of ads. Here is the company’s "economic analysis" of the practice. Here is some nasty language directed against the founders. And it seems you pay the bums with barter:
Through his own effort and the assistance of his marketing team, Mr.
Rogovy developed signs and accumulated the resources that most bums
would find attractive. Money, sandwiches, chips, apples, water, and
other beverages have all been dispensed in order to compensate the
homeless in the Seattle Bumvertising™ campaign.
I have no direct information on how real this practice is, or if it violates minimum wage laws, but the web site appears legitimate. Thanks to Curt Gardner for the pointer. Comments are open if you know more.