Marginal Revolution

What's going on with the economy?

Paul Krugman runs through some basic scenarios.  Remember when Philip Cagan asked why open market operations are performed in terms of money and T-Bills rather than other assets?

The final whammy may be this: the socialist calculation debate (remember that?) is now working against rather than for recovery.  Market prices communicate vital information but that assumes a critical mass of market participants is actually trading.  When trading dries up, prices go away.  When prices go away, the costs of trading rise and fewer people wish to trade.

Felix Salmon notes:

My feeling is that the credit markets are hysterical. They're not clearing, they're not acting efficiently, and spreads, especially on highly-rated debt, are much higher than credit risk alone could ever account for.

Trading in junk bonds hasn't been "right" since the fall.  Many of the markets for short-term debt securities are becoming illiquid as well.  Why markets are self-destructing in this way remains a puzzle; dump on markets all you want but why here and now?

Loyal MR readers will know that I am usually an economic optimist but at the moment I am worried.  I don't see the so-called "real side" of the economy as intolerable by any means.  But a weird financial dynamic seems to be feeding on itself in an unusually violent fashion.  Steve Waldman has an insightful albeit overstated argument; consider this:

The distinction between debt and equity is much murkier than many people like to believe. Arguably, debt whose timely repayment cannot be enforced should be viewed as equity. (Financial statement analysts perform this sort of reclassification all the time in order to try to tease the true condition of firms out of accounting statements.) If you think, as I do, that the Fed would not force repayment as long as doing so would create hardship for important borrowers, then perhaps these "term loans" are best viewed not as debt, but as very cheap preferred equity.

Is/was the subprime crisis simply a mask for a more general revaluation of the meaning and extent of liquidity?  Are such revaluations always so bumpy and so lacking in locally stable iterative processes?  As the Chinese would say, we live in interesting times.

10,000 B.C.

It's not a great movie but it does offer a model of economic growth and the rise of freedom.  To avoid unwanted spoilers, I'll put that model under the fold...

There are increasing returns to scale, set in a general Carneiro-Oppenheimer political equilibrium, albeit with multiple equilibria and possible revolution, depending on the behavior and path of charging woolly mammoths.  Hunter-gatherer societies have martial virtue and also an idea or at least practice of liberty.  They don't have agriculture or easy transport or efficient risk-sharing or an expensive priestly caste.  The desire for plunder, slaves, and tax revenue causes the wealthier agricultural societies to raid the hunter-gatherers.  The hunter-gathers can adopt the technologies of the wealthier peoples more easily than the overlords can/will adopt the ideologies of the hunter-gatherers.  If the revolt succeeds (see the above remarks about multiple equilibria), the result is both liberty and a higher standard of living.  For unknown reasons, female members of the hunter-gatherer society have market power in the agricultural society, even when they are slaves.

I'm not saying that model is true but I have heard worse from social scientists.

Is Haiti safe again?

I mean sort of safe.  "Haiti safe."  Reed Lindsay reports:

Today, Haiti's reputation is undeserved, say security analysts and officials from the U.N. peacekeeping mission. They argue that Haiti is no more violent than any other Latin American country.  "It's a big myth," said Fred Blaise, spokesman for the U.N. police force in Haiti. "Port-au-Prince is no more dangerous than any big city. You can go to New York and get pickpocketed and held at gunpoint."

He may not be a totally objective and disinterested observer.  How about this:

Reliable statistics are scarce in Haiti, but U.N. data indicate that the country could be among the safest in the region. The U.N. peacekeeping mission recorded 487 homicides in Haiti last year, or about 5.6 per 100,000 people.

A U.N.-World Bank study last year estimated the Caribbean's average homicide rate at 30 per 100,000, with Jamaica registering nearly nine times as many — 49 homicides per 100,000 people — as those recorded by the United Nations in Haiti.

In 2006, the neighboring Dominican Republic notched more than four times more homicides per capita than those registered in Haiti: 23.6 per 100,000, according to the Central American Observatory on Violence. Even the United States would appear to have a higher homicide rate: 5.7 per 100,000 in 2006, according to the U.S. Justice Department.

I believe these numbers; at some margin even murder is a normal good.  But most convincing, I think, is this:

Viva Rio, a Brazilian-based violence reduction group that came to Haiti at the request of the U.N. mission's disarmament program, has found Port-au-Prince's armed groups more receptive than those in Rio de Janeiro's slums.

