Marginal Revolution

The best question I read yesterday

If you already wrote a memoir about having obsessive compulsive disorder a few years back, are you allowed to publish a new memoir about your hypochondria?

That is from Bookslut.

Markets in everything

Cheeseburger in a can.  On the brighter side, it sure beats dirt cookies.

John Edwards and the virtues and limits of democracy

Mark Thoma writes: "I'm getting pretty tired of Democrats caving in on important issues rather than standing up and fighting for their core principles..."  The lesson is that politicians' core principle is reelection and pandering, not promoting the ideas of Mark Thoma or Paul Krugman or for that matter Milton Friedman or Tyler Cowen. 

I find the (former) support for John Edwards to be one of the most striking features of the primary season.  Although Edwards ran an explicitly progressive campaign, a great deal of his (meager) support came from Democrats in lower socioeconomic strata.  They were voting their demographic, or perhaps their feelings of victimization, rather than their ideology.  (Here is Chris Hayes on John Edwards, worth reading.)  There is no large-scale progressive movement coalescing around stagnant median wages and the inequities of skill-based technical change.  Instead we have Hillary Clinton insulting Barack Obama, and maybe it is working. 

The lesson is this: democracy is a very blunt instrument.  Especially as it is found in the United States, democracy just isn't that smart or that finely honed or that closely geared toward truth or "progressive" values.  (NB: Democracy in smaller, better educated, ethnically homogeneous nations is, sometimes, another story.)

But unlike one of my esteemed colleagues, I believe that we should revere democracy as one of the modern world's greatest achievements.  We should step off a British Airways flight with a tear in our eye, in appreciation for all that country has done to promote democratic government (sorry, former colonies, but perhaps you are democratic today).  This is no exaggeration or blog tease: I want to see you crying at Heathrow.  The future is far more likely to have "too little democracy" than "too much democracy."  I do believe in checks and balances, but within a broadly democratic framework, such as we have in the United States.

That all said, we should not demand from democracy what democracy cannot provide.  Democracy is pretty good at pushing scoundrels out of office, or checking them once they are in office.  Democracy is also good at making sure enough interest groups are bought off so that social order may continue and that a broad if sometimes inane social consensus can be manufactured and maintained.  We should expect all those things of democracy and indeed democracy can, for the most part, deliver them.

But democracy is very bad at fine-tuning the details of economic policy.  Democracy is very bad at bringing about political solutions which are not congruent with the other sources of economic and social influence in a country.  The solution is not to be less democratic, but rather to appreciate democracy for what it is good for.  And the excesses of democracy should be fought with ideas, albeit with the realization that not everyone will be convinced.  Those are the breaks, as democracy needs all the friends it can get.

Just as I love democracy, so do I love Chiles in Nogada.  But I do not ask that Chiles in Nogada can solve most of the world's problems or for that matter get me to work in the morning.  Social democrats and progressives often view democracy as a potential instrument of control, and as a way of giving us "the best policies."  I do not, and that includes for my own economic views as well.

Here is Matt Yglesias on libertarianism and democracy.  Here is a Hilton Root review of the new Michael Mandelbaum book praising democracy.

Didn't Bob Tollison write a paper on this once?

What words of wisdom.  Via email, Ed Lopez fills me in:

Laband and Tollison's 2000 JPE paper speaks to your MR post yesterday on co-authorship [TC: I've added the links]:  

"In this paper, we compare the incidence and extent of formal coauthorship observed in economics against that observed in biology and discuss the causes and consequences of formal coauthorship in both disciplines. We then investigate the economic value (to authors) of informal comments offered by colleagues. This investigation leads us naturally into a discussion of the degree to which formal collaboration through coauthorship serves as a substitute for informal collaboration through collegial commentary. Data on manuscript submissions to the Journal of PolzticalEconomy permit us to shed additional empirical light on this subject. Finally, we demonstrate that while the incidence and extent of formal intellectual collaboration through coauthorship are greater in biology than in economics, the incidence and extent of informal intellectual collaboration are greater in economics than in biology. This leads us to search for evidence (which we find) of quids pro quo offered by authors to suppliers of informal commentary on manuscripts and to speculate that the greater importance of intellectual collaboration in economics (relative to biology) might imply greater pay compression in economics than in biology (Lazear 1989). We find compelling evidence of such pay compression in terms of the distribution of formal intellectual property rights to scientific contributions."

They find the more quantitative work increases likelihood of co-authorship. It's also been increasing over time with decreasing information costs. They also cleverly get citation and salary effects from the number and stature of scholars listed in the acknowledgments.

Book forum continues

Tim Harford's chapter on divorce will be covered late Friday night or early Saturday morning.  Be there!

The Mercatus Masters Fellowship

George Mason University has a new program for people who want a Masters in economics -- not a Ph.d. -- and wish to apply their knowledge to the so-called real world.  The value of the scholarship award is up to $80,000 (over two years); more information, including contact information, is here.  The application deadline is March 15.  Good bloggers, by the way, tend to be good teachers.  Just think, if reading us for free is worthwhile, if the non-convexities are not too severe being paid to hang out with us is maybe not so terrible either.

Should we abolish trays?

Behavioral economics in action, or call it voluntary paternalism:

Students ran a test last semester showing that on two days when trays weren’t offered, food and beverage waste dropped between 30 and 50 percent, according to Kathy Woughter, vice president for student affairs at Alfred. That amounts to about 1,000 pounds of solid waste and 112 gallons of liquid waste saved on a weekly basis, according to the college.

And why?:

Think back to your undergraduate days eating in the dorm dining hall. When you moved through the buffet line, did you ever get a little too ambitious with portions just because you had extra room on that plastic tray?

If I ran a cafeteria I would consider abolishing utensils, thereby encouraging South Indian and Ethiopian food, but I don't expect that would be popular with all patrons.

Second sad thought for the day

Arnold Kling has sad news about his father and also a very important point:

...[in the hospital] what you deal with are people who are doing their job. For example, the cardiologist's job is to make sure his heart does not give out, even if it means he lies on his back for so long that the prospects for restoring diginity recede. Everyone wants to shunt him around, giving him more Hansonian medicine, which detracts from his ability to remain lucid. For the larger goal of trying to do the best with his remaining life, nobody is in charge and nobody is empowered.

