Marginal Revolution

Best of 2007 lists

Here are the links to the lists, again courtesy of the awesome Rex Sorgatz.  Last year this link cost me a good $200.  Rex adds more to the list as the links pop up, so do revisit the site periodically.  Oddly I can't get this link to work on every computer or browser, I am not sure why not.  Thanks to Jason Kottke for the pointer.

Laissez-Faire Marriage

Should the state be involved in marriage?  Writing in the NYTimes professor of history Stephanie Coontz notes:

The American colonies officially required marriages to be registered, but until the mid-19th century, state supreme courts routinely ruled that public cohabitation was sufficient evidence of a valid marriage. By the later part of that century, however, the United States began to nullify common-law marriages and exert more control over who was allowed to marry.

By the 1920s, 38 states prohibited whites from marrying blacks, “mulattos,” Japanese, Chinese, Indians, “Mongolians,” “Malays” or Filipinos. Twelve states would not issue a marriage license if one partner was a drunk, an addict or a “mental defect.” Eighteen states set barriers to remarriage after divorce.

It's no accident that the state began restricting and intervening in the marriage contract at the same time as it was restricting and intervening in economic contracts.  It was of course the evil Oliver Wendell Holmes Jr. who dissented in Lochner v. New York and who also upheld forced sterilization laws in Buck v. Bell (writing that "three generations of imbeciles in enough.")  Economists don't like to talk about social externalities but the connection between economic and social regulation is very clear in the progressives.

I think it's time to restore freedom of contract to marriage.  Why should two men, for example, be denied the same rights to contract as are allowed to a man and a woman?  Far from ending civilization the extension of the bourgeoisie concept of contract ever further is the epitome of civilization.  Our modern concept of marriage, for example, is simply one instantiation of the idea of contract.

People will claim that this means a chaos of contracts for every form of marriage.  This is wrong factually and also conceptually misguided.  Factually, we already allow men and women to adjust the marriage contract as they see fit with pre-nuptials.  Moreover, different states offer different marriage contracts with some offering more than one type.  Partnerships of other kinds have access to all manner of contractual arrangements without insufferable problems. 

More importantly, the chaos of contracts argument is fundamentally misguided.  The purpose of contract law is to give individual's greater control over their lives.  To make contract law a restraint on how people may govern themselves is a perversion of the social contract.  To restrict people from accessing the tools of civilization on the basis of their sexual preference is baseless discrimination. 

It is time to restore freedom of contract to marriage,  Laissez-faire for all capitalist acts between consenting adults!

Thanks to Daniel Akst for the pointer.

My favorite things Honduran

1. The best known Honduran painter is Jose Antonio Velásquez, here is a typical image.

2. America Ferrara, who plays Betty in Ugly Betty, is of Honduran parents.  I like that show, I don't love it.

3. This guy did lots of scientific work, including the laying of some foundations for Viagra, and he married a Belgian princess.  I've yet to benefit from his existence.

Plus I would cite a few personal acquaintances, past and present, of whom I am very fond.  That's what I can think of folks, and I wouldn't have found #3 without Google.  This website assures us "There are famous people from Honduras," although the link to the list of them is broken.

I have also read one short story from Honduras, from an anthology of Latin American short stories; it is entitled "Malaria."

I might add I am very fond of airfares to Honduras; right now the roundtrip is cheaper than the one way shuttle to New York City.  And maybe the flight is quicker too, no holding patterns over LaGuardia!

Most of all I like places where no one else goes, and I expect this short weekend trip to be very worth its while.

Medicare for everyone?

Medicare spends billions of dollars each year on products and services that are available at far lower prices from retail pharmacies and online stores, according to an analysis of federal data by The New York Times. A comparison of Medicare figures with retail catalogs reveals dozens of instances of the program’s paying above-market costs.

For example, last year Medicare spent more than $21 million on pumps to help older and disabled men attain erections, paying about $450 for the same device that is available online for as little as $108. Even for something as simple as a walking cane, which can be purchased online for about $11, the government pays $20, according to government data.

These widespread price discrepancies, including those for oxygen services, have been noted in dozens of regulatory reports.

But when officials and politicians have tried to cut these costs, they have often encountered a powerful foe: the companies that sell these devices, who ask their elderly customers to serve, in effect, as unpaid lobbyists, calling and writing to their representatives in Congress, protesting at rallies, and even participating in political attacks against individual lawmakers who take on the issue.

Here is the full story.  You are correct to think that not all versions of a single-payer system need discourage innovation.  You are also correct to think this is what they look like.

Illegal immigrant fact of the day

Illegal immigrants from Mexico and other Latin American countries are 50% less likely than U.S.-born Latinos to use hospital emergency rooms in California, according to a study published Monday in the journal Archives of Internal Medicine.

Here is the link.

A plea for more anthropology of ideology

I've been pondering Daniel Davies's attempted takedown of Milton Friedman, or for that matter Jon Chait's book on supply side economics, and so I slip beneath the fold...

What strikes me is that these writers, and also their counterparts on the Right, see so little need to adduce anthropological evidence to characterize other people's views.  When it concerns the Laffer Curve, or global warming, or the correct measure of civilian deaths in Iraq, the concern is for the highest standards of evidence.  Yet the question of what other people "really believe" also can be treated in more or less sophisticated form, most of all with the tools of anthropology.  Web quotations are relevant, but there is no substitute for getting out there and speaking to those people, for a start.

I'd like to propose a new research convention.  Anytime a writer or blogger talks about what The Right or The Left (or some subset thereof) really wants or means, I'd like them to list their personal anthropological experience with the subjects under consideration.  Davies presents Friedman as a shill for the Republican Party; I'd like to know how many (public or non-public) conversations he has had with Friedman about the topic of the Republican Party.  I've been present for a few, and while I'm open to feedback from Davies, my guess reading his post is that he hasn't been there for any.  Yet he writes with a tone of certitude: "it's clearly not intellectual honesty that makes American liberals act pretend that Milton Friedman wasn't a party line Republican hack." 

Is it really true that "The ideological core of Chicago-style libertarianism has two planks. 1. Vote Republican.  2. That's it."?  And Davies's own quotation of Milton Friedman does not support his core claims; he simply asks us to believe that Friedman is lying.  I would ask Davies to apply the same standards of argumentation and evidence that he does to the Lancet study of Iraq or the many other topics he has written excellent blog posts about.