Elsewhere in the country poor Haitians are eating cakes of dirt, and William Griffiths points me to this:

While millions of Haitians go hungry, containers full of food are stacking up in the nation's ports because of government red tape - leaving tons of beans, rice and other staples to rot under a sweltering sun or be devoured by vermin.

A government attempt to clean up a corrupt port system that has helped make Haiti a major conduit for Colombian cocaine has added new layers of bureaucracy - and led to backlogs so severe they are being felt 600 miles away in Miami, where cargo shipments to Haiti have ground almost to a standstill.

Brain twisters

Can the real interest rate be negative in a world where some but not all goods can be stored costlessly? Consider for illustration an economy with two goods, immortal potatoes and transient haircuts, with both items currently selling for $1 and both given equal weights in the CPI. If you put $2 into a 1-year TIPS with a real interest rate of -1% in that world, next year you'd have the ability to purchase 0.99 potatoes and 0.99 haircuts.

Why buy the TIPS when you could simply save the $2 in the form of 2 potatoes and still have those same 2 potatoes a year from now? If nothing else changes, and 2 potatoes were still worth 2 haircuts a year from now, everybody would want to do just that. If we were in long-run equilibrium before the real rate went negative, in response to a negative real interest rate, everybody would want to buy potatoes today as an investment vehicle. The price of potatoes today would have to be bid up to a point above the long-run equilibrium so that from here, potato prices are expected to rise less quickly than the price of hair cuts. Your 2 potatoes might be worth 2 haircuts today, but if they're only worth 1.96 haircuts next year, you might be just indifferent between an investment in TIPS or physically storing the commodity.

Here is much more.  Greg Mankiw, among others, has pointed out that we are seeing negative real rates of return in some credit markets.  I don't read this as a reflection of intertemporal preferences and constraints.  I read this as a (scary) sign of how segmented some credit markets have become.  More concretely, lots of people are running to Treasuries but out of a general sense of fear rather than from rational calculation.  Right now rational calculation is very difficult, agency problems are causing people to avoid the possible blame that can result from risky assets, and credit market arbitrage isn't much working.  It's no longer clear how much information prices are reflecting.

Who is the most powerful member of Congress?

Guess.  This metric offers a clear first pick.

Excellent sentences

To think more objectively, become less allied.

That is Robin Hanson, the rest of the post is interesting as well.  Don't forget that: "people ignore info more when they feel powerful."

I also like this (older) sentence from Megan Non-McArdle:

Once you believe your opponents are disproportionately powerful liars, you have completed the Devil Shift.

Here is more.

The economic impact of Arctic melt

The world is about to get a lot more real estate and also some new water lanes:

The shipping shortcuts of the Northern Sea Route (over Eurasia) and the Northwest Passage (over North America) would cut existing oceanic transit times by days, saving shipping companies -- not to mention navies and smugglers -- thousands of miles in travel. The Northern Sea Route would reduce the sailing distance between Rotterdam and Yokohama from 11,200 nautical miles -- via the current route, through the Suez Canal -- to only 6,500 nautical miles, a savings of more than 40 percent. Likewise, the Northwest Passage would trim a voyage from Seattle to Rotterdam by 2,000 nautical miles, making it nearly 25 percent shorter than the current route, via the Panama Canal. Taking into account canal fees, fuel costs, and other variables that determine freight rates, these shortcuts could cut the cost of a single voyage by a large container ship by as much as 20 percent -- from approximately $17.5 million to $14 million -- saving the shipping industry billions of dollars a year. The savings would be even greater for the megaships that are unable to fit through the Panama and Suez Canals and so currently sail around the Cape of Good Hope and Cape Horn.

Here is the full article, which is interesting throughout; if you read only five magazine-like articles this year, this should be one of them.  How about this bit?

Between 1958 and 1992, Russia dumped 18 nuclear reactors into the Arctic Ocean, several of them still fully loaded with nuclear fuel.

I might add that, historically, struggles over new territory tend to bring conflict.  The creation of new Arctic "territory" is one of the most important issues in the world right now.

Deliberately derivative blogging

I want to link to two posts I liked, here, and here.  Here too.  Think of this post as my equivalent of expressive voting.  No, I'm not feeling rage but my calmness in such matters is probably just my personal defect and general lack of manliness when it comes to politics.