Haiti food fact of the day

At the market in the La Saline slum, two cups of rice now sell for 60 cents, up 10 cents from December and 50 percent from a year ago. Beans, condensed milk and fruit have gone up at a similar rate, and even the price of the edible clay has risen over the past year by almost $1.50. Dirt to make 100 cookies now costs $5, the cookie makers say.

Here is more information.  Here is one review:

A reporter sampling a [mud] cookie found that it had a smooth consistency and sucked all the moisture out of the mouth as soon as it touched the tongue. For hours, an unpleasant taste of dirt lingered.

Thanks to William Griffiths for the pointer.

What if you always get the same outcome?

Imagine a matching game.  Imagine also that you always get the same outcome.  It might be a happy relationship, a sad relationship, a repeating pattern of dysfunctionality, lots of affairs with librarians, or whatever.

In many models, an unusual similarity of outcomes means that we let partners choose us, rather than choosing partners ourselves more actively.  The other side of the matching process is doing the work.

How can this be?  The intuition is that "you searching for hidden matches in the rough" is a process that will have higher variance in outcomes than "lots of hidden matches in the rough searching for you." 

If you don't observe that much variance in your outcomes (e.g., lots of librarians), it means one of two things.  Maybe you are choosing the non-varying quality very directly and very intentionally, such as having a fetish.  That possibility aside, maybe it is a sign that you're not really choosing but rather being chosen and thus you live in a world of thick search processes and low variance outcomes.  Imagine a man who will take whatever comes his way, and spends lots of time in libraries.

If there are recurring outcomes of this kind in your life or relationships, perhaps you are being chosen, whether you know it or not.

What influences your social interactions?

Work doesn't seem to limit socializing.  My favorite result was that the better-educated people seem to fear visiting relatives:

Over time, increases in hours of work per capita have created the intuitively plausible notion that there is less time available to pursue social interactions. The specific question addressed in this paper is the effect of hours of work on social interaction. This is a difficult empirical question since omitted factors could increase both hours of work and social interaction. The approach taken in this paper utilizes an exogenous decline in hours of work in France due to a new employment law. The results clearly show that the employment law reduced hours of work but there is no evidence that the extra hours went to increased social interactions. Although hours of work are not an important determinant of social interaction, human capital is found to be important. The effect of human capital, as measured by education and age, is positive for membership groups but negative for visiting relatives and friends. Also, contrary to expectations, there are no important differences in the determinants of social interaction by gender, marital status or parent status. Finally, a comparison between France and the US show that the response to human capital and other variables are much the same in both nations.

Here is the paper, I don't yet see a non-gated version on-line.

Markets in everything, German style

Nude flights, there is more information here.  It's from Erfurt to the Baltic and it costs about $800.  The plane seats 55 people.  You can book here.

Thanks to Robert Anderson for the pointer.

The Copenhagen Consensus and its critics

Abhijit Banerjee, Angus Deaton, and Esther Duflo are all upset.  You might recall the most famous recommendation of the Copenhagen Consensus was to invest in anti-HIV/AIDS programs as a higher priority than global warming.  Banerjee writes:

Similarly, the proposal on HIV/AIDS seems to have entirely missed the mounting evidence...that we do not really know how to get people to behave in ways that would reduce the transmission of HIV.

Angus Deaton writes:

Lomborg's Consensus does not even identify the "we" who are to spend the $50 billion, although it certainly shares Sachs' confidence in the usefulness of social engineering by well-meaning outside experts.

Maybe that criticism is unfair; Lomborg might say he is playing by the rules of other people's games.  Esther Duflo writes:

...to my knowledge there is very little rigorous evidence on effective [HIV-AIDS] prevention strategies in Africa.

The three reviews are all in the Journal of Economic Literature, December 2007.  The bottom line is that $50 billion doesn't go as far as you might think. 

Columbia Business School has a blog

Here, and you'll find economists Glenn Hubbard, Frank Lichtenberg, and "CBS Blogger."  Here is one post "Blogging Means Business."  Columbia Business School has many great economists, let's see if they are good enough to solve the free-rider problem with most (not all) group blogs.

Elsewhere from the world of business, here are search engine futures, thanks to Michael Foroobar for the pointer.

Why are there so many co-authored papers?

A loyal MR reader asks:

I’m reading (grr) a lot of academic papers lately and, to keep myself awake, have wondered: why do they almost always have more than one author? Is it like cops in New York City—they’ve got everyone persuaded it’s too dangerous to go alone? Is there some networking benefit, professional or psychological? Does it just enable everyone to claim more publications? Has anyone studied which fields have the highest and lowest average number of authors per paper?

I thought you could blog something interesting on this. I might add that the papers couldn’t be any duller, and I wonder if committee authorship plays a role in this as well.

I believe that co-authored papers are correlated with:

1. The existence of a laboratory

2. Senior scholars who generate funding and thus gains from trade

3. Empirical work, which tends to be more divisible than theory; co-authored papers are relatively rare in pure economic theory and in philosophy

Co-authored papers are becoming increasingly common in economics, also because the effort requirements for top publications have been rising.  In most cases a co-authored piece is worth at least 2/3 of a singly-authored piece, so the incentives for co-authorship are strong.  Here is an earlier post on co-authorship.

Animal Spirits

Keynes kept two sex diaries.  The first documents people...

The other sex diary is more puzzling and, in a way, more informative. An economist to the core, Keynes organized the second sex diary also year-by-year, but this time in quarterly increments.

Unfortunately for us, however, this second sex diary is in code. And as far as I know, no one yet has been prurient enough to crack it.

Here's what Keynes' tabulation looks like. For every quarter-year from 1906 to 1915, he tallies up his sexual activities and totals them under three categories: C, A, and W.

...according to Keynes' tabulation, what he did most frequently and consistently was C. It happened seventeen times from May to August of 1908, twenty-eight times (!) from August to November that year, twenty times from February to May of 1909, and so on. That's a lot of C. The high numbers for C loosely (but not consistently) correlate to university holidays, the break at Easter and the longer summer holiday, when Keynes would have had more leisure to pursue and enjoy his bouts of C.

More here.  I debated whether to close comments on this post but I trust Marginal Revolution readers to keep to their high standards.

Hat tip to Kottke.org.