How many supply-siders has Chait talked to?  It might be a lot, but again I'd like to know.  Has he met with the people who write The Wall Street Journal Op-Ed page?  How many of them?  How many leading Republican donors and strategists does he know?  Did they really chat with him, or were they in controlled "interview mode"?  How motivated are they by supply-side doctrine?  What did those say who weren't so motivated?

How many intelligent pro-life Republicans do you know?  How many southern racist Republicans do you know?  Have they confided in you?  Do they trust you?  Do you really think you know what they believe?

I don't mean to suggest that such anthropological research will always yield sanitizing answers.  Nor do I believe that the Left is worse in ignoring the anthropology of ideology than is the Right. 

It is sad that anthropological research has such a low status among so many smart people.  It is fashionable to open up data sets for replication.  So let's do the same for research into ideology or even just proclamations about the ideology of others, especially those you disagree with.  Tell us how much field work you did, who you did it with, how much they trusted you, and what you wish you could have done but didn't.  That is easy enough in the on-line world. 

The demand for authenticity

Eric Jorgensen, a programmer at Microsoft, has invented PixelWhimsy, a computer program that allows toddlers to sit at a regular computer and bang away on the keys to create sounds and colors and shapes, but without damaging the computer.

Asmin Jalis, who also works at Microsoft and whose 2-year-old boy, Ibrahim, has been using PixelWhimsy, said his son liked it better than his toy computer. “We have a toy laptop for him, and he knows it’s a fake,” he said.

Or more generally:

Cellphones, laptops, digital cameras and MP3 music players are among the hottest gift items this year. For preschoolers.  Toy makers and retailers are filling shelves with new tech devices for children ages 3 and up, and sometimes even down. They say they are catering to junior consumers who want to emulate their parents and are not satisfied with fake gadgets.

Constructive suggestions about foreclosures

Francisco Torralba writes:

First of all, settle on a bankruptcy text and stick to it. The latest overhaul of the Bankruptcy Code took place as recently as 2005. Regulatory uncertainty inhibits lenders.

Second, lawmakers should give the two parties in a contract more leeway to renegotiate their loans. I applaud the congressmen’s proposals to allow modifications of the terms of the original loans, but they could go further. For example, they should allow converting 30-year adjustable rate mortgages (ARM) into 50-year fixed-rate mortgages.

The modifications could be proposed by the court, but then they should require consent from both mortgagee and lender. Two of the bills under consideration -- the ones by Senator Durbin (D-IL) and Representative Miller (D-NC) -- allow the bankruptcy court to modify the terms of the loan without restrictions, not even agreement in writing between the parties. Giving such power to the court has at least two effects. First, it tilts the balance towards the consumer -- in a free negotiation between mortgagee and bank, the latter would have the upper hand. Second, it increases the uncertainty of the bank's payoffs. Both effects reduce the supply of debt.

Congress should also modify the Code so that the least creditworthy borrowers have more incentives to file for Chapter 7 instead of Chapter 13.

Going beyond the current problems, better ex ante disclosure would be welcome. Most borrowers don’t understand 95 percent of the legal mumbo jumbo on their contracts. Mortgage applicants should be given worst-case scenario simulations of their monthly payments.

We could also set a floor on “teaser” introductory mortgage payments. Hybrid ARM's, for example, start out carrying a low, fixed rate. Two to five years later the interest rate resets to a higher, floating level. Option ARM's let the borrower initially make interest-only payments, minimum payments (often below the interest accrued), or fixed, low-rate payments, also until the first reset date. Any of those schemes make mortgages affordable, but only for the first few years. Legislation could provide, for example, that initial monthly payments never be below 80 percent of the expected payment after the first reset date.

Here is Francisco's blog, if you don't already know it.

Assorted links

1. How economists lose weight

2. Does it matter if leaders are female?

3. Cory Doctorow on what is wrong with Facebook

4. Gretchen Rubin on Inner Economist and how to get people to tell the truth

China Story of the Day

"Dad," said the 6-year old, "can we go to China?"

"Hmmm...maybe.  Why do you want to go to China?"

"That's where they make all the toys."

What can you even say at this point?

Zimbabwe's chief statistician says he cannot work out the rate of inflation because of the lack of goods in shops.

Here is the sad story.  Thanks to Shanley and also Wolfram for the pointer.

Why does John Nye violate the law of one price?

John's new book War, Wine, and Taxes sells new for $29.95 on Amazon [TC: this is correcting a previous mistake in listing the price], with free shipping in the U.S.  Many of the used copies of John's book are selling for over $30, others in the $25-30 range, and the shipping charges are higher than Amazon's.  Last I looked, none of the forty used copies were selling for less than $25 and one was selling for $50.

It is not hard to get a new copy of John's book, John assures me.  What's up?

Should we regulate banks more?

In the wake of subprime losses we are hearing claims that the United States should have regulated its banks more.  It is worth pointing out that the U.S. has some of the most heavily regulated banks in the world:

1. The Bank Holding Company Act of 1940, still in force, prevents bank from owning non-financial corporations.

2. The previous Glass-Steagall Act (repealed in 1999) discouraged banks from diversifying out of home mortgages.

3. The Office of the Comptroller of the Currency charters, regulates, and oversees banks, including with respect to risk.

4. Several rounds of the Basel accords, including subsequent fine-tunings, have regulated bank capital holdings and reporting requirements.  These are international regulations and not the sole design of a possibly defective U.S. regulatory system.

5. Banks are chartered by individual states and subject to varying regulations, disclosure, and reporting requirements, including with respect to risk.

6. Banks are regulated and supervised by the Fed, especially with regard to their risk-taking.

7. Banks are regulated and supervised by the FDIC, especially with regard to their risk.

8. Banks face additional regulations, both at the state and federal level, to the extent they are involved in commodities and insurance markets.

9. The Federal Housing Finance Board regulates Federal Home Loan Banks, which are involved in mortgage markets.

10. The Sarbanes-Oxley Act applies to publicly traded banks.

11. The Gramm-Leach-Bliley Act, the revision of the Glass-Steagall Act, regulates bank assets, albeit less than in times past. 