Kevin Drum wonders why Clinton and Obama supporters get so worked up at each other.  Any fan of Dr. Seuss will know that policy similarity hardly matters.  The two candidates represent two diametrically opposed portraits of the relationship between aesthetics and politics.  Should we expect beauty, grace and universality, or should we derive our feel-good sentiments about politics from righteousness, confrontation, and sheer dogged persistence and feelings of ultimate desert?  Given his desire for partisan confrontation, Paul Krugman is quite consistent in his skepticism about Barack Obama.  The far more conservative but also far more aestheticized Andrew Sullivan is quite consistent in liking and indeed at times almost loving Obama.  There really is a lot at stake in the Democratic primary; it's our current sense of the aesthetic, and of desert, that drives what our substantive policy views will be twenty or thirty years from now.  Given the high turnout (never an accident), in an odd way there may be more at stake in the Democratic primary than there would be in a Clinton vs. McCain general election.

As an outsider, the dilemma is whether to side with the values you admire or whether that is a kind of fool's gold.  If nothing else, we have Hillary Clinton to thank for reminding us (again) this week that politics is ultimately about power.

How easy would it be to trade with aliens?

Space aliens, that is:

Hickman believes that interplanetary trade could be one of the primary economic drivers for space exploration in the future. The potential problems are by no means minor, however. First of all, the vast distances between solar systems would probably prohibit the transportation of tangible goods. (Though, as Hickman points out, transatlantic trade probably seemed just as fanciful to traders in renaissance Europe.) There may however be potential for trade in non-tangible goods such digital entertainment, or scientific information with newly discovered alien species. But even this is not without dilemmas that would give Austan Goolsbee a migraine.

How will we enforce contracts or copyrights laws on a civiliation 20 light-years away? How will we set up a banking system or transferable currency without any tangible goods to trade? How will we protect ourselves from strange new ideas and ideologies that may destroy the fabric of our society? Worst of all, how will we trade with a species that may not even have a concept of trade?

It's funny, but that last question is the least of my worries.  And reciprocal, tit-for-tat exchange would work just fine, provided that a) relativity did not slow down the exchange of information too much, and b) not too many Ohio voters watched that movie where the aliens send us their genetic information, embedded in an apparently innocuous transmission, and trick us into downloading those instructions and then cloning them en masse... 

In other words, we probably cannot trade with aliens.  Here is the full post.

What books should you read on Africa?

Chris Blattman offers up his list in two parts, here and here, the second relying on suggestions from Elliot Green.  I'll add a few suggestions to these lists, including P.T. Bauer's West African Trade, Stanislav Andreski's The African Predicament, The Da Capo Guide to African Music, Martin Lynn on the palm oil trade, and Robert Klitgaard's Tropical Gangsters. 

But I am forgetting lots so please help out in the comments...

Can brain scanners read your mind?

Scientists have developed a computerised mind-reading technique which lets them accurately predict the images that people are looking at by using scanners to study brain activity.

The breakthrough by American scientists took MRI scanning equipment normally used in hospital diagnosis to observe patterns of brain activity when a subject examined a range of black and white photographs. Then a computer was able to correctly predict in nine out of 10 cases which image people were focused on. Guesswork would have been accurate only eight times in every 1,000 attempts.

The study raises the possibility in the future of the technology being harnessed to visualise scenes from a person's dreams or memory.

Writing in the journal Nature, the scientists, led by Dr Jack Gallant from the University of California at Berkeley, said: "Our results suggest that it may soon be possible to reconstruct a picture of a person's visual experience from measurements of brain activity alone. Imagine a general brain-reading device that could reconstruct a picture of a person's visual experience at any moment in time."

Here is the full story.  It's a big step from paragraph two to paragraph four, and paragraph one reads to me like a misrepresentation.  Predicting a viewed image from a set is very different from figuring out the image from scratch.  But still this is impressive.

Addendum: Elsewhere from the world of science, here is a new article on finger ratios and the length of ring fingers and what it all means.

Nozick's Wilt Chamberlain example

Let's say a bunch of poor kids all pay to see Wilt Chamberlain play basketball.  Wilt gets the money, the kids get to see the game.  At the end of the day Wilt is richer and the kids are poorer.  Since we wouldn't object to any one of these transactions, why should we object to the resulting pattern?  Robert Nozick went further and argued that any "pattern-based" notion of justice would require continual and unjustified interference in personal liberties.  That was one of the most famous claims in his Anarchy, State, and Utopia; here is another summary of the argument. 