Mark Bittman on the economics of meat

In this excellent piece, I was most struck by the following passage:

But pigs and chickens, which convert grain to meat far more efficiently than beef, are increasingly the meats of choice for producers, accounting for 70 percent of total meat production, with industrialized systems producing half that pork and three-quarters of the chicken.

Let's say you want to protect the environment, and you are going to eat some meat, should you eat cows or pigs?  Pigs.  Let's say you care about animal cruelty.  Pigs are smarter and more social than cows.  A pig (or chicken) also seems to yield less meat per unit of animal suffering.  That would imply it is better for animal welfare to eat cows rather than pigs.  The conflict between environmental goals and animal welfare goals is one of the most significant underreported stories in this area.

Code Red

The book is by David Dranove and the subtitle is An Economist Explains How to Revive the Healthcare System Without Destroying It.  Here is the Amazon listing.  Here is the book's home page.

Code Red is one of the two or three best books on the economics of health care.  It is especially strong on how the current mess evolved historically and what has been tried (or not tried) along the way.  This is the place to go to understands PSROs or what happened to the HMO revolution.  Dranove is very pro-Medicare but he (reluctantly) rejects single-payer systems for limiting innovation.  Instead he finesses the market-government divide by calling for federalistic competition:

Congress should mandate that all states reach targets for the number of uninsured, say, below 5 percent within 5 years.  Congress could tie compliance to a set of financial carrots and sticks, and it does with Medicaid.  To prevent a race to the bottom, Congress should also specify a minimum benefit package.  It would then be up to each state to devise the most effective way of meeting these coverage goals.

I fear that minimum benefit packages will prevent insurance from ever being cheap plus I wonder if Medicaid shouldn't be done on the national level.  This book won't make anyone fully happy, but it is a must for fans of health care policy.

Logic of Life - Chapter 2: Game Theory isn't Always about the Games We Play

This review is cross posted on orgtheory.net, the management & social science blog.

    It's a pleasure to be back at the Marginal Revolution. Let me start out by agreeing with Tyler and Bryan. Tim Harford is one of the leading popular social science writers and we're lucky to have him.

    Today, I'll focus on Chapter Two of Tim's book, "Las Vegas: The Edge of Reason." In this chapter, Harford describes game theory. In a nutshell, game theory studies any situation where (a) you have multiple people striving to achieve a goal and (b) your actions depend on the actions of the other people in the game. By most accounts, game theory is one of the great accomplishments of modern social science. Once you realize that people's actions are both utility maximizing and interdependent, then game theory can help you model just about any form of cooperation or conflict.

    Harford discusses the basic concepts of game theory with vivid examples ranging from poker, to nuclear war, to quitting smoking. And, as expected, game theory usually provides a great deal of insight. Harford shows how game theory can also be enormously useful, even life saving. Harford recounts how economist Thomas Schelling realized that some situations might encourage participants to jump the gun and initiate devastating conflict. What Schelling realized is that these dangerous games had low information, such as the US misunderstanding a Soviet action, and starting nuclear war. Schelling advocated increased communication between the US and Soviet leadership, including the creation of the hotline between Moscow and the US, which helped defuse tensions in later Cold War disputes.

    I'll finish this post with my one big criticism of game theory, at least the basic version described by Harford and taught in intro courses. In game theory 101, you assume that people develop optimal strategies in response to other rational actors. One huge problem with a lot of these models is that the games are very complicated. It's hard to imagine most people perform the mental acrobatics of game theory actors.

    One response is that game theory is empirically well supported, which suggests that some process drives people to the strategies described by game theory. For example, Harford describes how economists and mathematicians used game theory to sort through the insanely complex game of poker and that the optimal game theory strategy was actually fairly similar to what world class poker players do.

    So game theory is supported, right? Not so fast. Game theory has two parts (a) a description of optimal strategies, and (b) a prediction that people will actually solve the game and find these strategies. In my view, game theory 101 is well supported, in poker at least, on point (a), but not (b). In other words, world class poker players rarely sit around and do backwards induction, or any other flavor of equilibrium analysis, but they still obtain strong strategies through trial and error.

    What I suspect is that world class poker emerged from an evolutionary process. Very smart people can figure out certain strategies, but nobody can figure out the whole game by themselves, lest they become full time mathematicians. The typical world class poker player probably inherits a bunch of rules that were tested by earlier generations, and adds a few new twists. Competition weeds out bad rules. Even Steve Levitt, star economist, Harvard & MIT grad, developed his own idiosyncratic strategy, rather than solve the game himself.*

    In the end, game theory is really a first step in understanding complex interactions. The next step is developing an evolutionary theory of games where actors inherit a tool box of strategies from previous generations of players. Already, there is a fairly well developed genre of game theory taking this approach, but I welcome the day when it becomes refined enough so that it can account not just the strategies of leading poker players, but how these strategies emerged from generations of competition.

*According to the news reports, he developed his own "weird style" rather than completely solve the poker game. But it works for him! What would Johnny von Neumann say?

Simple thoughts about stimulus

If every American saved the rebate and invested it in equities, we might be (ever so slightly) better off.  Government can borrow at a low interest rate for us.  Of course we're being told to spend the money.

Most fundamentally, more aggregate demand is not the answer because insufficient aggregate demand was not the problem in the first place.  Just as a social framing effect (and lots of fraud) led subprime loans to be perceived as "not very risky," right now social framing effects -- call them collective fear -- are causing lower asset prices, some degree of credit constipation, and higher risk premia.  The economy is undergoing a sectoral shift toward less risky assets and that can bring an economic downturn.  The shift itself is costly, it brings thorny coordination problems (e.g., sudden insolvencies, overturning of credit expectations), and lower-yielding assets also mean less wealth.  Lack of liquidity simply is not the fundamental problem. 

Arguably there is a secondary negative aggregate demand shock at work, mostly because asset prices are lower from the sectoral shift.  Monetary policy should offset this secondary effect, to keep things from getting worse, but still monetary policy won't and indeed can't set things right again.   

More speculatively, you might argue that boosting aggregate demand may convince people to postpone their adjustments to the sectoral shift, thereby making the coordination problems last longer.  Maybe, but I won't push that on you for lack of evidence.  Another speculative argument is that boosting aggregate demand can push us all back into optimistic expectations but that is unlikely. 

The bottom line: Our expectations from the Fed or a stimulus plan should be very modest, even if the boosts to aggregate demand are done perfectly.