12. The Home Mortgage Disclosure Act "...requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings."  These regulations are intended to limit the ability of banks to discriminate against borrowers; in practice this encourages subprime loans.

13. The Community Reinvestment Act encourages banks "to reinvest in the communities they serve," which again in practice encourages subprime loans.

14. I believe this list is not complete.

I guess we didn't have enough bank regulation!

It is also worth noting that many European banks have suffered heavy losses as well, despite operating under different regulatory regimes.

It is plausible to argue that the United States should have fewer bank regulators (I'll nominate the Fed for the main role), but that consolidation should be accompanied by greater efficacy of regulation.  In the meantime there are too many regulatory authorities, and too many regulations.  We have completely blurred lines of accountability, legal, political, economic, and otherwise.

The Concise Encyclopedia of Economics, edited by David Henderson

Buy it here, or here on Amazon.  The Board of Editors included Russ Roberts and myself, and the publisher is Liberty Fund.

Markets in everything

Tumbleweeds:

Linda started her online business, the Prairie Tumbleweed Farm, as a joke. It was 1994 and she wanted to teach herself how to design a website. Since she lived on the prairie in southwest Kansas, where rolling tumbleweeds are sometimes the only dynamic feature of an endless flat horizon, she invented a farm that sold tumbleweeds, listing prices at $15 for a small one, $20 for a medium and $25 for large.

Hollywood has also come calling. Katz’s tumbleweeds have appeared in films like Johnny Depp’s “Neverland.” And she has supplied tumbleweeds to the big purple dinosaur kid’s show, “Barney.”

Katz says people usually use her tumbleweeds to recreate the look and feel of the old west for theme parties. But some customers tell her they buy tumbleweeds to remind them of the home on the prairie they left long ago.

She is now making about $40,000 a year.

The pointer is from David Welton.  Here are David's writings on Padua.

Many Worlds, Most Strange

Hugh Everett, the originator of the multiple worlds interpretation of quantum physics, was a strange fellow.  He left physics when Neils Bohr refused to take his ideas seriously and went into defense work where he made millions.  His son Mark Everett is lead singer for the Eels.  A BBC documentary, Parallel Worlds, Parellel Lives looks at father and son:

They lived in the same house for nearly 20 years and barely spoke. The first time Mark touched his father was when he found his stiffening corpse, still in bed and still in the suit he always wore. Mark himself, unusually for a rock star, wears a suit on stage. A devout atheist, Hugh told his wife to throw his ashes out with the trash, which, after keeping them for a bit in a filing cabinet, she duly did.

Hat tip to MetaFilter.

Addendum: Here's an interview with Mark Everett about his father.

Conservative Pigs and Liberal Bonobos

Herb Gintis reviews Krugman on Amazon:

Krugman's vision for the future has three key premises, all wrong. First, he believes progressives can win on a platform of redistributing from the rich. However, no one cares about inequality. People care about injustice, unfairness, poverty, sexual predators, family values, gay marriage, terrorism, and many other problems of everyday life. People don't care about Gini distributions and other abstractions. Moreover, Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes.

Second, Krugman would strengthen the labor unions, which he credits for their egalitarian effects. However, unions were strong only when industry was highly non-competitive in such areas as automobiles and steel. The oligopolistic character of mid-twentieth century industry, with a few countries in the lead, made fighting over the excess profits highly rewarding. With globalization, there are no excess profits to be fought over. Thus, it is not surprising that most successful unions in the USA are public service, not private (e.g., teachers, government employees). There is no future in unionism, period.

Third, Krugman believes that liberalism can be restored to its 1950's health without the need for any new policies. However, 1950's liberalism was based on southern white racism and solid support from the unions, neither of which exists any more. There is no future in pure redistributional policies in the USA for this reason. Indeed, if one looks at other social democratic countries, almost all are moving from corporate liberalism to embrace new options, such as Sarkozy in France (French socialists have the same pathetic political sense as American liberals, and will share the same fate).

I am sorry that we can't do better than Krugman. There are very serious social problems to be addressed, but the poor, pathetic, liberals simply haven't a clue. Conservatives, on the other, are political sophisticated and hold clear visions of what they want. It is too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment. Politics in the USA is no longer Elephants and Donkeys; it is now conservative Pigs and liberal Bonobos. The pigs are smart but only care about what's in their trough. The Bonobos are polymorphous perverse and great lovers, but will be extinct in short order.

Hat tip to PrestoPundit.

Ruggedness: how bad terrain helped parts of Africa

There is controversy about whether geography matters mainly because of its contemporaneous impact on economic outcomes or because of its interaction with historical events.  Looking at terrain ruggedness, we are able to estimate the importance of these two channels.  Because rugged terrain hinders trade and most productive activities, it has a negative direct effect on income.  However, in Africa rugged terrain afforded protection to those being raided during the slave trades. Since the slave trades retarded subsequent economic development, in Africa ruggedness also has had a historical indirect positive effect on income.  Studying all countries worldwide, we find that both effects are significant statistically and that for Africa the indirect positive effect dominates the direct negative effect.  Looking within Africa, we provide evidence that the indirect effect operates through the slave trades.  We also show that the slave trades, by encouraging population concentrations in rugged areas, have also amplified the negative direct impact of rugged terrain in Africa.

That's a new paper by Nathan Nunn and Diego Puga.  Some say the paper is here, not I.  Others say you can get it here.  I say you can get an html version here.  Here is one quick summary of the argument.  Here are Nunn's other papers on the slave trade, and how it continues to affect current African development.
 

Back on the Streets

The Bureau of Justice Statistics has just released a new study, Pretrial Release of Felony Defendants in State Courts (pdf).  The study is interesting reading if only to remind oneself how crime is concentrated among a small minority of repeat offenders.  Nearly a quarter of released defendants, for example, fail to appear on the day of their trial; worse yet 17 percent of released defendants are rearrested for a new offense before their trial even begins.  If 17 percent are rearrested you can be pretty sure that the percentage of releasees who have committed a new crime is much higher.

The BJS study also verifies my research with Helland showing that commercial bail and bounty hunters work well.  Defendants released on commercial bail are less likely to fail to appear and are more likely to be recaptured if they do fail to appear compared to those released on their own recognizance or on a public bail system.