I'm all for the NBA but I've never been overwhelmed by this approach.  I agree that there is "nothing unjust" about the Chamberlain outcome but still perhaps we can do better in consequentialist terms.  Nozick's argument defeats egalitarian leveling but does it really refute, say, mildly progressive taxation?  What if we could tax Wilt a bit and make life much better for the kids?  Without invoking public choice skepticism about government (which indeed is important), what's so bad about that?  Is it morally wrong?  Wilt is still quite free and we get some social good in return.

I'm usually skeptical of moral arguments that don't confront the question of "at what margin" straight up.  I will, however, buy this (abbreviated) argument:

1. A doctor is not required to devote his entire life, or even a part of it, to helping poor kids in Africa, even if he could create greater good by doing so.  Personal autonomy matters.

2. The right to keep the product of your labor -- money! -- is a big part of autonomy, even though it is not always recognized as such.

3. Barring end-of-the-civilized-world exigencies, no one should be forced to part with more than a certain percentage of his or her income, even when valuable public goods are at stake.  There is, after all, no end to good ideas for redistribution, not the least of which is the helicopter drop to Malawi.  We all draw the line somewhere, so it's not enough to cite benevolence to defeat the claims of property rights and the demand for low taxes.

4. Adhering to such a percentage rule will have desirable consequentialist properties, given the public choice problems with government behavior.  Thus a kind of consilience supports this moral view.

That all said, I do not believe we have a very clear or very scientific answer as to what the right percentage is.  Furthermore "the proper percentage" is likely contingent upon historical circumstances.  I take that as representing a partial -- but only partial -- endorsement of Nozick's Wilt Chamberlain argument and of course I reject the deontological ("just don't!") nature of Nozick's approach altogether.

Warning to extreme libertarians: Don't even try to argue that zero is the maximum permissible rate of taxation.  Would you abolish all taxation today, immediately, if it meant a rapid collapse into social chaos?

Warning to social democrats: You are used to citing beneficience arguments to argue for raising taxes.  But you reject beneficence arguments yourself, when you refuse to step into the shoes of Peter Singer and call for even more redistribution.  I want to make you feel guilty about this tension.  What you'd like to do is dismiss Singer with a separate argument and then turn your fire to the anti-tax types and feel that beneficence is always on your side.  It isn't. 

Here is my earlier post on Nozick's experience machine.  Here is Will Wilkinson with more on Rawls.  Going back to our earlier discussion, Ross Douthat has provided an excellent discussion of notable conservative books.  I am a big fan of Nozick's book although a) I don't consider it "conservative," and b) I like the obscure sections best, such as the discussion of anarchy and government in the first part.

What I've been reading

1. Predictocracy: Market Mechanisms for Public and Private Decision-Making, by Michael Abramowicz.  A good compilation of current knowledge on prediction markets; he also argues for letting prediction markets determine many social decisions.  Here is his debate with Robin Hanson on the same.

2. Dreams and Shadows: The Future of the Middle East, by Robin Wright.  An intelligent and experienced book on current trends in the Middle East and why we should be optimistic that pluralism will triumph.  Here is one good review.

3. "What makes Finnish kids so smart?"

4. Superior, Nebraska: The Common Sense Values of America's Heartland, by Denis Boyles.  Contra "What's the Matter with Kansas?", Boyle argues that the Midwestern values of individual responsibility are wise and sophisticated and that the Republican Party embodies much of this wisdom.  The author lives...in France.  By the way, here are maps for per capita Starbucks and Wal-Mart.

5. Edward Castronova, Exodus to the Virtual World: How Online Fun is Changing Reality.  This seems to be less popular than Synthetic Worlds but in terms of social science I think it is better and deeper; recommended.  Here is a Russ Roberts podcast with Castronova.

Markets in everything

Call this one "feline edition": Wigs for cats.   Thanks to John De Palma for the pointer.

Kill the Farm Bill

Farm subsidies in the United States go to just a handful of crops, corn, wheat, cotton, soybeans, and rice.  Most fruits and vegetables are not subsidized, at least not directly but don't forget opportunity cost!

David Zetland has the dirt:

In this op/ed, a Minnesota farmer complains that he cannot increase production of garden crops by growing them on former-program crop land because these acres will lose their corn subsidy forever if non-program crops are grown on the land for a year.

Why? Because national fruit and vegetable growers based in California, Florida and Texas fear competition from regional producers like myself. Through their control of Congressional delegations from those states, they have been able to virtually monopolize the country’s fresh produce markets.