An angry mob is protesting MarginalRevolution

Seriously.

The pointer is from the woman formerly known as Jacqueline Passey, and yes the link will shut off with just a little patience.

And if you want to protest me in person, I'll be speaking at UCLA, Tuesday afternoon, 3 p.m., Kerckhoff Grand Salon; it is open to the public as well.

Fairfax City Public Library

For many moons I have been looking forward to the opening of a new library building in Fairfax.  I've been going to the old location for eighteen years, so surely progress is a good thing?  I noted:

1. The apex of the ceiling is now four or five times higher.
2. The space for computers is now four or five times greater.
3. The space to sit and read is now four or five times greater.
4. It now takes seven or eight minutes to park and get into the new fortress-like building, as opposed to one minute for the old building.
5. The space for parking is about ten times greater, much of it underground in a complex garage.
6. The space for books does not appear to be greater at all.
7. The shelves for the "New Books" section are slightly more squat, which means that about a quarter of the new books cannot be shelved with the spine and title facing outwards.

Where is the world's largest swimming pool?

No Googling.  Guess in the comments section.  If you are desperate, the answer is here.  Here is a close-up photo.  Here are more good photos, with giveaways as to the location.

John DiNardo against Freakonomics

Here is John DiNardo's review of Freakonomics, and here, and here are all three reviews he has written; one version was just published in the Journal of Economic Literature.  These reviews struck me as grumpy and unfair, ultimately citing few contrary facts and boiling down to the complaint that the authors have not disproven all competing theories, or that the authors do not have a complete account of what a good explanation would look like.  Three separate reviews of one book?  And a popular book at that?  What is going on?  DiNardo is not some guy in his pajamas, rather he is a tenured professor at the University of Michigan with presumably a high opportunity cost.  I am reminded of Einstein's rejoinder.  Upon being presented with a book of essays called something like "The critics against Einstein" (that is a paraphrase) he replied with something like "If they were right, one would have been enough."  The point is not that Freakonomics is infallible (on most particular issues I genuinely do not know exactly how robust their results are and to know would take a good bit of study), but rather that factual criticism on a single point is usually the best way to make critical progress.  Now I would like to read a philosophy of science critique of Stephen Hawking's A Brief History of Time.

What I've been reading

1. Forgotten Continent: The Battle for Latin America's Soul, by Michael Reid.  A good treatment of the region's recent history; it is best for its balanced assessment of what market-oriented reforms have managed or not.

2. Where Have All the Soldiers Gone?: The Transformation of Modern Europe, by James J. Sheehan.  Blah, blah, blah, blah, Europe has fewer soldiers than it used to, blah.  Blah.  Sheehan is a first-rate historian, but there's not much to this book.

3. Architecture of Authority, by Richard Ross.  This book is nothing more than photos of jail cells, parole hearing rooms, Mary Boone Gallery, and the like.  Thought-provoking.

4. Due Considerations: Essays and Criticism, by John Updike.  Scattered essays on just about everything.  Completely apart from his fiction, Updike is simply one of the smartest and most impressive people out there.  It is amazing how many topics he knows so much about and how well he writes about them.

5. Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With the Bill), by David Cay Johnston.  This is quite a good compendium of different ways that government screws us over, written from a mixed populist/libertarian point of view.  Recommended.  I expected not so much but the substance here held my attention.  I'd now like to know the total welfare cost of all these bad policies.

Assorted links

1. Barkley Rosser in his spare time

2. Bob Frank, on MTV Cribs

3. Books correlated with high and low IQ on Facebook

4. Blogging as peer review?

5. Jonah Goldberg responds to my review of his book

John McCain on the economy

Matt Yglesias writes:

...these would be my sober-minded, non-psychic points about John McCain and the economy:

• He's not good at projecting empathy.
• His major political theme about the need to "serve a cause greater than self-interest" is not well-suited to projecting empathy.
• McCain's background is in the military, his first political work was military-related, and his strong political issues involve national security.
• McCain says he doesn't understand economics.
• McCain really doesn't appear to understand economics:
  • He thinks interest rates should be zero (but why?)
  • He thinks spending cuts will stimulate the economy.
• He has a tendency to flip-flop not on specific economic policies, but on broad economic themes like whether or not inequality is a problem.
• His constituents in the elite press are weirdly obsessed with the idea that public policy should force average people to endure economic pain.

All of this leads me to conclude that John McCain would not govern very well on economic policy issues...

On policy, I am heartened if he realizes he does not understand economics.  Are the other Republican candidates equally self-aware? 

I don't put much weight on what the Republican candidates say about economics one way or the other.  In the current situation a Republican should favor whichever candidate would be most popular in office.  That candidate would have the best chance to check a Democratic Congress or perhaps put forward some alternative agenda.  Furthermore national interest-minded Presidents tend to favor better economic policies than does Congress, especially if that President is of your party persuasion.  A Democrat should favor, on economic issues at least, whichever Republican is most vain and most likely to seek fame in office.  That means lots of legislation passed and working with a Democratic Congress on issues such as health care. 

Two points: a) I don't have strong views on which particular candidates fit these descriptions, and b) foreign policy is in any case more important for evaluating a candidate overall. 

Here Matt discusses McCain's economic advisors.  Here is Dave Leonhardt on McCain and the economy.  I assume, by the way, that McCain's invocation of Kemp and Gramm is an attempt to build a right-wing coalition, not an actual statement of his preferences.

Prediction markets as bribery?

Harald, a loyal MR reader, writes to me:

What would happen if some famous rich person walked into a presidential prediction market and said: "Hello, I'm selling shorts for candidate A, to the value of a hundred million dollars if he should win. I'm not doing this because I don't believe candidate A will win, indeed, I want her to win. I hope everyone who can help candidate A win, by campaigning, talking to friends, or even just voting, will buy a short from me (I'm practically giving them away!) and go out and do it with a healthy economic self-interest in their hearts!"

Regulators aside, could such a scheme work?  It is best done as a contingent claims market, rather than in the InTrade format.  You buy insurance for a penny, and you get a payout of a thousand dollars if candidate X wins.  Claim holders may then support and talk up candidate X.  Of course people who won't change their votes for a thousand dollars also will try to buy up the contingent claims.  So the sponsor might restrict purchases to people who live in swing states or who can prove independent voting affiliation or an absence of previous campaign donations [TC: I've edited this section a bit for clarity]. 