The economics of Kindle

Here are two short essay-lets.  I'll admit to not yet having seen a Kindle, but I think it is not the wave of the future and not the next iPod.  The key feature of the iPod is the use of software to organize your music collection, not just the portability.  The (somewhat) comparable use of software for reading is RSS, but Kindle is not an efficient way of reading blogs, it is mostly designed for full-length titles.  (And if you really want to read your favorite blogs on RSS, while you walk around, the iPhone already allows that.)  Furthermore we want to hear our favorite songs many times, but the ability to call up again our favorite book is not of comparable value, again limiting the value of using software to organize our reading.  Plus a book takes longer to consume than does a song, so just carry the book you are reading instead of carrying Kindle.  Maybe Kindle is good for voracious readers who take long trips, and don't want to buy books along the way, but can you build a market on that?

Here is one interesting review of the product, here is a very detailed and very pro-Kindle review.  I'm still a skeptic, at least until software takes on a larger role in reorganizing the reading experience. 

Untitled

Why is the European press more pessimistic than the American press?

Paul Krugman points this out, for instance read today's FT article, titled in the print edition "Investors Fear New Turmoil: Credit markets Expect Recession in US."  InTrade gives about a fifty percent chance of recession in the U.S., so you could argue the case for optimism or pessimism either way.

Does the greater pessimism of Europeans produce more disciplined and respectful children?  Or just more pessimistic newspapers?  I believe the "America is due for a comeuppance" view remains very popular across the Atlantic.

Addendum: Here is one optimistic account, from Oklahoma.

Why don't American kids respect their parents more?

First, you are welcome to challenge the premise that there is in fact less respect for parents in the United States.  But if it were true, what might be the possible mechanisms?

1. American parents have less time to discipline their kids, in part because women are more likely to work, wages are higher, and there is a general rush and hurry.

2. American culture is less closely tied to the entire notion of hierarchy and respect, whether or not kids are in the picture.

3. The American divorce rate is relatively high.

4. Balance is difficult, and a tipping point requires that someone be in charge.  In America that is the kids, although the underlying reasons for this difference may be quite small.

5. America is saturated in mass media, and that culture encourages the independence of the child, most of all because children are prime viewers of TV and drivers of Nielsen ratings.

6. Americans are more mobile, and thus less likely to live near grandparents, support structures, and other mechanisms of norm enforcement.

7. It is simply a time trend.  Americans are ahead of the rest of the world but everyone else is catching up.  Give them time, it's just like how we will all come to resemble California someday.

8. "In America it depends on how parents behave and whether particular parents deserve to be treated with respect.  Parents don't get respect automatically just because they are parents."  I'm not going to tell you who said that one.

9. Some other notion of American exceptionalism.

Your views?  Google appears to yield few answers to this question or even attempts at an answer...

Very good sentences

My contention is that the growth of black studies programs can be fruitfully viewed as a bureaucratic response to a social movement.

That is from Fabio Rojas's new and noteworthy From Black Power to Black Studies: How a Radical Social Movement Became an Academic Discipline.  Here is Bryan Caplan's review of the book.

Which are the most obese American cities?

Memphis wins the competition, but:

Had we included every area on the list, the smaller cities of Huntington, W.V., and Ashland, Ohio, on the West Virginia, Kentucky and Ohio state borders would have far outpaced every city on the list with obesity rates of 45%. Of the 50 cities we did rank, Boston entered last, with only 19%.

Here is the full story.  Residents of San Antonio are the most likely to patronize fast food restaurants, with an average (or is it median?) of 20 fast food days a month.  I'll note that Latino fast food is better than average and it involves a smaller health penalty, relative to the non-fast food.  Here are photos of the most obese American cities, though oddly they show the buildings far more than the people.  Would an article about tall or wide buildings show only the people?  Could they not find heavy people?  Or do they think we simply don't want to look at them?

Field experiments for cultural protectionism

The [writers'] strike, Layfield noted, "is perfect timing for our January launch.  It'll give Canadians an opportunity to go and watch something different rather than watching reruns of American shows. "Once (Canadians) see ... the quality and the stories that they like, you win them over pretty quickly," she added.  CBC [a Canadian network] announced three new dramas, a sitcom, a daytime talk show and a reality series yesterday.

Here is more.  And on the other side of the border:

With the Writers Guild of America still on strike and no guarantee that a resumption of talks next week will bring any resolution, this should all be a boon for Canadian shows vying to air in the United States, right?...but there is no indication that U.S. programmers are looking to Canada in droves.

As for one new show, The Border, the Canadian producer remarked:

"Many test viewers who have seen this have said that it doesn't look like traditional Canadian television.  It's got a whole other level of energy, of entertainment value. There's never a dull moment," Raymont added.

Have you heard about cultural path dependence?  The simplest hypothesis, of course, is that once Canadian producers gain a foothold in their home market they will be able to keep it.  I'll predict no, but stay tuned for further reports next year...

A dialog

T.: I love you.

N.: Which number is that?

Is libertarianism the new "in" thing?

Here is the story.  Nick Gillespie says:

"We're the Sith Lords of American politics," he says, referring to the "Star Wars" baddies.  "We can show up in any group.  We're both terrifying and devilishly attractive."

Since I'm not either of those things, and I've made other claims about the Sith Lords, I said something different:

Libertarian economist Tyler Cowen of George Mason University says the new breed of Swiftian commentary found on shows such as "The Daily Show" and "The Colbert Report," though not explicitly libertarian, also has contributed to the current libertarian moment.  "The way to be funny is to make fun of something," Mr. Cowen notes.

There is more by me at the very end of the article (yes, you too can look into my heart).  In part libertarianism has become cool because Republicanism has become so uncool, thereby leaving a cultural gap which Hillary Clinton alone cannot fill.

What is wrong with Amtrak?

Megan McArdle tells us:

...why is America's high-speed rail so dreadful? The Acela delivers you, at enormous added expense, to Boston one hour ahead of the regional. On the DC-to-NY run, the added benefit is 10-15 minutes. The answer is that the Acela uses existing track, which is twisty, the better to serve every congressional district between here and Boston. Real high speed rail needs to be fairly straight, for the same reason you don't take hairpin turns at 120 mph in your car.

