Marginal Revolution

Assorted links

1. A new way of learning history of economic thought

2. Tim Harford recommends ten books

3. How to breed callousness: send a doctor to school

4. Via Greg Mankiw, tax rates on the middle class are falling

5. Dan Ariely says we are predictably irrational on Obama

6. Rate busters?

Which work of American liberal political thought has held up best?

Having said A, one must say B.  Ezra Klein poses this question and receives many responses.  I'll nominate William Appleman Williams's The Tragedy of American Foreign Policy, Karl Polanyi's The Great Transformation, Richard Rorty on cruelty, Michael Walzer's Spheres of Justice, and Harold Cruse's Crisis of the Negro Intellectual.  Martin Luther King's Letter from Birmingham Jail deserves consideration although it does not exactly fit the category.  Rachel Carson wrote an important book but not really a good book.  Carol Gilligan is an interesting dark horse selection.

Jane Jacobs, by the way, might win either prize if you are allowed to count her as either a conservative or a liberal.  But which is she?  John Dewey and Walter Lippmann are two other figures who could be nominated for either prize.

If you think this list beats the conservative one, you are right.  Note, however, that the conservative list excluded economics (and libertarians), which is where most of the contributions have come on the Right over the last fifty years.  Plus the all-important Chicago School focused on ideas and articles, not books.  So the comparison is not as lopsided as these posts, taken alone, might indicate.

Just a few weeks ago, Bryan Caplan and I decided that Rawls's Theory of Justice wins the prize for "least Hansonian book ever."  For all the evident philosophic care, in the final analysis Rawls was just making stuff up.

What are your nominations?

Addendum: Thinking back, Wilson's On Human Nature might be a good pick for the conservative prize, even though I do not believe Wilson is himself a conservative.

Who hates inequality?

Chimpanzees are highly sensitive to inequity, and typically refuse to continue in interactions in which they get less than a social partner. However, chimpanzees from stable social groups do not respond negatively in situations in which their partners received better rewards, whereas chimpanzees from less-established groups show rejection rates as high as 60 percent.

Here is the full story, interesting throughout; the hat tip is to Mark Thoma.

Nazi Literature in the Americas

Part of Bolaño’s genius is to ask, via ironies so sharp you can cut your hands on his pages, if we perhaps find a too-easy comfort in art, if we use it as anesthetic, excuse and hide-out in a world that is very busy doing very real things to very real human beings. Is it courageous to read Plato during a military coup or is it something else?

That's from one review of the newly translated Roberto Bolaño book.  (Might it have been titled "Conservative Fascism"?)  This work is not a structured narrative but rather a series of impressionistic portraits of how easy it is for some people to slip into being horrible and stay that way.  Imagine a fictional bestiary of creepy aesthetes who are playing at human relationships, sleepwalking through their dreamlike yet trivial obsessions, and in the meantime pledging allegiance to tyranny.  Literature is a "surreptitious form of violence" throughout.

Here are excerpts from other reviews.  At this point it goes without saying that everything by Bolaño is essential reading; however you may find many parts baffling if you don't have a strong background in things Latin American.

Forward markets in everything, restaurant edition

Jason Kottke relates:

The Riverdale Garden Restaurant in the Bronx is trying out a novel way of staying in business: they're asking for their regulars to pledge $5000 in exchange for a year of free dinners.

The problem of course is obvious.  First, you probably won't get your money back.  Second, if everyone paid up, the restaurant has a weaker incentive to serve good food.  And which customers do you think will receive the best treatment?  The ones who put up nothing per each meal?

Suicide fact of the day

Glen Whitman reports:

I went back to the original data source (imagine that!) and found that the stereotype is dead wrong: suicide rates are notably lower for teenagers than adults...Suicide rates do rise throughout the teen years, but they plateau at about age 20 and remain flat throughout the years 20 to 65. Then they jump again for the 65+ demographic.

In case you're wondering, teen suicide rates have not been rising, either. They've been in decline since the late 1980s.

Yet these teens still take the most risks.

Which 20th century classic of American conservative political thought has held up best?

We discussed this question over a group dinner Tuesday night.  I opined that none have held up particularly well, mostly because they underestimated the robustness of the modern world and regarded depravity as more of a problem than it has turned out to be.

By stipulation, this universe of books does not include Milton Friedman or pure economics.  It does include Russell Kirk, John Flynn, Richard Weaver, Robert Nisbet, and William F. Buckley, among many others.  You can nominate grumpy Brits and Europeans who settled in the United States, so yes Road to Serfdom is a contender, even though its main empirical point (socialism leads to loss of political freedom) would seem to be refuted.  You can try Albert Jay Nock or Eric Voegelin but Rothbard and Rand do not count as conservatives.  Your answer cannot come before the 20th century, so no Federalist Papers and no Tocqueville.

Leave your answer in the comments and also say why.  At some point I'll offer up my pick as well.

Why Plurality Rule is a Bad Voting System

1. “Falling Slowly” from “Once”*
2. “Happy Working Song” from “Enchanted”
3. “Raise It Up” from “August Rush”
4. “So Close” from “Enchanted”
5. “That’s How You Know” from “Enchanted”

Discuss.

New roots for the Irish miracle?

By the turn of the century [2000], according to some reckonings, 70 percent of Irish manufactured exports were by US-owned firms...

This was, of course, encouraged by tax breaks and a form of industrial policy.  But part of this process was a shift away from English investment:

Between 1960 and 1970 British-owned companies represented 22 percent of new industrial enterprises in Ireland.  But by 1980 they accounted for less than 2 percent.  Significantly, the proportion of exports to Britain from Ireland halved between 1956 and 1981.

In other words, Ireland found a more complementary economic partner, namely the United States.  The Irish economic miracle is in part the American economic miracle.

That is from the often interesting Luck & the Irish: A Brief History of Change from 1970, by R.F. Foster.  Here is a previous MR post on the Irish economic miracle.

William F. Buckley has died

Here is one account.  I never considered myself a Buckleyite conservative but as a kid I was much taken by his show Firing Line.  It is the first time I was exposed to Hayek (I recall that Buckley blew apart his critique of social justice with a single question), or for that matter Milton Friedman, or for that matter Johann Sebastian Bach.  Here are many obituaries.  Here is lots of YouTube, recommended.

Addendum: Here is Ilya Somin on Buckley.

Daylight savings time increases energy usage

There is a natural experiment from the recent switch away from DST in Indiana.  Matthew Kotchen and Laura Grant report:

Our main finding is that—contrary to the policy’s intent—DST increases residential electricity demand. Estimates of the overall increase range from 1 to 4 percent, but we find that the effect is not constant throughout the DST period. There is some evidence of electricity savings during the spring, but the effect lessens, changes sign, and appears to cause the greatest increase in consumption near the end of the DST period in the fall. These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. Based on the dates of DST practice before the 2007 extensions, we estimate a cost of increased electricity bills to Indiana households of $8.6 million per year. We also estimate social costs of increased pollution emissions that range from $1.6 to $5.3 million per year.