How about giving away assets that pay off if some important social problem is solved?  How much would it cost to mobilize a strong enough army of voters to oppose farm subsidies?   

The best caption I read this morning

Nine-party coalitions are fragile, and Italy's 61st postwar cabinet was no exception.

Here are related articles, I cannot find this caption on-line but it is in the print NYT. 

Elsewhere in the Times today, David Brooks has an excellent column on Wall Street and the recent financial mess.  Scream it from the rooftops, as they say.

Book forum

Our next installment on Tim Harford's The Logic of Life will pop up Sunday night or Monday morning.  Guest blogger Fabio Rojas will be (re)joining us to discuss chapter two, which covers among other things the game of poker.  Save up your book comments for then!

Liberal Fascism

Here is Henry Farrell on the book.  Here is Matt Yglesias.  Here is Fred Siegel.  Here is Arnold Kling.  Here is another review.  Here is Megan McArdle on the BloggingHeads version.  Here is the Amazon link.  I am closest to the CrookedTimber commentator who wrote:

Jonah’s book, at its heart, is geared toward popularizing the arguments of smart intellectuals/academics, from John Patrick Diggins to A.J. Gregor to Hayek to Erik Von Kuehnelt-Leddihn.

Or try this excellent book, or for that matter John T. Flynn's As We Go Marching.  I divide the arguments of Liberal Fascism into three categories:

1. The oft neglected but obviously true: For instance Mussolini really was a precursor of the New Deal and he was initially regarded with fondness by many on the American left.  This sort of claim is the core of the book and it does stand up after you take all the criticisms into account.  I am pleased to see it upend traditional "feel good" narratives of politics.

That said, a "who cares?" response might be in order from a social democrat.  Good people can have bad ideas, so can't bad people -- namely the fascists -- have had some good ideas?  After all, George Lucas borrowed from Leni Riefenstahl.

2. The false claims: Contrary to what Goldberg argues, it simply isn't true that Hitler and Nazism were essentially left-wing phenomena.  Not all right-wing ideas are Burkean, and the mere fact that the Nazis were "revolutionary" does not make them left-wing.  Furthermore the Nazis busted labor unions and used right-wing emotive tricks for their racism and authoritarianism.  When all those old Nazis popped up in South America, where did they all find themselves on the political spectrum?  Overall fascism has much stronger roots in the Right than Goldberg is willing to emphasize.

I also would have put more weight on the aestheticization of politics than did Goldberg.  That would help us see why supporters of the War on Drugs, while they favor very violent and possibly unjust means, should not be regarded as fascists.

3. The true but possibly misleading claims.  Goldberg writes for instance that Hillary Clinton is not a fascist.  OK, but simply to write that she isn't a fascist is reframing the terms of the debate, and not in a way I am fully comfortable with.  I'm sure it bothers many Clinton supporters more than it bothers me.

Goldberg insists he only wants to stop the slander of the Right and its long-standing identification with fascism.  I am fully behind this goal of tolerance, and I might add I recall fellow Harvard econ grad students calling Martin Feldstein (and perhaps me!) a fascist on a regular basis.  That simply shouldn't happen.  The problem is that Goldberg's book will be interpreted by its buyers and readers as a call to do the same to the left.  Take a look at the cover and the title, both of which Goldberg distanced himself from on Comedy Central (I can no longer find the YouTube link).  But they're on the book nonetheless.

Is Goldberg "to blame" for how his book will be interpreted, especially if he requests an interpretation to the contrary?  That's a moot point.  But it gets to the core of why I don't like the book more than I do. 

The bottom line: As Arnold Kling recommends, all parties involved should read Dan Klein's "The People's Romance," and start the debate there.

Addendum: Some of the critical web reviews admit they have not read the book, but they rely heavily on Goldberg's (apparently controversial) web writings.  I've never read Goldberg before, so I am coming at this book "fresh."

Michael Shermer's Mind of the Market

This book is the latest attempt to justify freedom and the market economy by reference to the knowledge of science and biology.  Here is my review, in Washington Post Book World.  Excerpt:

I'm sympathetic to Shermer's conclusions, but I fear his standard of evaluation is too blunt an instrument. If the options are capitalism and the Khmer Rouge, no doubt capitalism wins hands down. But to what extent should we restrain capitalism to fund a social safety net? Should our government place heavy taxes on beer and potato chips to fund the National Science Foundation at higher levels? Most broadly, to what extent is it morally permissible to interfere with freedom, or can we even use freedom as a concept in a world where we do social science by hooking people up to brain scanners?

Shermer is famous for founding the Skeptics Society and editing the magazine Skeptic, which debunks claims of the supernatural. His monthly column for Scientific American is a regular plea that reason should govern human affairs. But his book raises very real questions about just how far skepticism should extend. Should we also be skeptical about using moral judgments of right and wrong to address the tough questions of politics? For instance, can we make normative judgments about who deserves to pay how much of the tax burden to finance the U.S. government, or as to whether somebody's job should be protected from foreign trade?

Shermer either needs to dismiss moral philosophy as an illusion and a mere byproduct of human evolution, and thus display skepticism, or he needs to grant it credence and take his own moral stance. Descriptive science doesn't tell us whether it is fair to allow kidneys to be bought and sold, even if it helps explain why some people find the practice repugnant. Judgments of right and wrong cannot be avoided, and thus we tread away from the realm of familiar natural science.

There are really two books within "The Mind of the Market." The science book is finished and polished, yet it does not present fundamentally new results. The book on capitalism discusses important questions, yet it is unfinished and unpolished. Shermer does promise us an entire new book to fill in the missing pieces here. He already has earned the right to our attention; the next question is whether he will give his philosophic and romantic side the greater rein that it deserves and requires. This East African plains ape is optimistic.

Why is Tide so popular?

Eli Lehrer informs me that Tide has a high market share even though it is more expensive than most other brands.  This source says the market share of Tide is about forty-four percent, with the sum total of all Proctor and Gamble products (Gain and Cheer are two others) accounting for about two-thirds of the market.  Is Tide so good?  Does Tide really "know fabric best"?  I couldn't name one supposed feature of the product and I've been buying detergent my whole life.  I couldn't even tell you what brand I buy.  Maybe it is Tide.  This is the kind of question that Wikipedia isn't much good for. 