I had never heard the Congressional district argument before.  I've also heard that freight railways crowd the lines and Amtrak doesn't pay a high enough prices for access; the freight services had, way back when, pledged to the government to give Amtrak trains priority but of course that kind of cheap talk is not enough to get the job done; here is some relevant background, and more here.  Here is a good summary of Amtrak critiques.  It comes from a whole blog devoted to criticizing Amtrak.

Bryan Caplan peers into my heart

And I believe he doesn't like what he sees:

Who wouldn't want to see Tyler Cowen publicly debate Robin Hanson? Well, aside from the masses? I think they'd both be willing, if they could only pinpoint a good topic. A while back they had an extended blog dialogue (see here, here, and here); can you extract a resolution from it?

Personally, the bottom line of Tyler's latest post reminds me of a debate topic that someone suggested after a recent seminar: "Few major changes in the policies of modern democracies are desirable." Depending on when you ask him, Tyler might deny that he believes this, but in his heart, he does. And no matter when you ask Robin, he'll be ready to argue the contrary.

Other topic suggestions?  If Tyler and Robin wind up using your novel suggestion, lunch is on me.

Here is the link.

Markets in Everything: Think Tanks

Why buy votes when you can buy the Bay Area Center for Voting Research?  The BACVR analyzes voting trends in California and nationwide; they are best known for their ranking of the most liberal and most conservative cities (pdf) in the nation.  The founders, however, want out and are selling all of BACVR's intellectual assets, including the organization's web site, past research, and well-known name on eBay.  The perfect Christmas gift for that political junkie on your list.

Of course some people believe that all think tanks are for sale.

Eight reasons to be optimistic about today's economy

From Charles Calomiris, via Mark Thoma.  Here is my edited version of the list, without the (very good) explanations:

1. Housing prices may not be falling by as much as some economists say they are.
2. Although the inventory of homes for sale has risen, housing construction activity has fallen substantially [which will support future prices].
3. The shock to the availability of credit has been concentrated primarily in securitisations rather than in credit markets defined more broadly.
4. Aggregate financial market indicators improved substantially in September and subsequently.
5. ...nonfinancial firms are highly liquid and not overleveraged.
6. ...households' wealth is at an all-time high and continues to grow.
7. Of central importance is the healthy condition of banks.
8. Banks hold much more diversified portfolios today than they used to.

I find 3-8 more convincing than 1-2, noting of course that #7 is a relative judgment.  Here is a longer version of the Calomiris paper.

Should we let people sell votes?

Mankiw says no, Caplan says the real problem is voting itself.  Of course we let private shareholders sell their votes all the time, and uncontroversially, so the real issue is how politics is different. 

Say society has a 9999 people.  The marginal private value of a (political) vote is almost zero, except for its feel-good benefit (see also Gelman on altruistic motives to motivate voting).  Yet the total value of 5000 votes -- a winning tally -- is the size of the largest wealth transfer that the winner could impose on everyone else.  The result will mimic a model of self-interested voting but with only one self-interested voter -- the owner of the purchased votes -- having a say.  And that winner will be the conscience-less (non-liquidity-constrained) person who has the most to gain from buying up votes and getting things his way.

Of course Bryan, in other contexts, has shown that expressive voting is more likely than the self-interested voting model, at least under standard democracy.  I would rather have expressive voting than what is explained directly above, even though expressive voting is somewhat irrational. 

Maybe voters will end up with sudden attacks of conscientiousness and be unwilling to sell their votes; to that extent vote-selling won't much matter and of course then it can't bring gains either.

Now let's go back to the corporate case.  When it comes to policy, shareholders might not agree on means but everyone favors the same end of profit maximization.  A winning coalition of shareholders can't do much to extract rents from other shareholders, unless of course they are exploiting those other shareholders in their other roles as consumers or input suppliers.  But such effects are usually small (as opposed to the widespread possibilities for redistribution through politics) and thus vote selling works just fine for corporations.  There is no simple way that shareholder A can buy up the votes of shareholders B and C and then just screw them over.

Coda: There is a potential problem with vote-selling in corporations, again relating back to the difference between marginal and average value for a vote.  Shareholders might be afraid to sell to a takeover artist, instead wishing to hold on for the ride and reap gains from the change in corporate control.  But if no one sells the takeover cannot take place and no one reaps the gains.  In other words, there is too little vote selling; that's Grossman and Hart, 1980.  Alex once wrote an excellent paper on this problem (but where is the link Alex?) and showed that the free-rider problem among shareholders can usually be solved by random Nash strategies; note that the final outcome will depend on whether there is a countable or uncountable infinity of shareholders; please don't laugh!

The bottom line: There are good economic arguments for why we allow corporate vote-selling but not political vote-selling.

Western Union

Migration is so central to Western Union that forecasts of border movements drive the company’s stock. Its researchers outpace the Census Bureau in tracking migrant locations. Long synonymous with Morse code, the company now advertises in Tagalog and Twi and runs promotions for holidays as obscure as Phagwa and Fiji Day. Its executives hail migrants as “heroes” and once tried to oust a congressman because of his push for tougher immigration laws...

With five times as many locations worldwide as McDonald's, Starbucks, Burger King and Wal-Mart combined, Western Union is the lone behemoth among hundreds of money transfer companies... Last year migrants from poor countries sent home $300 billion, nearly three times the world’s foreign aid budgets combined.

Here is the full story, which is consistently interesting throughout.

Thanks on Thanksgiving

Alex and I each have many things to be thankful for today.  When it comes to blogging, we are thankful that we have an audience of readers -- namely you all -- that earlier economists could only have dreamt of, in terms of quantity, quality, and global distribution.  We are also grateful for what is frequently the best comments section in the blogosphere.

Thank you all for reading and putting time into this venture; if I add you all up, you, collectively, put in much more time than we do!  It is an honor to write for you all.

Happy Thanksgiving

Our corn did prove well, and God be praised, we had a good increase of Indian corn, and our barley indifferent good, but our peas not worth the gathering, for we feared they were too late sown.  They came up very well, and blossomed, but the sun parched them in the blossom.  Our harvest being gotten in, our governor sent four men on fowling, that so we might after a special manner rejoice together after we had gathered the fruit of our labors.  They four in one day killed as much fowl as, with a little help beside, served the company almost a week.  At which time, amongst other recreations, we exercised our arms, many of the Indians coming amongst us, and among the rest their greatest king Massasoit, with some ninety men, whom for three days we entertained and feasted, and they went out and killed five deer, which they brought to the plantation and bestowed on our governor, and upon the captain and others.  And although it be not always so plentiful as it was at this time with us, yet by the goodness of God, we are so far from want that we often wish you partakers of our plenty.