In other words, with DST less is spent on light but more is spent on air conditioning.  Here is a summary article on the work, from today's WSJ.  Do note this:

There may also be social benefits to daylight-saving time that weren't covered in the research. When the extension of daylight-saving time was proposed by Mr. Markey, he cited studies that noted "less crime, fewer traffic fatalities, more recreation time and increased economic activity" with the extra sunlight in the evening.

Tyler and I Have a New Business

Mike Moffatt has signed up with Stickk.com to try to lose some weight and he wrote to Tyler and myself.

I need to find people to give the money to if I fail, so I thought I'd ask the Economics blogging community for help. If you agree then if I fail at my goal, I will pay Marginal Revolution, or the charity of your choice, $100. 

Here is my response to Mike:

Hmmmm....I am not sure whether to be pleased at the prospect of a free $100 or upset that you consider $100 in our hands to be such good motivation!  Speaking personally, however, I understand the difficulty of losing weight thus I want you to know that if we receive the $100 we will not send it to India, we will not give the money to cancer research, we will not give the money to any cute animals instead we will use your money to squash the poor, to fight against universal health care, and to gas up our Hummer.  Moreover, we will do this while drinking fine wine, smoking cigars, eating foie gras and laughing uproariously.

There that ought to help.

If there are other left-wingers out there who would like more motivation to accomplish their life goals then do know that Tyler and I are here to help.

Moral puzzles about collective action

If I don’t fly from London to my sister’s wedding in New Zealand she will be upset, I will cause her pain and so that’s morally bad. If I do fly to my sister’s wedding in New Zealand I will put about four tonnes of carbon dioxide into the atmosphere, which will contribute to climate change, which, according to the World Health Organisation, already causes about 150,000 deaths every year. Clearly that’s also morally bad. Which is the morally correct thing to do?

That question is considered by Will Wilkinson.  Don't argue the facts of carbon emissions (you can choose another scenario if you wish), focus on the moral dilemma.  Will says fly, the plane is going anyway.  That makes my brain hurt with game theory and the probability of threshold effects and triggers.  (Isn't there some chance that your patronage, eventually, sets another flight in motion, if only stochastically?)  Under an alternative approach, say you are allowed some quota of carbon emissions; otherwise suicide or residence in Iceland as a pedestrian would be required.

Your net carbon impact depends far more on the number of children you will have than any other variable; remember good environmentalism uses a zero rate of discount.  So people with no biological children should be allowed to fly a lot and people with lots of biological children should not get to fly so much at all.  Is that so far from the reality we observe?

Here is a good new piece on our carbon footprints.

Article about GMU Economics

The focus of the article is on Robin, Alex, Bryan, myself, Peter Leeson, and also Ilia Rainer, who plays straight man very very well.  I've put the part about myself in the first comment below.  But read the whole story!  It is very insightful.

Barack Obama's economic advisors

Here is the story, by Noam Scheiber of TNR, hat tip to Greg Mankiw.  Excerpt:

Like Bill Clinton in 1992, Obama's campaign boasts a cadre of credentialed achievers. Intellectually, however, the Obamanauts couldn't be more different. Clinton delighted in surrounding himself with big-think public intellectuals--like economics commentator Robert Reich and political philosopher Bill Galston. You'd be hard-pressed to find a political philosopher in Obama's inner wonk-dom. His is dominated by a group of first-rate economists, beginning with Goolsbee, one of the profession's most respected tax experts. A Harvard economist named Jeff Liebman has been influential in helping Obama think through budget and retirement issues; another, David Cutler, helped shape his views on health care. Goolsbee, in particular, is an almost unprecedented figure in Democratic politics: an academic economist with a top campaign position and the candidate's ear.

Why not increase this penalty?

The headline reads: "Health Insurer Must Pay $9 Million for Canceling Sick Woman's Policy." 

The article has gory details about company employees being given cancelation quotas and bonuses, apparently regardless of whether the cancelations were merited under the terms of the initial policy.

If you think that health insurance policies are unjustly canceled fairly frequently (and yes I can believe this), surely this penalty should be much higher.  The cancelers are rarely caught, so a simple application of law and economics suggests severity not leniency.  For a large health insurance company a $9 million fine is peanuts.

As far as I can tell, credibly stiffer fines have not been tried.  In other words, the government does a poor job at enforcing the health insurance contract.

You might hold a theory that the government judiciary will malfunction in such a way but a health care government bureaucracy would not make mistakes of comparable importance.

I do not hold such a theory.  When it comes to health care reform, I would like to start with the enforcement of contracts based on rational and just penalties.

How poor does Cuba look?

The question is why anyone might think Cuba is doing OK, relative to northern Mexico.  Megan McArdle offers (more than) two points:

3) Deep poverty is much more picturesque than moderate poverty. Poor countries have their old colonial buildings still standing, because no one had the money (or the reason) to tear them down and put up something bigger. The countryside is dotted with adorable houses made out of natural materials and natives wearing colorful traditional garb. Animals graze in verdant fields, besides teams of sowers and reapers. Middle income countries are smoggy, and almost everything looks like a cheaper, shabbier version of what you get in the US. Scenic landscapes are despoiled by cinderblock buildings with hideous tin roofs, or trailers; cities are choked with boxy modern buildings that look something like our housing projects. The genteel decay that looks gothic and intriguing on an old Victorian mansion just looks seedy when it's eating away at badly poured concrete. Affluent Americans underestimate the utility value of things like having personal space, or an automobile.

4) Cuba was relatively wealthy in 1959; it therefore has more of the markers, like old majestic buildings, that we associate with wealth.

I found the most evident signs of Cuban poverty to be the unceasing supply of articulate and sometimes weakly sobbing mendicants, none of whom sounded like con men, all of whom needed money to buy food and clothes for their families.  The most shocking part is what small sums of money they would ask for or be made happy by.  Or the numerous women -- and I mean ordinary women in the streets -- who would offer their bodies to a stranger (handsome though I am) for a mere pittance.  Yes in Cuba there is good access to doctors but anesthesia is in short supply and the health care system stopped improving long ago.

If you want to understand northern Mexico, get out of the Tijuana tourist strip and visit Hermosillo.  Count the number of new housing developments, and then count how many of them are inhabited by fairly dark-skinned, previously dirt poor, Mexican mestizos.  Put that number over the number of buildings in Havana that do not have serious maintenance problems and see if you can divide by zero.