The Law of Unintended Consequences

Dubner and Levitt have an article in the NYTimes with three examples of the law of unintended consequences, the Americans with Disabilities Act made it more costly to hire people with disabilities and reduced their employment, ancient Jewish sabbatical law intended to help the poor has made them worse off, and the endangered species act has resulted in habitat destruction.

In light of this Andrew Gelman asks a deep question, What kind of law is the "law of unintended consequences?"

The law of unintended consequences is what happens when a simple system tries to regulate a complex system.   The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives.  Society in contrast is a complex, evolving, high-feedback, incentive-driven system.  When a simple system tries to regulate a complex system you often get unintended consequences.

Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.)  Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence).

The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident.  A regulation requiring apartments to have air-conditioning, for example, pushes the rental contract against the landlord and in favor of the tenant but the landlord can easily push back by raising the rent and in so doing will create a situation where both the landlord and tenant are worse off.

More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences.  Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences.

Does the law of unintended consequences mean that the government should never try to regulate complex systems?  No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high.

Bargaining theory

Bryan Caplan says:

When the bachelor gets married, he almost certainly starts doing more housework than he did when he was single.  How can you call that shirking?

Megan McArdle says:

I'm no neatnik, but this is . . . daft...Does Mr Caplan think that "person with the lowest standards wins" should be a general rule for marriage? Can women unilaterally quit their jobs because they're content with a lower standard of living, or spend the retirement fund on shoes because they don't mind spending their golden years in penury?

I believe there is no simple Coasian answer to this problem.  Even if bargaining were possible the final deal would depend on the initial allocation of the property right.  That's a sign that an apparently "small thing" (after all, how much do you spend on a maid, relative to family wealth?) is treated as having large symbolic importance.  And what does economics tell us about symbolic goods?  Symbolic goods usually have marginal values higher than their marginal costs of production; Americans for instance love the idea of their flags but the cloth is pretty cheap, especially if it comes from China. 

Going back to marriage, the theory of symbolic goods means the man should take the woman's most irrational requests (flowers?  the placement of the toilet seat?) and go to the greatest lengths to satisfy them.  Expand output where marginal cost is low, which in this case refers us back to the gestures not the real efforts.  That's part of the Nash bargaining solution, namely to make concessions where it costs the conceding party the least.  If there is a case for the man not cleaning more, it's that greater net gains may be had from satisfying other, less rational demands of the complaining party, in this case the wife.

In other words, it is OK not to clean more, provided you insist on the contrary on your blog.

Oops.  Time to go clean up.

Why are so many lawyers politicians?

Johan Richter, a loyal MR reader, writes to me:

As the primary elections are coming up is is interesting to note that so many of the contenders are lawyers, something that is also true of the members of Congress, where I believe half are lawyers. Why are so many US politicians lawyers? It seems odd considering that A) Legal training seems unnecessary for performing the main job of a politician, regardless of whether one takes that to be courting public opinion or governing the country. And there is hardly any deficit of lawyers in Washington to ask for advice if legal knowledge turns out to be needed. B) Being a lawyer isn’t very prestigious as far as I know. Being a military, doctor, police officer, businessman or perhaps even a academic would surely be regarded by many voters as more respectable professions than being a lawyer. C) Other countries don’t have nearly the same over-representation of lawyers in their parliaments as the US does.

I thought Google would yield a paper on this question but I can't find it.  My guess is that lawyers are good at fundraising and good at developing personal contacts.  This helps explain why fewer politicians are lawyers in many other countries; money is more important in American politics.  A lawyer also has greater chance to exhibit the qualities that would signal success in politics, such as the ability to persuade and the ability to speak well on one's feet.  Not to mention that many lawyers have ambition.

Natasha, who is a lawyer, adds that law generates an outflux of people to many other fields, not just politics.  There is also a path-dependence effect, by which a previous presence of politicians in law breeds the same for the future.  What else do you all know about this?

Addendum: I've posted a version of this query over at Volokh.com as well; I expect they will have something to say about the question.

Second addendum: Over at VC, Shawn says:

You will also find that Real Estate and Insurance agents are disproportionately represented in politics, at least at the more local levels.

These professions (along with practicing law) provide the career flexibility for would be politicians to put their jobs on hold or scale them down a few degrees while pursuing elected office or serving is such an office.

This flexibility also is what attracts people who wish to be career politicians, so that they have a job to fall back on between election seasons that won't trap them into long term obligations, keeping them from the next election cycle or serving if elected.

These careers also give would be politicians a good place to get recognition and network within their communities.

Third addendum: Bob Tollison writes to me: "McCormick and I devote a chapter 5 to why lawyers dominate legislatures in our book-- Politicians, Legislation and  the Economy, Martinus Nihoff, 1981. Lawyers are better at combining being in the legisture with making outside income. Hence, lawyers dominate low legislative pay states because seats have a higher present value. Women dominate high pay states."

The Logic of Life and Guest Blogger Bryan Caplan

Immediately below this post you can find Bryan Caplan, our first guest blogger in MR's book forum for Tim Harford's The Logic of Life.  Watch for more posts and guest bloggers in the weeks to come as we delve further into Tim's wonderful book.

The Lively and Logical Logic of Life

Boredom drives a lot of academic research.  After you've studied a subject for decades, it isn't much fun to keep repeating the standard lessons, so you mischievously start looking for counter-examples and loopholes.  Unfortunately, when the mischievous academic talks to a broader audience, he often leaves the impression that the standard lessons are a waste of time.  Frankly, I think that a lot of recent popular economics books fall into this trap.

Tim Harford's The Logic of Life is a welcome antidote.  Harford argues that the standard economic assumption of human rationality usually works.  In fact, it works in a lot of cases where you might think it doesn't.

The best example in chapter 1 is condom use by Mexican prostitutes.  It's easy to say "A prostitute would have to be a brain donor not to use a condom every time."  But Tim demurs.  By bargaining about condom use, instead of using every time, prostitutes raise their income by about 25%.  Still not worth it?  Think again:

In fact, the prostitutes know that while the risks are real, they are modest.  Only one in eight hundred Mexicans carries HIV, and even among prostitutes it afflicts just one in three hundred.  Even if a prostitute is unlucky enough that one of her unprotected jobs is with a man who is HIV positive, the risk that she will catch it is less than 2 percent if one of them is carrying some other sexual infection, and less than 1 percent otherwise...