Edward Winslow, Plymouth in New England this 11th of December, 1621.

My Thanksgiving present from Yana

Available at your local post office, more information here.

Non (Anti?) Sequitur of the Day

Speaking on why it would be a terrible mistake to overturn Washington DC's 31-year old ban on handguns, Assistant police chief Alfred Durham said today:

The ban on handguns is a matter of life and death because 80% of the murders in DC are caused by handguns.

Choosing linguistic autarchy

An indigenous language in southern Mexico is in danger of disappearing because its last two speakers have stopped talking to one another.

The two elderly men in the village of Ayapan, Tabasco, have drifted apart, said Fernando Nava, head of the Mexican Institute for Indigenous Languages.

Are they really the last two speakers left?  The odd part of the story is this:

Dr Nava played down reports of an argument between the two Ayapan residents, both in their 70s.  "We know they are not to say enemies, but we know they are apart.  We know they are two people with little in common," he told the BBC News website.

They nonetheless have been nominated to play the role of linguistic saviors:

The indigenous languages institute is trying to encourage more local people to speak Ayapan Zoque, and hopes the two men will pass the language on to their families.

Do exchange rate overshooting models make sense?

Not so much.  Here is the overshooting model for those of you who don't know it.

So what is the problem?  First, most observed exchange rate movements are unexpected ("news"), rather than forecast in earlier forward rates.  The overshooting model, at best, explains expected movements in exchange rates.

Second, the model relies on a Keynesian money demand function.  Specifically, inflation, operating through a portfolio effect, lowers nominal rates of interest in the initial stage of the mechanism.  Well, sometimes, but don't count on it.  More generally, the currency vs. interest-bearing assets decision doesn't have many implications for foreign exchange markets, if any.

Arnold Kling offers some further comments, including this bit:

But in the Dornbusch model, countries differ in terms of their inflation rates. Inflation is described mathematically as a continuous movement in prices ("Rudi Dornbusch is the master of the logarithmic derivative," as Rogoff used to put it.) The swindle, which is present in all modern macro, is to talk about sticky prices and continuously-moving prices in the same breath.

Exchange rates are not well understood.  The current best theory is a mix of random walk (but in exchange rates or returns?), noise traders, and possibly some predictable, very long-run, PPP-reverting swings, enabled by the possibility that perhaps traders' time horizons are too short to compress all of the expected future into the present.  But, unlike what the Dornbusch model predicts, these changes are not well-predicted by nominal interest rate differentials.

Here is a more favorable assessment of the model, from Ken Rogoff.

This Choir Does The Preaching!

let's privatize, choice is the way
let corporations run our schools
let the free market make the rules

As sung by the Milton Friedman choir! 

Hat tip to Mark Perry at Carpe Diem.

In case you hadn't noticed

In its first Asian guide, announced on Monday, Michelin has awarded more of its famed stars to Tokyo restaurants than any other city, with a total of 191 stars compared with 64 for Paris and 42 in New York.

This is not seigniorage, we are told:

Anyone who complains about this has never travelled to Tokyo, because if they do, they can see for themselves the fantastic quality of restaurants here,” added Mr Naret.

Assorted links

1. Ron Mueck blog, via Chris Hayes

2. The recovery of Rwanda

3. How scary is a plunging dollar?: DeLong and Krugman defend common sense

Chinese movie piracy is overestimated

The three countries in which the [movie piracy] losses to U.S. studios were highest were not East Asian countries, and two of them were not developing countries: Mexico, the United Kingdom, and France accounted for over $1.2 billion in lost revenues, or 25% of the non-U.S. total – and slightly less than the U.S. total of $1.3 billion.

You will notice that China is not mentioned in that summary.  Go to p.13 of the paper: Russia has a per capita piracy rate lower than that of Germany and about equal to that of Japan.  And, out of the first eleven nations studied, China comes in sixth in absolute terms for movie piracy losses and eleventh in per capita terms.  In per capita terms, nation #10, Russia, has almost ten times the piracy losses as does China.  Per capita piracy losses are about twenty times higher in the United States than in China.  If eleven more nations are added to the rankings (see p.15), only two (Korea and India) have lower per capita piracy losses than China.  Overall that puts China at 20th out of 22 sampled countries when it comes to per capita piracy losses on movies. 

Hungary, however, is a major, major offender.  Chinese piracy is highly visible to those who visit major Chinese cities, because it takes the form of DVD sales in the streets.  But the real grabbers are countries where everyone has a VCR or DVD player, and where the domestic film industry is relatively weak.

These numbers may not be highly accurate, but they do put things in perspective.  Hat tip to China Law Blog.

Data revision of the day -- good news this time

The United Nations' top AIDS scientists plan to acknowledge this week that they have long overestimated both the size and the course of the epidemic, which they now believe has been slowing for nearly a decade, according to U.N. documents prepared for the announcement...the latest estimates, due to be released publicly Tuesday, put the number of annual new HIV infections at 2.5 million, a cut of more than 40 percent from last year's estimate, documents show. The worldwide total of people infected with HIV -- estimated a year ago at nearly 40 million and rising -- now will be reported as 33 million.

Here is the full story, which also explains the sampling errors behind the earlier estimates.

Dutch Treat

THE Dutch health minister, Ab Klink, is considering a recommendation to offer free health insurance for life to anyone who donates a kidney for transplant.

The award would be quite valuable, worth about $1500 a year or $24,000 in present discounted value (30 yrs, 5% discount rate, no increase in health care costs).  Becker and Elias predict a large increase in organ supply at $15,000 so the Dutch are in the ballpark for a good test.  More here.

Thanks to Dave Undis of LifeSharers for the pointer.

View quake reading

Ryan Holiday blogs my email to him:

My reading was much different when I was younger. I would more likely intensively engage with some important book totally full of new ideas. Hayek. Parfit. Plato. And so on. There just aren't books like that left for me anymore. So I read many more, to learn bits, but haven't in years experienced a "view quake." That is sad, to me at least, but I don't know how to avoid how that has turned out. So enjoy your best reading years while you can!