...In other words, it seems that non-program crop states have been willing to support continued subsidies for program crop states because they are facing less competition in return. Less competition, higher prices and more money. Voila!

China fact of the day

There are some forty thousand Chinese restaurants in the United States -- more than the number of McDonald's, Burger Kings, and KFCs combined.

That is from the often quite interesting The Fortune Cookie Chronicles: Adventures in the World of Chinese Food, by Jennifer 8. Lee (yes, readers, her middle initial is the number "8").  Of course arguably most of these restaurants do not count as Chinese food at all.

At the end of the book the author undertakes a global pilgrimage to discover the very best Chinese restaurant outside of China.  The winner?: Zen Fine Chinese Cuisine, just outside of Vancouver.  The number two choice came -- justly -- in Mumbai (Nelson Wang's China Garden).  I've never been to Richmond but I believe all of my top picks would come in India.  Hunan, in London, deserves consideration as well.  The author is correct that Chinese chefs, for whatever reason, do not flourish in France.  Recommended.   

What if we elected a Muslim black nationalist?

Reading Matt Yglesias, I couldn't help but wonder.  Assume the candidate was intelligent and had a responsible temperament.  What would it actually be like?  Presumably such a President would limit or cut off aid to Israel and directly support a Palestinian state.  (We might keep some aid for purposes of leverage.)  In the Arab world we would probably take some different sides, and more specific sides, than we do now.  I fear we would end up embroiled in a Muslim religious civil war in the Middle East.  When needed, we would likely intervene to help out Muslims in the Balkans or in Kuwait.  Might we get more free trade?  After all most Muslims live abroad and would like to sell their goods here.  The President could try to up the immigration quotas from Muslim countries but I doubt if Congress would accede.  Public and Supreme Court support for the separation of church and state would go up, not down.  Haven't Muslim black nationalists, historically, had a big interest in prison reform?  Would our President give the bomb away to Muslim nations?  Would it be easier to find Koranic recital CDs in Borders?  Would the President pressure the Fed to drive nominal interest rates close to zero, thereby implementing Milton Friedman's optimum quantity of money?

Aphorisms by Juan Ramón Jiménez

I liked these ones:

The true poet reanimates in his work, in abbreviated form, the complete history of poetry.

The rose: how can it be naked and clothed, all at the same time?

In order to read many books, buy just a few.

I am humble among the serious, proud among the vain.

Here is a brief biography.  Here are more of his aphorisms.

Why did the Houston Rockets draft Yao Ming?

Yao Ming is (was?) a very good player and of course he looked great on paper.  He's now injured for the third season in a row and out for the year.  He has never been past the first round of the playoffs and it is not clear he will ever be healthy.  It is clear that players over 7'4" almost always have persistent injury problems; human beings with that frame were not meant to play professional sports, least of all contact basketball.  There are plenty of people that tall, but who has had the most successful basketball career?  I believe the answer has to be the not totally impressive Rik Smits. 

So why did the Houston Rockets draft Yao Ming?  They couldn't not draft him.  The lessons for financial markets are obvious.  Drafting Yao Ming is like writing the disguised naked put.  You see the money in front of you, you see the return in front of you, you see the potential in front of you, none of the alternatives are so glamorous, and so you can't not do it. Besides, other players get injured too.

Yao Ming, the naked put.  Think about it.

Odd Numbers blog, from Portfolio

It is very good, find it here.  You'll find posts on whether we should abolish the penny, why housing derivatives aren't more popular, and which is now the largest "emerging market" (Brazil, not China).  Thanks to Chris F. Masse for the pointer.

Should we waive legal liability for FDA-approved drugs?

So asks Megan McArdle.  The argument runs as follows:

I don't understand quite why FDA approval of drugs and medical devices hasn't long provided legal safe harbor for their manufacturers. The defects that show up, such as the Vioxx and Fen-Phen problems, are discovered long after approval precisely because they're so rare that they don't show up in ordinary clinical trials. If the government experts, who are presumably highly motivated to avoid catastrophes, can't spot the danger, why do we expect the drug companies to?

I can think of three possible rebuttals:

1. We simply can't trust the bureaucrats to find the flaws with drugs.  But note this is inconsistent with both the rhetoric of FDA defenders ("the FDA can work") and FDA critics, who argue we are overinvesting in drug safety as it is.

2. Lawsuits encourage the companies to look for problems once a drug is already approved.  Regulation does not.

3. People need lawsuits as a way of emotionally striking back.  If they are denied that privilege, they will demand ridiculously oversafe levels of regulation in the first place.  In this view regulation is as much about building consumer confidence in a health care system as it is about protecting people.