As far as we can tell, the typical Morelian prostitute is acting as though she valued one extra year of healthy life at between fifteen thousand and fifty thousand dollars or up to five years' income.

Tim may sound like a typical insensitive economist in this quote, but he's firmly in the Alan Blinder "hard heads, soft hearts" tradition:

[A] rational world is not necessarily a wonderful one... Rational individuals can make choices that are bad news for others; risky sex is just a particularly clear example.  And when rational individuals face a miserable set of choices, as do the Morelian prostitutes, they cannot do better than pick the best of a bad lot.  We will not solve social problems if we pretend that they are caused only - or even mostly - by the mad, the stupid, and the morally degenerate.

As an academic, I'm tempted to immediately highlight a counter-example.  Morelian prostitutes value a year of healthy life at up to five times their annual income.  But what about Levitt and Dubner's drug dealers who risk their necks for minimum wage?  Aren't they irrational?

But for now, I'm going to resist the temptation to dwell on counter-examples.  You've got to learn to walk before you can learn to run.  And you've got to understand rational explanations for human behavior before you can understand irrational explanations.  The Logic of Life may well be the best introduction to the rational choice approach on the market.  Even better, it's well-written enough to inspire even jaded academics to get back to basics.   Bravo, Tim.

Markets in Everything - Relief Pitcher Earnings

Randy Newsom, relief pitcher for the Cleveland Indians, is selling 4% of his future major league salary.  There are 2,500 shares in the IPO so each share gets you a claim to 0.0016% of his future salary including bonuses.  Shares sell for $20 each.

Hat tip to Mike Makowsky.   Mike, a rookie GMU PhD on the job market, is also entertaining offers for a share of his future salary.  Mike is feeling rather risk-averse so as an insider, I recommend you buy now.  Mike has a great career ahead of him and this opportunity won't last long!

Suing your real estate agent

Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”

Here is the story, which should have pushed the point that the real estate agent usually works for the seller.  In another context, if an agent of the mortgage lender says: "Just put down an income of $150,000," even most of the so-called "stupid people" know they are engaging in some kind of fraud.  In reality it is complicity with fraud and a violation of federal law, and yes this is a federal law that should be a federal law.

A society that so blurs the ethic of individual responsibility is a society in trouble.  My notion of individual responsibility does not mean: "Sorry, it is just that you die for your mistake," so there is no need to knock down that straw man.  But a good notion of individual responsibility might start with: "We're not going to label every "little guy" a victim, even when it supports our political narrative to do so."

New issue of Econ Journal Watch

Find it here, lots of goodies as always.  Here is a section called Sounds of Silence: "individuals who probably should have replied to the critique but didn't."  Other topics include whether casinos cause crime, the Earned Income Tax Credit, suburbanization, usury, and Paul Krugman, all edited by my colleague Daniel Klein.

Elsewhere on the web, here is a long podcast with Austan Goolsbee.

Very good parts of very good sentences

...the high divorce rates among those marrying in the 1970s reflected a transition, as many married the right partner for the old specialization model of marriage, only to find that pairing hopelessly inadequate in the modern hedonic marriage.

That is Betsey Stevenson and Justin Wolfers, here is more.

Thomas Schelling in action

1. Steve Levitt on Thomas Schelling

2. Thomas Schelling on global warming and uncertainty

3. Thomas Schelling in Iran, photos and a funny translation

Rambo Inflation

Number of people killed per minute in the Rambo series.

• Rambo: First Blood (1982): 0.01

• Rambo: First Blood Part II (1985): 0.72

• Rambo III (1988): 1.30

• Rambo IV (2008): 2.59

Hat tip to Peter Gordon.

Banana, by Dan Koeppel

You will never, ever find a seed in a supermarket banana.  That is because the fruit is grown, basically, by cloning...Every banana we eat is a genetic twin of every other.

It turns out, by the way, that the world's supply of Cavendish bananas -- the ones we eat -- is endangered by disease (more here) and many experts believe the entire strain will vanish.  Most other banana strains are much harder to cultivate and transport on a large scale, so enjoy your bananas while you can.  The previous and supposedly tastier major strain of banana -- Gros Michel -- is already gone and had disappeared by the 1950s, again due to disease.  Today, European opposition to GMO is one factor discouraging progress in developing a substitute and more robust banana crop.

I liked this bit:

"Uganda doesn't endure famine, and to a great extent that is because of bananas," said Joseph Mukibi...

And finally:

Most horrifying of all to Americans, the Indian banana is used as a substitute for tomatoes in ketchup.

I've grown tired of single topic foodstuff books, as they are now an overmined and overrated genre.  But Dan Koeppel's Banana: The Fate of the Fruit that Changed the World is one of the best of its kind.  It is a seamless integration of politics, economics, history, biology, and foodie wisdom.  Here is one review of the book.  Here is Dan's one-post banana blog.

Today's good news?

Given market plunges around the world, we may need something to cheer us up a tiny bit:

Even Citigroup Inc., by far the hardest hit of the big U.S. banks by subprime-related problems, earned $3.62 billion last year. That was with a $9.83 billion fourth-quarter net loss and more than $22 billion in writedowns and additions to loan-loss reserves.

For JPMorgan Chase & Co., the third-biggest U.S. bank, the focus was on the 34 percent drop in fourth-quarter profits from a year earlier. Its full-year $15.4 billion profit, a record, was largely ignored. ...

Economist Robert E. Litan, a senior fellow at the Brookings Institution who has done numerous studies of the U.S. financial system, said the banks are in far better shape than the dire assessments suggest.

''Strip out the losses and Citi could make close to $10 billion a quarter,'' Litan said. Noting how quickly the bank has been able ... to replace the capital depleted by losses, he added, ''Why would anybody buy stock if they thought Citi was going down the tubes?''

The link is from Mark Thoma.  This is one of several reasons why I don't see solvency problems -- apart from homeowners that is -- as today's major economic plague.  Elsewhere, it seems that tax-free municipal yields are higher than Treasury yields, an unusual and counterintuitive state of affairs; this is a sign that large institutional investors are spooked and have their head in the proverbial sand.  They've run into T-Bills, but they have no reason to hold the tax-free munis.  That also means if you see a big spread between T-Bills and commercial paper, you shouldn't interpret it as a high implied default risk for major companies.

