Marginal Revolution

Medieval technology was better than you would think

The Australian BBC reports: "Medieval recipes for gunpowder produce nearly the same firepower as today's manufactured equivalent, according to recent weapons tests, providing clues as to how the British fleet became one of the largest fighting forces in the world." The full account is can be obtained through www.cronaca.com.

Liberalization of capital markets

How much does liberalizing capital markets spur economic growth in developing countries? It depends on what kind of country you look at, according to a recent paper by Kenneth Rogoff, formerly chief economist at the IMF, also Professor at Princeton.

He suggests that financial integration should be "approached cautiously." Many of the benefits kick in only after countries have achieved a particular level of financial integration. Improvements in integration, starting from low levels of integration and development, often have increased the volatility of consumption. Trade integration is associated with faster increases in health and infant mortality, but financial openness is not.

Rogoff sees four problems with financial integration for poorer countries: investors engage in herd behavior, investors engage in speculative attacks on unsound currencies, the risk of contagion, and governments may use financial globalization to overborrow. Financial integration can, in principle, bring great benefits but it is not always used responsibly.

We should take these results seriously. Rogoff is a highly respected economist and he has no starting bias against market globalization. Read his open letter to Joseph Stiglitz, which offers a good statement of his overall perspective on global markets.

Did you know that Rogoff had an earlier career as a chess grandmaster? Read the story he once wrote for Seventeen magazine on this time in his life.

Thoughts on blogging

Daniel Drezner is an excellent political scientist and a first-rate blogger. Here is his recent take on why he has found blogging worthwhile (400,000 unique visits to his page, in the first year).

Here is his advice to new bloggers. He says yes do it, think quality over quantity, and draw attention to your blog by writing about religion and Harry Potter.

For his earlier posts on how blogging has evolved, click here and here. He predicts the ascendancy of academic bloggers, who are used to giving away ideas for free. He also argues that blogging promotes excess certainty of opinion. He cites a Rand Corporation document on how easily electronic communications are misunderstood and lead to unnecessary hard feelings.

An argument why micropayments for Internet content will never work

Will advanced technology allow suppliers to charge people very small amounts for reading web sites, blogs, and other kinds of material? No, says Clay Shirky, mental transactions costs will remain. Here is his bottom line:

The people pushing micropayments believe that the dollar cost of goods is the thing most responsible for deflecting readers from buying content, and that a reduction in price to micropayment levels will allow creators to begin charging for their work without deflecting readers.

This strategy doesn't work, because the act of buying anything, even if the price is very small, creates what Nick Szabo calls mental transaction costs, the energy required to decide whether something is worth buying or not, regardless of price.

Read more:

Weblogs, in particular, represent a huge victory for voluntarily subsidized content. The weblog world is driven by a million creative people, driven to get the word out, willing to donate their work, and unhampered by the costs of xeroxing, ink, or postage. Given the choice of fame vs fortune, many people will prefer a large audience and no user fees to a small audience and tiny user fees. This is not to say that creators cannot be paid for their work, merely that mandatory user fees are far less effective than voluntary donations, sponsorship, or advertising.

Because information is hard to value in advance, for-fee content will almost invariably be sold on a subscription basis, rather than per piece, to smooth out the variability in value. Individual bits of content that are even moderately close in quality to what is available free, but wrapped in the mental transaction costs of micropayments, are doomed to be both obscure and unprofitable.

Little-known literary gatekeepers

Publishers Weekly, Kirkus, Library Journal, and Booklist are among the first reviewers of most new books. They are not widely read but often they are treated as gospel by the publishing trade. Their evaluations determine how seriously a book is taken by other reviewers, by media, by bookstores, and by filmmakers looking for new script sources. Read this Slate piece on how these outlets work, and why the Internet is decreasing their influence.

Did Mussolini make the trains run on time?

Not according to Urban Legends at www.snopes.com. Consider this:

The Italian railway system had fallen into a rather sad state during World War I, and it did improve a good deal during the 1920s, but Mussolini was disingenuous in taking credit for the changes: much of the repair work had been performed before Mussolini and the fascists came to power in 1922. More importantly (to the claim at hand), those who actually lived in Italy during the Mussolini era have borne testimony that the Italian railway's legendary adherence to timetables was far more myth than reality.