I do not currently have a view on this matter.  Do you?  Kevin Drum is opposed.

A Million Years of Logic, the End of Economics, and the Sociological Future

This entry is cross-posted at orgtheory.net, the social science and management blog. Also, please check out my on book politics and universities, From Black Power to Black Studies. Thanks for reading!

            We’ve reached the end of Logic of Life, Tim Harford’s engaging tour of economics and its lessons for everyday life. Harford ends the book on a highly speculative note about technology, economics, and growth. Tim does a good job summarizing the emerging consensus. The “normal” state of human life is poverty and near zero economic development. Once a community establishes reasonable institutions for commerce and trade, people can quickly produce and exploit technological advances. The effects are cumulative: once a nation allows markets to work beyond a certain threshold, the population experiences exponentially increasing benefits. The economists’ summary of world history is: “no capitalism = no growth, some capitalism = growth, growth, growth!!”

            This discussion is interesting because of the connections to ideas outside the normal realm of economics, especially in areas like psychology and, my own area, sociology. Here’s just one example. Harford discusses the idea that population size should correlate with innovation. Simply put, if you have a hundred million people, you’ll get a least a few geniuses. The inventions of these geniuses can be mass marketed, which fuels later growth episodes. Fair enough.

But where do “geniuses” come from? Turns out, there is a fascinating literature on creativity and achievement. A few names: R. Keith Sawyer, a sociologist/psychologist, writes eloquently on the emergence of genius from networks and groups. Sociologist Randall Collins wrote a highly regarded book on prominent philosophers showing that “genius level” philosophers tended to be clustered in space and time, suggesting that genius is made possible by very specific kinds of “hot house” situations. Other research, pioneered by Florida State psychologist Anders Ericsson, shows that high level performance isn’t just a matter of talent. It’s also a matter of specific training techniques and immersion in a topic. Basically, it’s not just talent that leads to achievement, it’s also the right kind of social environment.*

What’s the point? It’s this: Economics, as understood for hundreds of years, has played out. The major problems of econ 101 have been solved. We know about supply and demand, marginal utility, choice under uncertainty, and budget constraints. We have a wide variety of tools, ranging from game theory to econometrics, that help us identify  these processes in situations ranging from war, to car sales, to dating. We are also seeing how these processes plug into classic macroeconomic issues, such as growth and international trade.

However, the market system itself, as indicated by Tim’s concluding chapter, depends on population, innovation, and liberal economic institutions. These, in turn, depend on psychology, group culture, and networks, the domain of sociologists, psychologists, historians, and anthropologists. Economists have shown how the market system processes the inputs, but there’s still much, much more to be said about where the inputs come from. That’s what’s going to be exciting in the decades to come, and I can’t wait to see it.

* Author David Shenk nicely covers this research on his blog The Genius in All of Us.

Cuban jokes

One Cuban young woman complains to another. "He lied to me! He told me that he was a luggage handler! It turns out, he's nothing but a neurosurgeon!"

Explanation here.

The Case for Foreclosures, by Steven Landsburg

None of these foreclosed houses is going to disappear. After a foreclosure, one family moves out, and another moves in. We see the sad faces of the people moving out, but we don't as often see the happy faces of the new homeowners moving in. Nevertheless, those happy faces are out there, and we should not discount them.

Here is more.  I take the case against foreclosures to be the following.  The people getting kicked out lose their credit ratings and in the medium term they spend less.  The people moving in presumably have higher credit ratings but they probably aren't rich.  They transfer a big chunk of their liquid wealth to a possibly-low-propensity-to-spend financial institution.  So foreclosures lower nominal aggregate demand and in times of a downturn this can be bad.

Landsburg's title may just be provocative but I would make a distinction between the case for allowing foreclosures (I do not advocate that the federal government rewrite the mortgage contracts, although renegotiation could be made easier) and the case for foreclosures.  I should note he is quite correct to insist that foreclosure victims are hardly among the world's -- or even America's -- neediest cases.  If you think government can do anything well at all, ask what it can do for underprivileged young children.  On both justice and efficiency grounds the greatest potential gains lie there.  And continued home ownership is not the main thing they need.