Quine should be on that list as well.  Nietzsche was a view quake in high school, though I find him oddly uninteresting upon rereading.  Here is Ryan's post on Marcus Aurelius.; the Stoics collectively were a view quake for me, in economics there was Anthony Downs and Thomas Schelling and Albert Hirschmann.  David Hume.  Maybe Rene Girard was the last "view quake" author I read.  On the upside, greater context means that many more books are interesting than was the case before.

Many of you are asking me about Amazon Kindle, the new ebook (sort of); Jason Kottke offers a round-up of opinion.
 

Piling on Samuelson

Like Tyler, I think Samuelson has not done his homework.

Here is Paul Samuelson:

But financial panic engendered by the burst bubble of unsound U.S. and foreign mortgage lending means that even a mammoth corporation like General Electric would find it expensive now to finance a loan needed to build a new and efficient factory.

Here is Jeffrey Immelt, chairman and chief executive of General Electric:

Q: What's your opinion of the "credit squeeze" and the view that the US economy may be about to run into difficulties?

A: It's clear there has been some bad lending behaviour [by banks] in the US. But in the world as a whole, there is still a lot of liquidity. Companies generally have strong balance sheets, giving them the ability to borrow on reasonable terms....If you consider the problems in the credit markets, they will not have an impact on the vast majority of GE's business. In other words, the overall effect on GE will be limited.

Yes, Immelt's job is to be rosy but profits are strong at GE.  I'd like to see some evidence for Samuelson's statement. 

Subprime fact of the day

The entire market in subprime debt is just 1.4% of the size of global equity markets. Or, to put it another way, a 1.4% downward fluctuation in stocks erases the same amount of value as if all subprime-backed bonds were collectively marked to $0.

Here is the link.

Paul Samuelson, pessimist

Today, Federal Reserve Chairman Ben Bernanke admits that nobody, including him, is able to guess how near to bankruptcy the biggest banks in New York, London, Frankfort and Tokyo might be as a result of the real estate crisis.

Taken literally, Samuelson is correct.  No one can say how near to bankruptcy those banks are but that is because they are not very near to bankruptcy.  Subprime crisis or not, most people are still paying off their mortgages quite comfortably.  Many bank share prices are down but the major banks are not hovering close to p = 0.

I'm not sure what Samuelson counts as "today," but using Google News I cannot find any such statement by Bernanke and if it had been made it would be a) grossly irresponsible, b) headlines, and c) the market would have plunged dramatically.  The most likely possibility is that this passage is a simple untruth, not representing what Bernanke said.

Samuelson draws an analogy between today's subprime crisis and Herbert Hoover claiming the Great Depression would end soon.  It's worth noting that Hoover faced high unemployment, radical deflation, incompetent monetary policy, bank runs, and a lack of automatic stabilizers, none of which are the case today.

It is amazing how pessimism and the desire to blame will cloud men's minds. 

It can be said, however, that if further bad things were to happen, "the crisis so far" would mean we have much less room to maneuver.  So I'm not telling you that everything is fine, I am simply putting this piece in perspective.

Here is the link and much more.

Markets in everything, joys of contradiction edition

First, engage a company to monitor your exercise regime and punish you financially if you fail; then, buy insurance against the risk of failure.

That's from Tim Harford, noting that the latter market is still a gleam in someone's eye.

Energy price lock-ins

Trieu, a loyal MR reader, asks:

I've recently received "lock-in" offers from my gas and electricity company.  They're offering me the "opportunity" to commit to the current price of gas and electricity for two years, instead of paying the fluctuating month-to-month rates.  Naturally, this offers set off my scam alert.  Are the energy companies signaling that they think energy prices are too high and will go down?  Or do you think there could be something else behind the strategy?

If you draw a standard and supply diagram, you can see that fluctuating prices (with a constant mean) increase expected consumer surplus but decrease expected producer surplus.  For instance as a buyer you'd rather have a price of 50 half of the time and a price of 200 the other half of the time, rather than 125 all the time; the opposite is true for the seller.  That is one reason why the utility may prefer a lock-in.

There is also a "only the stupidest consumers will respond" effect.  It costs the utility very little to make an offer favorable to themselves but unfavorable to the consumers.  It's worth doing even if only a few people accept.  Given that utilities are regulated monopolies, you should expect conflict of interest to be high and thus decline most of their offers.

The most general response is simply that you should insure only against catastrophic events, and yes that sometimes includes your wife getting mad because you didn't buy a product warranty on your latest purchase of toothpicks.

Surgery vs. Drugs

Levitt and Dubner discuss bariatric surgery in their most recent NYTimes column.  Writing on their blog (they or their publicist) say this:

Bariatric surgery is often the most effective treatment for the morbidly obese, and with a mortality rate of around one percent, it isn’t terribly risky...

Not terribly risky!!!  I consider a 1% chance of death to be very risky, perhaps worthwhile for some morbidly obese people but when 1 in every 100 patients doesn't make it off the table that is not good odds.

What I find most interesting, however, is that I don't think that any drug, even one with net benefits, could pass FDA trials with a mortality risk of 1%.  Recall that Rezulin was pulled from the market when 63 out of 750,000 people developed liver problems (the actual number may have been higher of course but the numbers aren't even close.)   

It doesn't make sense to regulate one source of risk at much higher rates than another source, given equal benefits.  It's quite possible, for example, that patients denied risky weight loss drugs turn to even riskier bariatric surgery.   (I am not arguing this point here, I am explaining why efficiency requires that equal risks be regulated equally).

So if it doesn't make sense to regulate one source of risk at much higher rates than another source, should surgery be regulated more or drugs less? 

When to say "I love you"

No, this question applies not at the beginning of the relationship, but after a few years or more.  Sure, you love the person but this is economics and we think at the margin.  Why did you say "I love you" right now rather than two minutes ago?  I can think of a few reasons:

1. Anxiousness and a desire to reassure oneself in the face of self-doubt.

2. Irritation at the other person, leading to #1.

3. Desire to manipulate the other person by first making him or her feel compliant and secure.

4. Being overcome by suddenly stronger feelings of love, perhaps because of a Proustian reminder.

5. The simple feeling that too long has passed since having said "I love you," presumably combined with the belief that the words are uttered rarely enough to still have potency.  You need to signal you are keeping track of such things.