Why do ticket sellers allow scalping?

It is a common economic puzzle why the prices for various events, such as Super Bowls and rock concerts, do not always clear the market. Why sell tickets cheaply, thereby allowing scalpers to buy them up and later resell them at higher prices, reaping the surplus for themselves?

Canadian Ticketmaster wondered the same, and now they are doing something about it. For many concerts they will auction off some tickets at market-clearing prices. Most groups, however, will auction off only a few of the best tickets, rather than all tickets.

One concert promoter had reservations about the scheme: "From a fan's point of view, I don't think this would be fair," he said. "Obviously, everyone should have equal access to tickets, especially if you're a fan that lines up overnight. It should be fair and equitable." Comments of this kind show that either he or I, or perhaps both of us, do not understand this market very well.

Thanks for Eric Crampton for pointing the link out to me. And speaking of musical concerts, it is sad to report that Johnny Cash has died.

The poor love globalization

Read this piece from techcentralstation.com, on how much the poor love globalization.

Here is one money quote:

When asked if cultural imports are "good" for their respective countries, young people in particular seemed to respond favorably in the developing world. Eight-five percent of Russians, 65% of Bangladeshis, 89% of Guatemalans, 94% of Chinese, and even 60% of Egyptians aged 18-29 answered affirmatively.

Here is another:

Even when respondents in the developing world saw conditions in their own countries "getting worse," a sizeable majority refused to blame globalization for their problems. In fact, of all the countries where a majority of respondents said conditions in their respective country were deteriorating, none showed a majority of respondents putting globalization at fault. The highest percentage blaming globalization came in Indonesia, at 44%. Most others were in the teens.

Furthermore the global poor like multinational corporations, by overwhelming margins, and don't like anti-globalization protesters.

Two interesting blogs

On corporate law and governance, check out the new Corporation Law and Economics, with occasional discussions of wine as well. Stephen Bainbridge, main blogger, is professor of law at UCLA.

I also learned of a blog on neuroeconomics. Neuroeconomics is a new "movement," I would define it as trying to better understand economic choice by looking inside the individual brain. Neuroeconomists take the Austrian economists literally in viewing choice as a process. My colleagues Kevin McCabe and Dan Houser are central to this research, they spend much of their time with brain scanners, trying to see which parts of the brain are used for which kinds of economic decisions. Neuroeconomics is a new field, and spans the disciplines, which makes a blog especially useful.

Paul Krugman's latest

If you read blogs, you probably already have made up your mind about Paul Krugman. When perusing his new The Great Unraveling: Losing Our Way in the New Century, I found myself continually reminded how smart he is, what a good writer he is, and how often he is right. He led the way in publicizing the fiscal irresponsibility of the current Bush administration. I disagree with his politics, but his points have enough force to make me squirm.

If you are wondering, the book is basically his New York Times columns.

I like him best when he stays away from his pet hobby horses. Krugman gets through his essays on Robert Mundell, and the Swedish economic boom -- both tight and thought-provoking pieces -- without once attacking George W. Bush or calling the Republicans evil.

But these days I can never forget the other Paul Krugman, the one who keeps free market and right-wing bloggers so busy. The Krugman of self-righteousness, sloppiness with the facts, and ad hominem attacks. The Krugman Truth Squad remains. There are many examples of this other Krugman, I was struck by one particular example, taken from Donald Luskin:

Paul Krugman, September 2, 2003:

"I admire the virtues of free markets as much as anyone."

Now this could make a great party game. Let's see, where do I begin...? How about, Paul Krugman, June 20, 1999:

"The question of how to keep demand adequate to make use of the capacity has become crucial. Depression economics is back. ...in a world where there is often not enough demand to go around, the case for free markets is a hard case to make."

My take: Well, I guess it depends on what you mean by "as anyone."

Addendum: Perusing the book more, I find Krugman (p.27) also writes: "I like the theory of efficient financial markets as much as anyone." Four pages later, he writes, from a different column: "The more I look at the amazing rise of the U.S. stock market, the more I become convinced that we are looking at a mammoth psychological problem." He also writes of "Seven Habits of Highly Defective Investors" (p.27) and calls them "an extremely dangerous flock of financial sheep." (p.30)