It's quite possible that a lower middle class Mexican eats better food than you do, but there is no chance of that for anyone in Cuba except the top elite.  Powdered milk is a luxury there. 

I've long thought that Prague looks much richer than it is, and that the ugly northern Virginia or Houston looks poorer than it is.  Where else looks deceivingly rich or poor?

Shout it from the Streets

This is Fred Krupp president of the Environmental Defense Fund interviewed in Wired who after noting the success of markets in acid rain avoidance says this about approaches to carbon avoidance and global warming:

...I know that capitalism works, that American entrepreneurialism works, and we can damn well expect that private capital — not government money — will actually solve this problem.

Markets in everything

"Express 7-11."

Go there if you find that a standard 7-11 involves too much inconvenience and delay.  There is a new Express 7-11 near campus, right next to an old (non-express) 7-11.

Gun Buyback Misfires

Oakland's recent gun buyback was especially ridiculous.  The police offered up to $250 for a gun "no questions asked, no ID required."  The first people in line?  Two gun dealers from Reno with 60 cheap handguns.  Fortunately the buyback did manage to get some guns off the street, too bad they were turned in by a bunch of senior citizens from an assisted living facility.   Whew, the streets are safe at last.

Even putting aside the obvious nonsense, gun buybacks simply don't work.  In technical terms the supply of guns to Oakland is perfectly elastic so buybacks won't reduce the number of guns in Oakland.  Here is an analogy from my op-ed in the Oakland Tribune.

Imagine that instead of guns, the Oakland police decided, for whatever strange reason, to buy back sneakers. The idea of a gun buyback is to reduce the supply of guns in Oakland. Do you think that a sneaker buyback program would reduce the number of people wearing sneakers in Oakland? Of course not.

All that would happen is that people would reach into the back of their closet and sell the police a bunch of old, tired, stinky sneakers.

Gun buybacks won't reduce the number of guns in Oakland. In fact, buybacks may increase the number of guns in Oakland.

Imagine that gun dealers offered a guarantee with every gun: Whenever this gun gets old and wears down, the dealer will buy back the gun for $250.

The dealer's guarantee makes guns more valuable, so people will buy more guns.

But the story is exactly the same when it's the police offering the guarantee. If buyers know that they can sell their old guns in a buyback, they are more likely to buy new guns. Thus the more common that gun buybacks become, the more likely they are to misfire....

The guns bought in this buyback are destined to be melted down to create a monument.  It's a shame that this monument will be the only lasting effect of the buyback.

Tim Harford's chapter eight, a contribution from Sahar Akhtar

Today's guest blogger is the very impressive Sahar Akhtar, who has a Ph.d. in both economics and philosophy; she is currently at Brown University.  As I read her post on Tim, she is saying that most people really do act -- at least in part -- as if their votes count.  I now turn "the mike" over to Sahar:

In Chapter 8, Harford illuminates a large chunk of life with a single insight. Borrowing from Schelling once more, along with a little Bates and North, he shows us that individually rational behavior doesn’t always add up to collectively rational results. But this time the domain is politics, and it might be a stretch to say people always behave rationally.

The analysis he provides on issues where there are high stakes, like revolutions and trade barriers, is pretty great. So I’m going to instead focus on the issue that’s been so hashed out that the marginal contribution of any additional discussion is almost as low as the marginal impact of my vote. But I’m not fully rational.

The rest of Sahar's contribution comes under the fold...

Harford writes that voters aren’t fooled into thinking their votes affect the outcome and that most people vote because it makes them feel good. These ‘expressive’ explanations help us preserve the idea that people are rational (a great book is by Brennan and Lomasky).  But is this an actual account of why people vote? Until we have better survey data, anecdotal evidence will have to do.

Go to a diner, bus stop, retirement home or even a college campus and almost invariably people will tell you that their vote counts. What does ‘count’ mean here?  It might mean they think their vote is important because it satisfies a civic duty to support democracy (but why would so many think this is the best way to discharge that duty unless they think their vote counts in the more literal sense). Or maybe it means they think their vote somehow encourages more people to vote (but why isn’t lying more efficient? And why would people get influenced into voting, unless they think it matters? ) Isn’t it possible to think that people actually believe their votes count?  But if this were true, how could we best make sense of it? One way is to bite the bullet and accept that (a lot of) people might just be irrational.

Voting does of course increase with education level, but this doesn’t defeat the claim that voters might be irrational. Most of our civic/political education in high school and college centers on the details of how democracy functions and why voting is important, and not on the trivial impact of our votes.

And remember the way that voting works in the U.S. at least—through some freaking inscrutable thing known as the electoral college. On my not so good days, I still have no idea how this works and, like most MR readers, have above average education. Does my vote count more in states with fewer delegates, or not at all in some locations, or because this is a republican state does this mean my vote for a democrat wouldn’t matter or would it matter more, and where is this school? My neuronal synapses die just a little.

Also, without voter irrationality it’s hard to make sense of the success of campaigns such as “a vote for Nader is a vote for Bush” in resonating with potential voters—the aim of these kinds of slogans is to encourage people to vote in a particular way. If people don’t believe their votes count, why would these slogans be effective and why would the slogan designers anticipate they would be effective? Harford seems to hint at this kind of problem when he points out that while voters don’t go to the polls to impact results, they don’t realize that what they do once they get to the booths doesn’t matter—but I wish he gave us his thoughts on this sort of inconsistency.

The fact that people don’t simply vote, but vote for a particular candidate, at best suggests that if people feel duty-bound it’s not to some abstract ideal but to particular parties and groups, which raises another, and not incompatible, potential motivation for voting.

Some might think that their votes count not individually, but as part of a group. Harford and other economists aside (including this one), people don’t always act on their (individual) self-interests.  (for just some examples, see Fehr and Fowler on altruistic punishment)

There are good evolutionary reasons to think that we frequently adopt the perspective of “what is good for us”.  You don’t have to believe in the group-selectionist theories of people like Sober and Wilson.

If that makes you feel dirty—selfish gene will get you there if there are enough genes shared in common among a group. And, a la Robert Frank, what starts out as emotional incentives to act on behalf of a fairly specified, narrowly defined, and kin-based group gets co-opted and extends (irrationally?) to larger, less cohesive groups. The group in this case would simply be the class of people thought to share the same values and beliefs.

Of course, like all evolutionary explanations, this is a just-so story and needs to be tested, but so does the rational voter idea. We still don’t have very good insight into the motives of voters, and until we do we should remain skeptical of any one model.

I’m not a hater--in many (maybe most) areas of life, the rational choice model makes damn good sense. In some areas of politics, however, emotions run high and irrationality can be bliss, and these may be areas where dynamic writers like Harford should resist the model a little.

Back to TC: Readers, do tell us what you think...