The Spanish idea of the film canon

I've been reading César Vidal's El Camino Hacia la Cultura, which might translate roughly as "The Path Toward Culture."  Imagine a Spanish Harold Bloom, yet trying to be more representative than idiosyncratic in his canonical picks.  Overall his choices are what you would expect, albeit with a strong emphasis on modernism and in fiction he stresses the Continental novel of ideas.  The very useful poetry list is full of Spaniards.  Here is his list of the best movies (worldwide) since the 1990s:

Jacob's Ladder (TC: I love this movie), Dances with Wolves, Dreams (Kurosawa), JFK, Glengarry Glen Ross, Malcolm X, Groundhog Day, Schindler's List, Forrest Gump (ugh), The Shawshank Redemption, Braveheart, Fargo, The English Patient, Titanic, The Apostle, Saving Private Ryan, Matrix, Magnolia, The Sixth Sense, Nueva Reinas, El hijo de la novia, Gladiator, Return of the King, De-Lovely, Apocalypto (TC: !...another winner).

The absence of traditional indie cinema and most European cinema is striking.  Sadly Asian movies are missing altogether, except for Kurosawa.  Overall I am struck by a) the gutsiness of this list, and b) the author doesn't seem to see it as gutsy at all.

Spanking and Sex

Spanking Kids Increases Risk Of Sexual Problems As Adults.

Spanking Children Causes Sexual Problems Later in Life.

Researchers have uncovered another damaging consequence of spanking: risky sexual behaviors, or even sexual deviancy, when the child grows up.

Those are three headlines about a new study by long-time spanking opponent Murray Straus.  All are nonsense.  Straus's study, which does not appear to be available yet but which is described at the links, surveyed "14,000 university students in 32 nations."  The basic finding is that survey responses about being spanked in childhood are correlated with verbally and physically coercing someone into having sex as an adult.

Need I shout it from the rooftops?  Correlation does not imply causation! 

Here is a simple alternative explanation of the data.  Bad kids are spanked a lot.  Bad kids turn into bad adults.

I bet MR readers can suggest several other explanations as well.  In addition, there are a number of other oddities with the study including some which lend support to my potential alternative explanation, I'll mention a few of these in the extension.

By the way, I'm not a proponent of spanking.

Addendum: Andrew Sullivan offers further analysis.

Here are some more oddities about the study.  According to this report:

"the study found that 29 percent of the male and 21 percent of the female students had verbally coerced sex from another person....The percentages of those who physically forced sex were much lower: 1.7 percent   of the men and 1.2 percent of the women...."

Don't these percentages seem very high? Especially for the women?

And get this,

"Straus found that 15 percent of the men and 13 percent of the women had insisted on sex without a condom at least once in the past year.

Using the four-step corporal punishment scale, Straus found that of the group with the lowest score on the corporal punishment scale, 12.5 percent had insisted on unprotected sex. In contrast, 25 percent of students in the highest corporal punishment group engaged in this type of risky sex."

13 percent of the women insisted that the man not use a condom?

More importantly, I believe that there is a causal connection between child abuse (rather than spanking) and later problems of violence but to me a connection between the kid being spanked and later engaging in risky sex is especially suggestive that the connection is a risk-loving person.  Children who take a lot of risks, like running out on to the street a lot, are going to get spanked more.  Later these same children also engage in risky activities.  Not having seen the data I would be willing to bet that spanking is also correlated with skydiving, not wearing your seatbelt, gambling, and many other risky behaviors which are plausible not caused by spanking.

Finally, how about this for a non sequitur of the day:

"because over 90 percent of U.S. parents spank toddlers, the potential benefits for prevention of sexual and relationship violence is large,” Straus says."

What's the real European growth rate?

During my visits in England and Spain -- admittedly two of the winners -- I was wondering if we haven't underestimated European growth rates.  It is well known that when new commodities are entering the market, measured growth rates can significantly understate the real increase in well-being.  (Imagine that the price of an iPod fell from infinity in 1995 to $200 or so today; measuring this gain in terms of "more bundles of $200 in value" is missing some of the very high gains from those people who love iPods but were previously "at a corner" of no purchases, due to unavailability.)

So how does this apply to Europe?  I'm not mainly talking about iPods.  Rather migration is rampant.  When a Pole moves to London he can buy many more goods and services.  It's a big move up in real income plus lots of new goods are introduced to the consumption basket.  So when there is lots of voluntary movement from poorer to richer regions, changes in measured income will understate some of the true gains.

Frequently I stressed to Spanish reporters just how big a success their country and economy has been; they almost didn't believe me.  When I said things like: "Spain is in a much better competitive position than China, which still doesn't have half the per capita income of Mexico" they were truly shocked.

