Marginal Revolution

Stuff I wouldn't usually blog

1. **x in Chile (but safe for work and wife)
2. Is this how they built Stonehenge?
3. Does Obama's popular vote advantage come so much from Cook County?
4. Seth Roberts visits and explains what is unique about blogging

5. More on Bear Stearns

6. Anatol Lieven on John McCain

Black markets in everything

With candy sales banned on school campuses, sugar pushers are the latest trend at local schools. Backpacks are filled with Snickers and Twinkees for all sweet tooths willing to pay the price.  "It’s created a little underground economy, with businessmen selling everything from a pack of skittles to an energy drink,” said Jim Nason, principal at Hook Junior High School in Victorville.

Here is more, with a thanks to Eric Nielsen for the link.  I would put it this way: school kids are more economically advanced than astronauts.

The citation death tax

Dying is not always good for your citations:

The information content of academic citations is subject to debate. This paper views premature death as a tragic "natural experiment," outlining a methodology identifying the "citation death tax" -- the impact of death of productive economists on the patterns of their citations. We rely on a sample of 428 papers written by 16 well known economists who died well before retirement, during the period of 1975-97. The news is mixed: for half of the sample, we identify a large and significant "citation death tax" for the average paper written by these scholars. For these authors, the estimated average missing citations per paper attributed to premature death ranges from 40% to 140% (the overall average is about 90%), and the annual costs of lost citations per paper are in the range 3% and 14%. Hence, a paper written ten years before the author’s death avoids a citation cost that varies between 30% and 140%. For the other half of the sample, there is no citation death tax; and for two Nobel Prize-caliber scholars in this second group, Black and Tversky, citations took off overtime, reflecting the growing recognitions of their seminal works.

Here is the paper.  As I interpret it, some people are trading (usually barter) for many of their citations and death hinders those trades.  These people are overrated to begin with.  Black and Tversky, on the other hand, are still underrated.  Bet on those scholars whose citations rise with their deaths.

Government Incentives to Overcook Babies

Australia has a baby bonus.  The birth rate shot up on the day the bonus first went into effect, July 1, 2004.  As Andrew Leigh and Joshua Gans explained, over 1000 births were delayed from June to July and about 300 births were delayed by more than two weeks.

The bonus is scheduled to rise from $4,187 to $5,000 this July 1 and Leigh and Gans have pleaded with the government to phase it in order to prevent too much birth delay which they think could be unhealthy for the child.  Alas, the government has declined.

All of which leads Andrew to denounce, in delightful Aussie-speak, the bonus as an "unhealthy incentive for women to over-cook their babies."

I couldn't agree more.  As a libertarian and a humanist I join with Andrew to denounce all government incentives to overcook babies.

Hat tip to Dave Undis.

Jeff Sachs's Common Wealth

A few MR readers have written in and asked for a more detailed assessment of Jeff Sachs's new book Common Wealth: Economics for a Crowded Planet.  I'd like to go through some of the core chapters of the book, focusing not so much on the book itself but on whether I agree with Sachs's arguments and if not, why not.  Today we start with global warming and there's enough material here I am putting it under the fold...

Here is a good Sachs article, summarizing his views, namely that a carbon tax is not nearly enough to solve the problem.  He writes:

...low-emissions technologies developed in the rich world will need to be adopted rapidly in poorer countries. Patent protection, while promoting innovation, could slow the diffusion of these technologies to low-income countries unless compensatory actions are taken. As with medicines, patent protection may be double edged: promoting innovation but slowing diffusion to the poor.

Economists like to set corrective prices and then be done with it, leaving the rest of household and business decisions to the magic of the market. This hands-off approach will not work in the case of a major overhaul of energy technology. We will need large-scale public funding of research, development and demonstration projects; intellectual property policies to promote rapid dissemination to poor countries; and the promotion of public debate and acceptance of new options. We will need to back winners, at least provisionally, to get new systems moving.

While this makes a great deal of sense, I am already feeling the "yikes are we reallly up to that?" response.  Sachs also writes: 

Consider three potentially transformative low-emissions technologies: carbon capture and sequestration (CCS), plug-in hybrid automobiles and concentrated solar-thermal electricity generation. Each will require a combination of factors to succeed: more applied scientific research, important regulatory changes, appropriate infrastructure, public acceptance and early high-cost investments to “ride the learning curve” to lower costs in the long term. A failure on one or more of these points could kill the technologies.

Again, this more than makes sense.  It is a sober breath of fresh air in a debate that too often looks for easy palliatives.  My worry, however, comes in Sachs's fairly optimistic-sounding book.  He stresses that for no more than one percent of global gdp per year, we can avoid a doubling of carbon emissions, relative to pre-industrial levels, by 2050. 

I am much more pessimistic, partly for reasons Sachs already outlines.  I won't recapitulate all of my previous writings on the topic (follow the links here), so let me give a kind of "splat" response: Chinese CO2 emissions are much worse than we had thought, China resists outside pressure, Chinese governance is often of very poor quality, China is currently subsidizing energy consumption, China thinks it is our problem to solve, China won't automatically keep on becoming prosperous, the super eco-conscious Europeans in fact haven't made much of a dent in the problem in terms of percentage change, the U.S. has done better on carbon emissions than most of the Kyoto signatories, the price of oil rose fivefold in a relatively short period of time without much helping, a gradual increase in carbon taxes (in a Hotelling model) can lead to more extraction today thus worsening the problem, and if the rich countries massively cut their carbon consumption the prices of coal and oil would plummet and the incentive for someone to buy and smoke the stuff will be all that much stronger.  Valuable stuff in the ground tends to be dug up and used.  And by the way, curing the ozone problem was easy and even a "simple" international organization such as WTO gets tied up in gridlock.

Did I mention that some of the world's nations might even benefit from global warming, most of all Russia, and thus they might wish to sabotage various partial solutions and that Russia holds a permanent seat on the Security Council of the UN?  And that geo-engineering is massively risky and might be considered by some countries to be an act of war?

That's not even all the arguments I can think of.  And no, they are not arguments for ignoring the problem but they are arguments against optimism.  As I read Sachs, the core message is: "We can solve this problem if we try."

I would sooner start with the list of these problems.  Yikes, and yes I know it might scare some people into simply letting things slide.  But if action is to have any chance of succeeding we need to understand the problem.  I'd like the book -- and yes I know this is a popular book, but even popular books should advance the debate -- to start with the tough stuff and tell us what to do.

Maybe the technical costs of Sachs's fix are one percent of global gdp.  But when we consider the imperfections of institutions, I fear that the costs are much much higher.  At the end of Sachs's article he writes:

By 2010 at the latest, the world should be breaking ground on demonstration CCS coal-fired plants in China, India, Europe and the U.S.; the wealthy nations should be helping to finance and build concentrated solar-thermal plants in states that border the Sahara; and highly subsidized plug-in hybrids should be rolling off the assembly line. Only these steps will enable us to peer much farther down the path of truly transformative change.

Under one meaning of the word "should," this may sound just right.  Under another meaning of the word "should," it's further reason for thinking the proffered formula doesn't have much chance of success.

Sir, you have quintuplets

JP MorganChase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry Bear shareholders, according to people involved in the negotiations.

More.  Last week we were wondering why the price was above $2 a share.  And last week some of you were calling this deal a bailout of Bear Stearns.  Now Bear shareholders are alleging they were coerced into taking this deal.  This is a) good news that the firm is worth more than we had thought, b) bad news for dealing with the next round of problems (it is harder for any subsequent solution to be viewed as legitimate), and c) another reason why the answer isn't just more regulation.  By the way, note that JPMorgan isn't actually paying that much more.