The personality traits of liberals and conservatives

This topic does not die easily:

Dr Wilson and Dr Storm restricted their study to white, Protestant teenagers, in order to eliminate confounding variables. However, their volunteers came from two different traditions—Pentecostal, which tends to the conservative, and Episcopalian, which tends to the liberal.

The researchers conducted the study by giving each volunteer a beeper that went off every two hours or so. When it beeped, the volunteer answered a questionnaire about what he was doing at that moment, and how he felt about it.

Dr Wilson and Dr Storm found several unexpected differences between the groups. Liberal teenagers always felt more stress than conservatives, but were particularly stressed if they could not decide for themselves whom they spent time with. Such choice, or the lack of it, did not change conservative stress levels. Liberals were also loners, spending a quarter of their time on their own. Conservatives were alone for a sixth of the time. That may have been related to the fact that liberals were equally bored by their own company and that of others. Conservatives were far less bored when with other people. They also preferred the company of relatives to non-relatives. Liberals were indifferent. Perhaps most intriguingly, the more religious a liberal teenager claimed to be, the more he was willing to confront his parents with dissenting beliefs. The opposite was true for conservatives.

Here is Storm's doctoral thesis, a source for some of the material.  This Wilson blog post is a useful summary; nonetheless it emphasizes the weaker part of the results, namely the claim that conservatives are more conformist.

Surely someday we will make progress on this question; it is unlikely that any two non-random groups will have exactly the same personality traits.  But what is the correct comparison?  By looking only at religious Protestants, we are holding some factors constant, but perhaps choosing atypical members of each political ideology.  For instance maybe all we are doing is comparing Pentecostals to Episcopalians.

Further thoughts on a carbon tax

I haven't figured this out yet, but I'm experiencing ongoing worries.  Let me try to articulate them, maybe one of you can cure me.  One story I hear is that the new, carbon-friendly energy technology will be subject to decreasing costs, or alternatively increasing returns to scale.  In other words, there are high start-up costs, but once it is underway it will be pretty cheap and lots of countries will adopt it.  So: 1) the U.S. levies a carbon tax, 2) the U.S. incurs the start-up costs and invents or improves the decreasing cost technology, and 3) lots of countries make the switch.  Voila!

It was reading about the new $2500 car, from India, that got me worried.  Let's say the new technology is more carbon-friendly than what we do now, but still generates some carbon.  (That sounds reasonable, no?)  The new energy technology is really cheap, so lots more people -- most of all in China and India and Africa -- enter carbon-using sectors of the economy.  Even if the new technology is three times as carbon-efficient, if the world as a whole uses three times more energy, carbon emissions do not go down.  The basic problem is the combination of low costs and many people standing on the verge of the carbon-using sector of the economy. 

Or to put it another way, eventually gasoline costs become a very important part of the total cost of a car.  Then say that cars become much more gasoline efficient.  Lots more people can afford cars.

Of course if the new technology is solar, and hardly generates carbon at all, this problem goes away.  (That said, even cheap solar power might encourage other kinds of carbon-using technologies.  Maybe factories and homes can go solar but cars can't.  The factories make Africa wealthier, and Africans buy more cars, etc.)

Alternatively, maybe the new induced carbon-friendly technology has increasing costs rather than decreasing costs.  It never gets really cheap.  We keep on using it only because the tax is high.  Most importantly, countries without comparable carbon taxes will never switch to the new technology.  I might add that many factories will relocate to those countries, thereby partially thwarting the initial purposes of the tax.

I am not sure if I have spelled out these scenarios correctly.  I am not sure which scenario we are supposed to be rooting for.

Why is popcorn so expensive at the movie theater?

There is now some data for the price discrimination hypothesis:

Looking at detailed revenue data for a chain of movie theaters in Spain, Wesley Hartmann ... and Ricard Gil ... compared concession purchases in weeks with low and high movie attendance.

The fact that concession sales were proportionately higher during low-attendance periods suggested the presence of "die-hard" moviegoers willing to see any kind of film, good or bad--and willing to purchase high-priced popcorn to boot. "The logic is that if they’re willing to pay, say, $10 for a bad movie, they would be willing to pay even more for a good movie," said Hartmann. "This is underscored by the fact that they do pay more, even for a bad movie, as is seen in their concession buying. So for the times they’re in the theater seeing good or popular movies, they’re actually getting more quality than they would have needed to show up. That means that, essentially, you could have charged them a higher price for the ticket."

Should theaters flirt with raising their ticket prices then? No, says Hartmann. The die-hard group does not represent the average movie viewer. While the film-o-philes might be willing to pay, say, $15 for a movie ticket, a theater that tried such a pricing tactic would soon find itself closing its doors.

"The fact that the people who show up only for good or popular movies consume a lot less popcorn means that the total they pay is substantially less than that of people who will come to see anything. If you want to bring more consumers into the market, you need to keep ticket prices lower to attract them." Theaters wisely make up the margin, he says, by transferring it to the person willing to buy the $5 popcorn bucket.

Here is more.  The data are the data, but this doesn't strike me as a very general explanation.  Specifically it requires that the high-value movie demanders are also the high-value popcorn demanders.  If anything I would expect the casual movie fans to be the ones who want to buy the concessions; the seasoned moviegoer will have some other, better plan worked out in advance.  For other explanations for high popcorn prices, you might look at the research on "shrouding," or consider that ticket revenue is shared with the studio but concession revenue usually is not.

Should the IMF behave like a Sovereign Wealth Fund?

Stephen Jen says yes, here is one media story on his new paper:

With many of its members having already repaid their debts, the IMF's annual income from interest repayments has slumped to new lows recently, forcing it to make major cutbacks. New managing director Dominique Strauss-Kahn has announced a 15pc cut in staff levels and an overhaul of its non-core activities.

Mr Jen said such drastic cutbacks were unwise, since the IMF's role as a monitor of the world economy could be compromised.

"Retrenching now is tantamount to downsizing a fire department when there is a low incidence of fire," he said, adding that the Fund should sell some of its gold to reinvest in instruments with a reliable income. The Fund owns 103.4m ounces of gold, worth around $92bn (£47bn) at current prices - up from just $23bn five years ago. But while the cache of metal has appreciated in value, it does not bring in a regular flow of cash.

"The IMF has a great deal of scope to enhance its investment returns without exposing itself to undue market risk," said Mr Jen.

The result could be the creation of a supra-national fund worth as much as $100bn. Mr Jen predicted that it could be worth $130bn in 10 years' time. This would be of a size similar to Russia and Singapore's funds.

Here is a previous post on the IMF's funding problems.  Here is a previous post on whether we should abolish the IMF.  Jen's idea may not appeal to many people; the question is whether you can come up with something better.