21 accents

Of the lot I enjoyed the Kiwi imitation most, but they're all good.  I was least convinced by Texas.

Is federalism unfair to urbanites?

Ed Glaeser writes:

Poor people come to cities because urban areas offer economic opportunity, better social services, and the chance to get by without an automobile. Yet the sheer numbers of urban poor make it more costly to provide basic city services, like education and safety, and those costs are borne by the city's more prosperous residents. Taking care of America's poor should be the responsibility of all Americans. When we ask urban residents to pick up the tab for educating the urban poor, then we are imposing an unfair tax on those residents. That tax artificially restricts the growth of our dynamic cities.

It is fair to say that urban dwellers receive higher positive and negative externalities from their neighbors, relative to suburbanites.  I'm not sure why the bundle as a whole is unfair, least of all to the wealthier city residents (or why there is so much talk of unfairness to the wealthy in the first place), or for that matter why it is a significant marginal distortion.  The net value of the externalities is surely positive for people who live in cities and pay the higher rents.  All taxes involve some distortions but it seems like what is essentially a tax on city land does not involve a higher distortion than the average tax, if anything the contrary.  What's really the case for lower property taxes and higher federal income taxes, combined with a move against federalism?

If there is any unfairness, maybe it is toward the people can't afford to live in desirable cities but would like to.  If we lower the property tax burden in cities, rents will rise and this problem will become worse rather than better.  The more general point is that urban land owners, not all residents, benefit disproportionately from good policy changes.  Urban improvements have unfair distributional effects by the very nature of city land.

If there is a case for federalizing urban education and welfare, surely it refers to what will help the poor (if indeed that would), not what will help the urban non-poor.  And are city residents even a meaningful class of people to which the concept of fairness applies in a significant way?  Glaeser is very very smart but frankly I found most of this piece puzzling; perhaps I have misunderstood him.

Are there countercyclical cultural trends?

In other words, which trends or tendencies flourish when the economy is underperforming?  This source makes a (weak) case for facial hair.  In 1926 George Taylor claimed that hemlines went up with strong economies; presumably skirts become longer when times are bad.  This post and chart suggest that dystopian science fiction movies go away in bad times.

Which of these tendencies -- if any -- are the most reasonable to actually believe?

Paul Krugman on trade and wages

Here is his new paper, but start first with this Mark Thoma summary, and two graphs from Brad DeLong.  The main point is that some U.S. imports may be more labor-intensive and less skill-intensive than previous classifications had indicated.  Here is one key paragraph (p.20):

But what are we to make of NAICS 334, Computer and Electronic Products? In U.S. data it ranks as the most skill-intensive of industries, yet it is also an industry in which more than three-quarters of imports come from developing countries, especially China.

If these sectors count as "importing labor," we can find that trade is creating more downward pressures on U.S. wages than we had thought. 

I don't think Krugman is quite right to claim: "the apparent sophistication of imports from developing countries is in large part a statistical illusion."  I would sooner say that China and some other Asian countries are specializing in new (and sophisticated) techniques of cooperation, made possible by long-term historical investments in human capital and social norms.  At least in certain sectors, they are combining complementary labor inputs, with complementary capital inputs, more effectively than before; it's hard to explain that change in the impoverished vocabulary of the substitution-obsessed Heckscher-Ohlin model.  The skill is in the combination not in the people themselves.  "Capital-intensive" vs. "labor-intensive" or "skilled" vs. "unskilled" are not simple either/or questions.   

So I think Krugman is confused on the semantics, but in the final analysis this perspective supports and perhaps even strengthens his point.  If the paper looked at wages and employment in northern Mexico, following the move of China onto the world stage, the revisionist conclusions would fall more easily into place.  On one hand Chinese competition hit Mexico (a home of unskilled but relatively cooperative labor) very hard; on the other hand northern Mexico responded successfully by moving up the value chain rather than by folding and losing.  Both developments suggest that the Chinese competition is not just a simple example of skill-intensive labor.

You might say: "Chinese competition with northern Mexican textiles and plastics isn't at all like Chinese competition in the hi-tech sector."  I would sooner say: "The Chinese are applying common production techniques across the board."  Of course the phenomenal Chinese levels of both personal savings and labor migration to urban areas also support the overall interpretation of complementarity.

Addendum: Here is a good paper on the changing nature of Chinese exports.