6. The sex was either very good or very bad, see #1 and #4.

7. One has work or chores to do, and is hoping to create a distraction of some kind.

8. To announce that a conversation is over.

Natasha asks whether in a marriage one hears "I love you" more or fewer times than is optimal.  We both think "fewer" is usually the answer, although given the low cost of generating the message, and the possibility of reaping gains from trade, it is not entirely clear why this equilibrium persists.

Japan bleg

How expensive is it to visit Tokyo these days?  I understand PPP indices and know all the tales of $200 melons and beef protectionism.  But how much does the place actually cost?  When I visited in 1992 I stayed in a small but comfortable business hotel, traveled by public transportation, ate sushi, and had a relatively cheap trip.  Is that old mental picture of mine now a delusion?  Should I instead focus my travel attention on the worst currency manipulators?

Practice makes perfect?

Technological innovations, especially the use of laparoscopic procedures [for stomach surgery], have made for considerable gains in safety and efficacy. While the operation is still dangerous in some circumstances — one study found that for a surgeon’s first 19 bariatric operations, patients were nearly five times as likely to die than patients that the surgeon later operated on — the overall mortality rate is now in the neighborhood of 1 percent.

That is from Dubner and Levitt, the full story offers much more, mostly about weight loss, and here is further discussion.

Recommended Christmas and holiday gifts

Suitability as gifts means the book is a short one, the items will signal elevated taste, they are at least reasonably entertaining, visually appealing, and they are unlikely to be given by others as gifts unless of course your social circle reads MR.

1. Fiction: Stephane Audeguy, Theory of Clouds.  The conceptual foreign novel which got lost in the shuffle of the American fiction market.

2. Popular Music: The View, Hats off to the Buskers, from Scotland, this is musically superior pop and they still have room to get even better.

3. Classical music: Either William Byrd, Laudibus in Sanctus, beautifully recorded, or John Adams, The Dharma at Big Sur/My Father Knew Charles Ives, and yes I spent twenty years as a Johns Adams skeptic.  In the last few years he's raised his music to an entirely new level.

4. Gadget: I still use my iPhone almost every day and I can no longer imagine not having one.  Mostly I surf web sites and blogs while waiting in lines, or read email.  I've yet to make a phone call with it. 

5. DVD: I watched through Planet Earth as quickly as I could.  Yana then took the box up to college, if you need another testimony.  If your loved one doesn't merit an entire DVD box, I thought Away From Her was the best movie of the year; sadly the first-rate No Country for Old Men won't be ready on disc in time. 

6. Single song on iTunes: Anthony and the Johnsons, Knockin' on Heaven's Door.  The key here is to pick a song on an album you won't otherwise buy or you won't otherwise think of.

7. Crazed economist idea: Buy someone a book of stamps.  It has the efficiency properties of a cash transfer (who doesn't need stamps?), yet if you choose an attractive issue it will show (a little) more thought than money alone.  And hey -- you had to stand in line to get it, or endure their ugly web site, and at a monopolistic institution at that.

Finally, it is often better to give experiences rather than possessions, and if you don't know what your wife wants email her sister or best friend and ask.

Cambodia

Cambodia...basically has one industry, the garment trade, which employs about 300,000 people (almost all of them young women), and probably supports about 10% of the population directly and indirectly.  Almost everyone else makes their living in agriculture, with a small government elite, a smaller tourism community, and a tiny small business sector...Cambodia's garment trade is incredibly dependent on special treatment from America, where it sells almost all its wares.

In other words, true free trade from China, for the United States, would devastate the Cambodian economy.  If you wish to consider the strongest arguments for protectionism, they usually involve weighing the interests of one poor country against another, and not the interests of a poor country against a rich country.  Here is the full discussion.  Related lessons are that comparative advantage won't necessarily yield pleasant price and wage ratios and that producing anything of value is truly, truly difficult.  Given Cambodia's previous problems, one also has to wonder whether mass migration to Vietnam is the best option available, provided of course that is possible.
 

What does Iraq cost?

Here is my piece for the Sunday Washington Post on the costs of the Iraq war.  It is simply argued, but originality is not always a virtue.  So far I've received more email about it than any other article I wrote this year and the paper edition isn't even out yet.

Cold Skin

The Japanese pihlosopher Musashi once said that only a select few appreciate the art of war.  Gruner is one of them.  The battle is defensive at night.  Amorous forays with the mascot fill his days.  And it is hard to tell which of the two activities impassions him most.

That is from Albert Sanchez Piñol's Cold Skin, a Catalan novel which is well known in Europe (I discovered it browsing a Swiss bookstore) but obscure in the United States.  It captivated me right away.  I cannot quite call it science fiction, but I would recommend it to science fiction and horror fans who are looking for something serious and conceptual and literary, and who feel that only scraps remain on the table...

Trudie and Prudie meet

Here is the link to the video.  Emily Yoffe, who writes the Prudie column at Slate.com, was extremely gracious and charming and articulate.  She vouched for the central role of self-deception in human affairs, and in the videocast she had an excellent anecdote about Steven Landsburg and his proposal to improve happy marriages.  Will Wilkinson was the moderator.

Here is an associated ten minute podcast, with me.  You can subscribe to Cato podcasts on iTunes here.

Why are there no grocery stores in poor neighborhoods?

Well, there are some, you will find Ralph's all over Los Angeles.  But why aren't there more?  (This query is posed here, here, and here, among other places.)  Factor #1 in my view is lack of cars.  Living in an inner city has its downsides, to say the least, but at least you don't have to buy a car.  Yet the modern grocery store is designed for car transport, both how you get there and how you get the groceries away and of course the radius of advertising.  With fewer cars per capita the tendency is for smaller, more local stores, which is precisely what we see in poor neighborhoods.  Not surprisingly poor people are most likely to have cars in LA, and thus most likely to have grocery stores there as well.  For that matter real grocery stores are not all that common in wealthy but relatively carless parts of major cities, such as Manhattan.

Crime is surely a factor as well, what do you all think and what other natural experiments come to mind?