My favorite things Spain, literature

Again lots of peaks but lots of patches too; the distribution is uneven.  Here are a few offhand remarks:

1. Cervantes: Book two of Don Quixote is much better than book one, just in case you never got that far.  The Trials of Persiles and Sigismuda is a nice try but ultimately it fails at being the undiscovered classic.

2. Calderon: Life is a Dream.  The piece of Spanish literature you are most likely not to have read that you should read.  Every smart, well-educated person should know this book.

3. Lope de Vega: If not for the commies he wouldn't be nearly so well-known.  He is still a good dramatist, though.

4. El Cid: More readable than you might think, and it makes you realize how close they came to being an Arabic society.

5. Miguel de Unamuno: I have some sympathies for him, but if someone tried to write this stuff today, could it even get published?  You could say the same about Jose Ortega y Gasset.  Some people say the two are polar opposites, but who outside of Spain really cares?

6. Federico Garcia Lorca: It might be wonderful on stage but I find it unreadable.

7. Javier Cercas: Soldiers of Salamis.  One of the best novels on wartime guilt, collective memory, and the ambiguous role of the author in a narrative.  Recommended, if you are willing to give it a suitably careful read.

8. Pérez-Reverte: It's fun stuff, but I don't know if it will draw attention twenty years from now.  Same with Shadow of the Wind.  If anything it is symbolic of the Americanization of European literature and I don't mean that in a favorable way.

9. Albert Sanchez Piñol: I loved Cold Skin, originally written in Catalan.  His book on the Congo awaits me.

10. Javier Marias is good, especially A Heart so White. 

The bottom line: Call me provincial, but I see 1660-1980 as a slow patch, at least for a country of Spain's historic stature. 

Maybe some will call for counting Orwell, Hemingway, and others inspired by Spain.  Will you argue for Pio Baroja?  Or perhaps The Family of Pascal Duarte?  In any case literary culture is strong here and I see the future as bright.  By the way, I'm always looking for recommendations in Spanish contemporary literature.  Is Julian Rios worth reading?

Payday loans

This afternoon, let's just do "Control-C" from Craig Newmark:

Paige Skiba (Vanderbilt Law School) and Jeremy Tobacman (Oxford), "The Profitability of Payday Loans":

Payday loans provide households with expensive, short-term liquidity. This paper studies the profitability of payday lending using standard financial data from CRSP and SEC filings and loan-level data from a payday lender. Despite charging e¤ective annualized rates of many percent, we find lenders' firm-level returns differ little from typical financial returns. The data are consistent with an interpretation that payday lenders face high per-loan and per-store fixed costs in a competitive market.

I'd bet a similar analysis applies to the rent-to-own industry.

Library of Lost Dreams

Dutch, a kind of archaelogist of recent America, takes us through the abandoned Detroit School Book Depository.

This is a building where our deeply-troubled public school system once stored its supplies, and then one day apparently walked away from it all, allowing everything to go to waste. The interior has been ravaged by fires and the supplies that haven't burned have been subjected to 20 years of Michigan weather. To walk around this building transcends the sort of typical ruin-fetishism and "sadness" some get from a beautiful abandoned building. This city's school district is so impoverished that students are not allowed to take their textbooks home to do homework, and many of its administrators are so corrupt that every few months the newspapers have a field day with their scandals, sweetheart-deals, and expensive trips made at the expense of a population of children who can no longer rely on a public education to help lift them from the cycle of violence and poverty that has made Detroit the most dangerous city in America. To walk through this ruin, more than any other, I think, is to obliquely experience the real tragedy of this city; not some sentimental tragedy of brick and plaster, but one of people.

Pallet after pallet of mid-1980s Houghton-Mifflin textbooks, still unwrapped in their original packaging, seem more telling of our failures than any vacant edifice. The floor is littered with flash cards, workbooks, art paper, pencils, scissors, maps, deflated footballs and frozen tennis balls, reel-to-reel tapes. Almost anything you can think of used in the education of a child during the 1980s is there, much of it charred or rotted beyond recognition. Mushrooms thrive in the damp ashes of workbooks. Ailanthus altissima, the "ghetto palm" grows in a soil made by thousands of books that have burned, and in the pulp of rotted English Textbooks. Everything of any real value has been looted. All that's left is an overwhelming sense of knowledge unlearned and untapped potential.

More pictures here.

Naughty tourism

I could use a more explicit three-letter word in the post title but I fear the software censors employed by our federal government will again block this web site from its bureaucratic readers.  On this topic, I was quite taken by this passage:

"Ingrid," I commented, "If you really think she [the Haitian woman who was propositioned for money] needs a choice then I suggest you give her one.  Why don't you offer to pay her thirty dollars not to come to my hotel room, but to go back to her son and cigarette stand?"

That is from Naked in Haiti: A...Morality Tale About Tourists, Prostitutes and Politicians, by Dan King.  This book has received very little notice but it's a more interesting look at human commodification than anything you'll find coming out of Harvard or Princeton.  I can only say that the author really seems to know what he is talking about, if you get my drift.  This work would not have been approved at university institutional review boards.  It's also one of the best books on "life on the ground" in Haiti, at least provided you can tolerate the author's numerous salacious yet nonetheless totally anti-erotic descriptions of his activities.

The author goes to Haiti, of course, not for the art, but because he wants to buy from women who are not (otherwise) "selling."  Of course that means that the level of poverty is quite desperate, as in Cuba, where the same phenomenon is common.  And often the women sell to benefit their children or parents, not themselves; surely some percentage of them are disgusted by what they end up doing.

If you're wondering about my point of view on the whole question, I am sufficiently Paretian that I don't find the exchange aspect of the relationship, or the passing of money, objectionable per se.  (Assuming, of course, that neither age nor coercion is a concern, and often both are.)  But it is still better, on the buying side, not to do it.  Once you are aware of the kind of human stories behind the other side of the market, I would think it is hard to maintain an unflagging interest in the proceedings at hand.  Nor do I think it would improve what happens in your life next.  Yes the transaction does benefit the seller in many cases, but apply the Modigliani-Miller theorem and rebundle your action into a different blend of charity and erotic self-satisfaction, all toward The Greater Good.

Or so I think.  If you offer your thoughts, please be polite in your rhetoric.

I thank an anonymous MR reader for the pointer to the book.

If the Beatles had sung Stairway to Heaven

It's late and I'm very tired out here in Barcelona.  Here's to silliness.  The pointer is from the ever-excellent Michael Blowhard.

What's new and exciting in economics?

David Leonhardt reports a clear winner:

I received dozens of diverse responses, but there was still a runaway winner. The small group of economists who work at the Jameel Poverty Action Lab at M.I.T., led by Esther Duflo and Abhijit Banerjee, were mentioned far more often than anyone else.