If Ezra Klein were Tyler Cowen

A very good post.  On the specifics: relative to most libertarian economists, I am more likely to think -- or should I say admit -- that human beings are irrational, even when the stakes are high (see the self-deception chapter in Discover Your Inner Economist).  But, relative to social democrats, I tend to think that politicians are irrational actors trying to pander to irrational voters and that it can't be any other way.  I am much less optimistic about democracy as an instrument for fine-tuning good policy or for that matter as a medium for enforcing progressive sentiments.  On health care I don't think the solution is to strip away insurance, a'la HSAs, so I agree with Ezra's paragraph more than not.  On The Wire, the defect is fully mine.  I've watched seven or eight episodes, from seasons one and three, and I thought: this is fantastic.  But I never really looked forward to the next episode and eventually I stopped watching.  I have an inability to appreciate all things gritty, regardless of medium.  I don't enjoy Grapes of Wrath either, or for that matter Goodfellas.  I wonder if needing a tinge of romanticism isn't some kind of character weakness of mine.

Addendum: Kevin Drum comments on the last round.

The Concise Encyclopedia of Economics

Arnold Kling reports:

...the new  Concise Encyclopedia of Economics is dirt cheap. The hardback edition retails for $45 and runs over 600 pages, in an unusually large 8-1/2 by 11 size. Contributors include Bryan and myself, but most of the authors are actually respectable. In fact, many are quite renowned. Although it is structured as a reference work, it can be fun just to read. But I don't recommend taking it on your next plane trip.

The editor was David R. Henderson, who sometimes comments on this blog.  He is also author of the excellent and much underrated The Joy of Freedom.  Russ Roberts and I were on the editorial board and we are also contributors.  The publisher is Liberty Fund.  I haven't seen a copy yet of the final edition, but I believe this will be a very useful way for many people to learn economics.  The Amazon link is here.

My Wilson Quarterly essay on invisible competition

It's now on-line.  Here is my previous summary of the piece.

Investment tax credit as fiscal stimulus

It looks like we will get some fiscal stimulus, despite my cogent objections (I know, big surprise.)  One part of the stimulus package will probably be an investment tax credit which does have some good properties.  Unlike traditional fiscal policy an investment tax credit cannot be fully crowded out and it works best when it is expected to be temporary. 

Cuts in income taxes and increases in spending must be paid for somehow, so traditional fiscal policy can be crowded out by declines in private spending (My colleague Russ Roberts says fiscal policy is like trying to raise the water level by dipping a bucket in the deep end of a pool and dumping it in the shallow end.)  But an investment tax credit works through a change in incentives - it increases the incentive to invest now, when times are tough, at the expense of less future investment when times are better.

Also, cuts in income taxes stimulate the least when they are expected to be temporary.  But in contrast, an investment tax credit stimulates the most when it is expected to be temporary.  (A temporary credit must be used now or lost while a permanent credit gives you the option to wait).

Thus, a broad-based, temporary investment tax credit has some appeal as fiscal stimulus.   

The Dialectic at Work?

Justin Yifu Lin, apparently soon to be named the World Bank's chief economist, has one of the strangest CVs you could imagine.  Lin was born in Taiwan but in 1979 while serving in the Taiwanese army he defected to China by swimming from the island of Kinmen in Taiwan to Xiamen in China.  Embarrassed by the defection of a rising star, the Taiwanese army listed him as missing.  Lin left behind a wife and children who (it seems) didn't know what had happened to him.

Lin rose quickly in China receiving a Master's degree in Marxist political economy from Peking University in 1982 and in 1986 a PhD in economics from the University of Chicago (!).  According to the Taipei Times, Lin's wife learned that Lin was alive while he was in the United States and they were reunited in the U.S. where she also earned a graduate degree before both returned to China.  Lin has since become a well-published economist.

I see movie.

Addendum: Tyler also covers this further below.

How are libertarians different from social democrats?

Returning to last week, Ezra Klein (the real one) wrote:

Tyler Cowen is a libertarian economist with a wildly different set of assumptions about human behavior, the policy process, and political change [than I, Ezra, have].

I was surprised to read this.  Let's imagine that we asked a very smart person, but one who disagreed politically with both Ezra and me, to pinpoint how Ezra and I differ.  I believe that person would see the two of us as having very different blind spots, in both moral and positive terms, but not holding fundamentally different assumptions about human behavior.  If Ezra and I chatted about which are the most insightful movies, whether the Washington Wizards should trade Gilbert Arenas, or the best way to get magazine contributors to deliver their essays on time, I don't know how much we would agree.  (I almost always agree with Matt Yglesias about TV shows and movies, it turns out, although I don't love The Wire as he does.)  But I'd be surprised if we disagreed any more than I would with the average libertarian, or than he would with the average social democrat.

Of course there is a lesson here, namely that our political views don't stem from our positive views about human nature as much as we might like to think.

Are African wages too high?

One thing that has always struck me in the African countries I have worked is that the real wages (i.e. wages adjusted for the cost of living) of African formal sector workers seem to be incredibly high, at least compared to that of workers in China or India. Given that firms in China and India seem to be more productive than their African counterparts, it creates a double disadvantage for African workers, and raises the question of why the situation continues. Why don't manufacturing wages fall in Africa, stimulating more jobs for more people at wages still higher than those available in agriculture or informal business?

Why, when I run a survey in rural Uganda, do youth with the same education and experience expect a wage three to four times higher than the youth I worked with in India? I don't begrudge anyone anywhere a living wage. It's the relative differential that puzzles me, and that could be keeping Africa from doing business globally.

There are probably lots of plausible reasons. Perhaps we ought to consider (and get data on) the informal sector in Africa, which could be larger and have more moderate wages than the formal sector ones. It may be that all my notions and data about African wages are erroneous.

Another possibility, however, is that the largest employers of skilled workers in most African countries are international NGOs and the local government. They are competing, in many cases, for the same pool of skilled and semi-skilled workers as the manufacturers and service sector firms. Neither the government or NGOs, moreover, seem to set wages according to the local market or local conditions, and it requires little imagination to wonder whether they set their wages higher than the market would normally do.

That's from Chris Blattman, a political science professor at Yale; here is Chris's consistently interesting blog.