Ms. Duflo, Mr. Banerjee and their colleagues have a simple, if radical, goal. They want to overhaul development aid so that more of it is spent on programs that actually make a difference. And they are trying to do so in a way that skirts the long-running ideological debate between aid groups and their critics.

A simple idea for fighting global warming

Repeal the [should have read: "Institute an"] antitrust exemption for the airlines and approval all of their mergers, no matter what.

Higher P, lower Q.  And maybe some groups outside the traditional green coalition would support such a change.

By no means a full solution, but maybe better than doing nothing.

*Crunch*, by Jared Bernstein

The book is the latest attempt to write a populist, Progressive economics tract.

There is a chapter called "Why do economists seem to fear inflation?  And why do prices always go up, never down?"

Imagine trying to answer those questions without ever writing the two words: "money supply."  Yes, there is talk of the Fed changing interest rates to affect the price level.  But in an odd converse to the famous joke about Milton Friedman, Bernstein just can't bring himself to utter the "M word."  At first I thought it was a semantic oversight but when I came to the passage describing "the wage-price spiral" as "economists' biggest inflationary nightmare" I realized I was wrong.

The chapter on the Fed does mention the money supply but in the context of describing the views of others and even then only in passing.

Yes I know that the broader monetary aggregates are endogenous and yes I know that it is somewhat of a mystery, in theoretical terms, exactly why open market operations are effective.  It is fine to acknowledge those complexities.  But still, it is no answer to give your readers Hamlet without the Prince or even any mention of his absence.

I would like to see Jared Bernstein called up on The Colbert Show and asked to do nothing but utter those two little words: "money supply."

How high is the U.S. poverty rate?

Here is some wisdom, from the non-libertarian, non-right-wing,  never-asked-to-contribute-to-the-WSJ-Op-Ed-page Lane Kenworthy:

Poverty comparisons across affluent nations typically use a “relative” measure of poverty. For each country the poverty line — the amount of income below which a household is defined as poor — is set at 50% (sometimes 60%) of that country’s median income. In a country with a high median, such as the United States, the poverty line thus will be comparatively high, making a high poverty rate more likely...

Using a relative measure, the U.S. poverty rate is higher than Romania’s and only slightly lower than Mexico’s (see here). Similarly, Mississippi’s relative poverty rate is the same as Connecticut’s.

So when you hear that the U.S. poverty rate is about 20 percent, keep this in mind.  Here is more, including links to research.  Here is a response from Paul Krugman.  Note that Krugman's initial Op-Ed stresses how the measured rate has not fallen over (some periods of) time, but his response simply cites a ranking of the U.S. among other wealthy nations, based on an absolute poverty rate.  Have the time series comparisons been jettisoned or should we stand by them?

Here is more useful information.  It's also worth noting that poverty rate numbers do not take into account food stamps, housing subsidies, the Earned Income Tax Credit, and Medicaid, among other benefits.  Not to mention black market income and underreported income (often for EITC reasons); yes it is worth referring back to consumption data which show that the poor do quite a bit better than income data alone would indicate.  That said, a very good case can be made that we overinvest in fighting the poverty of the elderly and underinvest in fighting the poverty of children.

The bottom line: Be very suspicious when you hear talk about the poverty rate.  The real question, as stressed by James Heckman, is what rate of return we can hope to achieve from feasible interventions in favor of poor, young children.  That's a much harder question to argue.  Heckman of course finds a high rate of return, so I suspect the key question centers around what is "feasible" given the imperfections of politics.  It's worth noting that many federal anti-poverty programs have in fact failed, or so changed that we don't even call them anti-poverty programs any more.  At the end of the day that calls for "better action" rather than inaction, but softening people up with overly pessimistic and uncritically presented numbers will probably make a good program less rather than more likely. 

Cherrypicking health care anecdotes

Yikes.  I know there is much more to the policy question than this story, but it is worth keeping in mind:

One such case was Debbie Hirst’s. Her breast cancer had metastasized, and the health service would not provide her with Avastin, a drug that is widely used in the United States and Europe to keep such cancers at bay. So, with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment.

By December, she had raised $20,000 and was preparing to sell her house to raise more. But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor. “He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,’ ” Mrs. Hirst said in an interview...

Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.

Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.

And that is The New York Times.  Is Atlas Shrugging?

Addendum: More discussion here.

How honeytrappers work

Here are the rules, at least for the high-class guys:

...Martinez has "rules of engagement": The target must not be drunk, there must be no touching, and the relative attractiveness of the trapper to the target must be equal.

"It's got to be a fair test," he explains. "So we make sure that we don't set a very attractive honey trapper on a not so attractive target, and vice versa."

"The customer needs a fair answer to the question of whether their husband or girlfriend is loyal."

So those who fail an "unfair" test count as loyal?  But since eighty percent of all those approached fail, maybe the point is simply to drive home the decisive nature of the infidelity.  A related question is whether the customer (usually the spouse) wants the target to pass or fail the test.  Furthermore what does the customer want to think about the customer's own motives?  Here is the full story, and thanks to Jeffrey Ely for the pointer.

Getting oneself in hot water

I am surprised by all the opposition to my argument for not burning the unpublished Nabokov manuscript.  I say this: we limit all sorts of destructive transactions for the living, so why not every now and then a limitation upon the wishes of the dead?  I was not staking out the extreme (but possibly true) position that the wishes of the dead should count for nothing.

I might add that the status quo is permitting the Nabokov manuscript to be published and that civil society has not collapsed.  Nor are people panicking that their gravestones will be overturned three years hence and sold to finance the expansion of the EITC.

In any case I propose a thought experiment.  If you disagree with me, you should never have read Kafka or Virgil, nor should you set foot in the British Museum, go to an ancient Egyptian art exhibit, or for that matter visit any ethnographic museum.  Lots of that stuff was taken from graves.  They probably didn't want "the public" to look at it and yes that includes you.  How many of the nay-sayers will pledge they have behaved this way or even that they are much bothered they didn't? 

Nor are you allowed to hear Doors tribute bands, remixed or recombined Beatle vocals (would John have approved?) and who knows about late Schubert or Mahler's 10th?  Better safe than sorry and that goes for unapproved translations and editions as well, or how about any religious compendium that refers to the Hebrew Bible as "The Old Testament"?  Don't even pick it up.  I do in fact regard Sussmayr's completion of Mozart's Requiem as an aesthetic crime but not a moral one; it is better to hear the work unfinished.  The really sad thing is how many people like the revised version.

My favorite things Spain, music

I need to do this country in pieces, starting with music:

Classical guitarist: Segovia, starting with his recordings of Bach.  It's not just amazing technique, these are some of the best musical interpretations of Bach by anyone playing any instrument.  They are what I call lifetime choices for one's collection.

Spanish pianist, playing Spanish music: Alicia de Larrocha is the obvious choice.  Her Albeniz and Granados recordings remain unsurpassed. 

Composer: Varese sounds much better live than on disc.  I've seen Amèriques twice and both were experiences to remember; here is a bit on YouTube.  Chailly and Boulez understand the music very well but the sounds and textures and rhythms simply don't all come through if you're not there.  (Addendum: Whoops!  Varese was born in France.)  The number two pick is tough but Rodrigo is underrated by many serious listeners, in part because of his exposure through classical pops.  Try his solo guitar pieces and throughout keep him in mind as a precursor of ambient music.  Tomás Luis de Victoria is an underrated Spanish Renaissance composer.

Cellist: It's hard not to pick Pablo Casals, who had extraordinary depth in his phrasing.  I still feel duty bound to point out that most of his recordings are unlistenable, if only because of the scratching.  The Bach is of historic importance but for actual pleasure his Schubert is your best bet.  Most of all the recording of the String Quintet.

Album about: Miles Davis, Sketches of Spain.  One of my three or four favorite Miles CDs, so an easy pick.  Admittedly the move toward an "acoustic-electric" sound does not appeal to all jazz fans, so this album remains underappreciated.

Opera singer: Lots of riches.  Placido Domingo is a good pick though you could argue for many other names as well.

Popular music:  Help!

Flamenco: I love it in small clubs but not on disc or even in mid-sized university music halls. 

The bottom line: There are plenty of peaks but overall I am struck by the unbalanced nature of the distribution.

Many people embarrass themselves over Fidel Castro

Here is one menagerie, with Brad DeLong parrying ably.  A simple checklist would start with the question of whether an apologist has visited both the Dominican Republic and Cuba.  And a non-communist Cuba could have done much better than the DR.  It is a fascinating place for visitors, but right now the quality of life in Cuba isn't close to that of the DR or for that matter Honduras, the second-biggest Latino mess in the hemisphere.  While we're at it, let's not forget northern Mexico or even central Mexico.  It's time to stop apologizing for communist dictatorships; are you really so taken with the idea of confiscating property as to overlook decades of tyranny, impoverishment, and human misery?  Yes I am familiar with the UN social indicators; I say you need to visit each of these countries, preferably speaking Spanish, and then report back to me.

Who said England doesn't have serious deposit insurance?

The evidence is here.

Assorted links

1. Talking travel with Tyler Cowen

2. Good review of Dan Ariely and also Thaler and Sunstein's Nudge

3. Quotation of the day

Why no Industrial Revolution in China?

John Darwin gives it a shot:

The best answer we have is that it [Kiangnan and China] could not surmount the classic constraints of pre-industrial growth.  By the late eighteenth century it faced steeply rising costs for food, fuel and raw materials.  Increasing population and expanding output competed for the produce of a more or less fixed land area.  The demand for food throttled the increase in raw cotton production.  Raw cotton prices probably doubled in the Yangtze delta between 1750 and 1800.  The demand for fuel (in the form of wood) brought deforestation and a degraded environment.  The escape route from this trap existed in theory.  Kiangman should have drawn its supplies from further away.  It should have cut the costs of production by mechanization, enlarging its market and thus its source of supply.  It should have turned to coal to meet the need for fuel.  In practice there was little chance for change along such lines.  It faced competition from many inland centres where food and raw materials were cheaper, and which could also exploit China's well-developed system of waterway transport.  The very perfection of China's commercial economy allowed new producers to enter the market with comparative ease at the same technological level.  Under these conditions, mechanization -- even if technologically practical -- might have been stymied at birth.  And, though China had coal, it was far from Kiangnan and could not be transported there cheaply.  Thus, for China as a whole, both the incentive and the means to take the industrial "high road" were meagre or absent.

In other words, who really knows?  The excerpt is from Darwin's new book After Tamerlane: The Global History of Empire Since 1405, which should be read by anyone...who...reads books with titles like that.  It is most interesting on the Indian and Arabic collapse of the 18th century and on fitting the Russian conquest of Central Asia into the more general history of European imperialism.  I didn't find any revelations in the book, but it was consistently interesting and readable throughout.

A simple ethical conundrum

A few days ago I was in a London taxicab when I noticed a possibly expensive purse in the seat next to me.  I climbed out of the cab and without much thought (shame on me) gave it to the driver.  I explained someone had left it there.  Of course I was intent on treating the driver like a decent human being.  But wait, I know I am honest and maybe he isn't.  But wait, maybe I couldn't have gotten the purse to the woman very easily.  But wait, I could have posted notice on this blog and had you help me track her down.  But wait, isn't it my obligation to simply leave the woman no worse off than she was in the first place?  But wait, what is the default point for defining "in the first place"?  But wait, what would the driver have thought if he saw me taking the purse out of his cab?  But wait, isn't a purse really really important?  But wait, what if the purse belonged to the driver?

What I really think of the new popular economics books

I recently published an article in the Swiss arts magazine Du on the wave of popular economics books.  Yes I am an economist but I am also interested in the implicit philosophies and theologies of these books.  My piece is in German and not on-line but here are a few bits from it.

About Freakonomics I wrote:

The implicit theology of Freakonomics is that of original sin. The book is full of stories of liars: “people lie, data don’t” can be taken as the book’s motto...

Levitt and Dubner seek to puncture naïve optimism. It is the reader who needs reforming, and the proposal is to drive naivete out of our systems. We must recognize original sin (recall the bite into the apple on the book’s cover), give up on utopian dreams, and stick to what can be proven by science. That means an acceptance of ongoing human depravity, but Freakonomics goes further. It preemptively protects us against encountering that depravity and lying in our own lives. We have been warned, and we need no longer fear disappointment from our encounters with the real world.

It should come as no surprise that Dubner – the one who actually wrote the book – also penned an entire book about his personal theology. Dubner is ethnically Jewish but his parents had converted to Catholicism and raised him as a Catholic. Over the course of his life he rediscovered his Jewish heritage and religion and chronicled that process in his fascinating Choosing My Religion: A Memoir of a Family Beyond Belief. It is theology, Dubner’s main obsession, which gave him the background to write a popular economics book that touched so many Americans.

And how about Tim Harford?

Harford’s voice is always gentle, sometimes cynical, and usually whimsical and reassuring in his language. He points to the ironies of life. He is hardly one to deny that people lie, but such peccadilloes are a sideshow rather than the center of his moral universe. We still can make our way in the world and carve out a small piece of personal happiness and perhaps a small bit of virtue as well. Harford often reminds us that hedonism has its place in human affairs; his latest book opens with a discussion of the prospect of “a rational [you-know-what].”

In other words, Harford serves up British secularism rather than American original sin. Harford’s “Dear Economist” column...views human foibles as inevitable yet endearing; in Harford’s world no judgment is ever too harsh or too one-sided.

As an economist, Harford seems more interested in “invisible hand mechanisms” than are Dubner and Levitt. Freakonomics informs us that what appears to be ordinary is in fact full of corruption. Harford’s Undercover Economist is keener to show that the apparently corrupt can, at the macro level, lead to entirely acceptable and indeed sometimes humane results.

There is much more, here is one final bit:

Popular economics books reveal their true colors most clearly when they talk about sex. In Freakonomics sex is not holy but rather sex and reproduction lead to the birth of criminals...For Harford sex is a slightly naughty pleasure, and a pleasure to be mocked, but at least it is a real pleasure; this American reviewer again cannot help seeing the British tinge of his work.

Northern Rock has been nationalized

The media here seem more shocked than I am.  But imagine -- a country dedicated to liberal economics (more or less) nationalizes one of the largest firms in its most vibrant economic sector.  Martin Wolf has a good piece on the event.  The real question is whether the UK (and other countries) will feel compelled to move to a system of regularized depositor liquidity rights and larger deposit insurance guarantees.  Right now British depositors receive a lower guarantee, both de jure and de facto, and can wait for months for access to their funds from a failed bank; read more here.  For all its drawbacks and screwy incentives, arguably the biggest advantage to deposit insurance is simply that it makes bank nationalizations unlikely.  Simply letting the bank fail is not always a credible alternative, because of contagion effects, bank runs, and the simple workings of democracy.  The bank did face an offer from Richard Branson but it seems that the numbers did not add up and the government would have been left holding the bag anyway.  Felix Salmon adds commentary.

Book Forum: Harford and Kevin Grier on Cities

Kevin Grier at Kids Prefer Cheese continues our book forum on the Logic of Life with a discussion of The World is Spiky.

Here is my summary of Tim’s argument. Cities are expensive, and that expense is above and beyond paying the necessary rents to gain access to their unique amenities. Cities are marked by knowledge spillovers, a positive externality (don’t get mad Bryan) where human capital grows faster when one is around more humans. And the internet, rather than reducing the positive effects of cities on productivity, actually enhances them. Thus, rather than subsidizing rural areas, perhaps we should consider subsidizing cities.

Luckily for Tim and his prospective book sales, he tells this story in a much more entertaining way than I just did. But I still have some questions, suggestions, and quibbles.

The claim is made that salary differences don’t match up with cost of living differences and the reason for this is knowledge spillovers, but it is not spelled out exactly how that would work. An alternative seems to me that zoning restrictions create these big rents and pre-existing property owners are sucking a lot of the consumer surplus out of people with high valuations on cool experiences.....

Tim discusses “failing cities” and describes (correctly I think) why people still live there, but gives no explanation for why they failed if indeed cities produce these positive externalities. There is no discussion of some of the very biggest cities in the world; Mexico City, Lagos, Jakarta. It would be nice to know where the argument works, where it doesn’t and how to know which is which...

More here.

The Power of Vouchers

Many studies of education vouchers have looked at the achievement of children who are given vouchers and who transfer to private schools.  Generally these studies have found small but meaningful improvements (e.g. here and here).  A voucher program, however, is about much more than transferring students from lousy public schools to better private schools it's about creating incentives to improve the public schools.

Florida's Opportunity Scholarship Program rated schools.  Students at schools that received an F in multiple years became eligible for a voucher that allowed them to attend a private or higher-rated public school.  In Feeling the Florida Heat? (ungated version) a paper sponsored by the Urban Institute Rouse et al. look at what happened at failing schools.

...we find that schools that received a grade of “F” in summer 2002 immediately improved the test scores of the next cohort of students, and that these test score improvements were not transitory, but rather remained in the longer term. We also find that “F”-graded schools engaged in systematically different changes in instructional policies and practices as a consequence of school accountability pressure, and that these policy changes may explain a significant share of the test score improvements (in some subject areas) associated with “F”-grade receipt.

Thus, this paper shows two things.  First, that the test scores of the students in the public schools improved when vouchers gave the schools better incentives to perform.  Second, at least some of the improvement comes from changes in how students are taught.  The author's note, for example:

...we find that schools receiving an “F” grade are more likely to focus on low-performing students, lengthen the amount of time devoted to instruction, adopt different ways to organize the day and learning environment of the students and teachers, increase resources available to teachers...

It is not true that "nothing can be done to improve the schools."  Incentives matter.

Notice that Florida's program worked even though the program was very weak.  It offered vouchers only to students in the worst schools and only after those schools received F grades in multiple years.  The vouchers were relatively small and could not be topped up.  In addition, the program lasted only a few years before it was declared unconstitutional by Florida's supreme court.

A true voucher program would be national, would not discriminate among students, would offer funding equal to that spent on students in public schools and would be permanent. Competition in such a system would be more intense and even more productive than in Florida's program.

Assorted links

1. How much economic freedom is needed for economic growth?

2. Profile of economist Ben Olken; via BookForum.com.

3. Identical twins aren't so genetically identical.

4. "Love economics"; I am not sure how serious they are.

5. The economics and psychology of personality traits.

6. Tyler Cowen on travel.

Markets in everything: Canine edition

Songs that only dogs can hear:

A Very Silent Night, recorded at a frequency only dogs can hear, was so popular among owners it hit number one at Christmas, but has been receiving mixed responses from listeners.

When they say "number one," they mean "number one in New Zealand."  Thanks to John de Palma for the pointer.

London

That's by Peter Doig, who has a big show on at the Tate.

Marginal Revolution?

A project founded by Los Angeles-based actress and writer Tamara Krinsky advocates a simple change that anyone can believe in: By altering the printing margin preference for Microsoft Word documents from the standard 1.25 inches to 0.75 inch, Americans can save a whole lot of paper -- and trees, and money.

Plus you don't have to kill your dog.

It's an Election, not a Revolution

That's the title they gave my latest NYT column.  Excerpt:

To put it simply, the public this year will probably not vote itself into a much better or even much different economic policy. To be sure, the next president — whoever he or she may be — may well extend health care coverage to more Americans. But most of the country’s economic problems won’t be solved at the voting booth. It is already too late to stop an economic downturn. Health care costs will keep rising, no matter who becomes president or which party controls Congress. China is now a bigger carbon polluter than the United States, so don’t expect a tax or cap-and-trade rules to solve global warming, even if American measures are very stringent — and they probably won’t be, because higher home heating bills are not a vote winner. A Democratic president may propose more spending on social services, but most of the federal budget is on automatic pilot. Furthermore, even if a Republican president wanted to cut back on such mandates, the bulk of them are here to stay. <