Marginal Revolution

RateMyCop.com

Inspired by the many Web sites that allow users to rate their teachers, their doctors, even their neighbors, a couple from Culver City have created one that allows people to rate police officers and sheriff’s deputies across the country.

Here is the link.  Here is the site.  I don't see any ratings for "hotness"; I guess that is only for the professors.  There do seem to be more positive reviews than negative ones.  I would on net expect this site to make the world a nicer, freer place, given the benefit of the doubt that abusive cops receive from the system.  I also believe this is the beginning of a much wider trend...what will be the next profession to be rated?

Scream it from the Rooftops

Shark's Fin and Sichuan Pepper: A Sweet-Sour Memoir of Eating in China, by Fuchsia Dunlop, due out in mid-April.

She is one of the writers I revere most.  And yes, I know she is usually a cookbook writer, but I do mean her writing, not just her recipes.  The more general point is you should expect to see many of the best writers, today, in new media and genres, not in the old.  I saw notice of this, by the way, in the vastly superior to almost anything else London Review of Books.

Trading in space

Money has no value in space. When seven astronauts are living together in a cramped atmosphere the psychology of small isolated groups kicks in. Whoever has squirreled away the most M&Ms, tortillas or coffee has the most bargaining power. Those are items that are most prized at the end of a mission if someone runs short in their own stash. Astronauts' meals are color coded on shuttle missions -- and reliable sources tell ABC News some astronauts aren't above switching the colored dots on their dehydrated meals if they have run out of say, lasagna, on day six and have way too much creamed spinach left.

Here is more and the story is interesting throughout.  Are they not allowed to bring money on the ship or does money temporarily lose its function as a general medium of exchange?  Does the use of money, or the promise of money, break down spaceship norms?  They're allowed to bring iPods, so can songs become a medium of exchange?  Or does preventing a general medium of exchange produce network externalities (increasing returns) to enhance the liquidity of all the other goods which need to be traded?  You do in fact get the tortillas being squirreled away.  Can this be a case where the emergence of a general money would be inefficient?

Pollo Campero

The company, part of the Corporación Multi Inversiones, a diversified privately owned group with interests including finance, real estate, construction and agriculture, does not post earnings. But, according to reliable sources, total income last year was between $380m and $400m (£199m) (€254m). That is about 1.2 per cent of Guatemala’s gross domestic product [emphasis added].

...the best example of how it has adapted its image is China, where the company used its heritage to appeal to the local crowd – even though Guatemala is not usually associated with things most foreigners identify as Latin American, such as soccer and Salsa.

“Chinese people are obsessed with Latin pop culture but they don’t really distinguish between countries,” says Mr Weaver. “So we tried to associate ourselves with figures such as Ricky Martin as well as with Latin American and Spanish football,” he says.

So far, thanks also in part to a new “extra crisp” line of chicken, sales are reportedly strong. Juan José Gutiérrez, Pollo Campero’s chief executive, recently told La Opinión, the US Spanish language daily newspaper, that: “The Latin concept is well received and they loved our chicken.”

Here is more.  It is very good chicken, I like the branch in Falls Church, on Colombia Pike.  I might add that there is a notable trend of successful Latino multinationals.  If Pollo Campero shows nothing else, it is too early to pronounce the Latino market-oriented reforms to be failures.

The best sentence I read today

So there is a possibility that what has looked like peak oil to some observers (something I believe is coming), was actually GCC [Gulf Cooperation Council] countries investing by not extracting oil.

Here is more.  In these models, once oil prices start falling, they can fall very fast indeed.

Progress on Dual Tracking?

One hundred leading European officials in health regulation, the pharmaceutical industry, and the health media will gather in Stockholm March 27 to discuss a new proposal that would enable patients to gain faster access to life-saving drugs not yet approved by regulators.

One track of this new proposal, known as "Dual Tracking," provides that patients and their doctors try to minimize risk by using only approved drugs as they do now. On the other track, patients and doctors can choose not-yet-approved drugs that have passed safety trials. Patients would be able to balance their own preferences for risk with substantial new opportunities for health improvement. (Quoted here.)

See Bart Madden's More Choices, Better Health (pdf) for a very good explanation and defense of the dual tracking proposal.

Assorted links

1. Crisis vs. recession.  Via Felix Salmon, here is a wise account from India, it is still likely to be true.

2. Are tips discriminatory against African-Americans?

3. Money does make you happy -- if you give it away (via Jacqueline Passey)

4. The economics of Gawker bloggers

The Other Ex-Ante Moral Hazard in Health: You are too Healthy

If you catch a disease or condition, and therefore you make the number of sufferers from that condition more numerous, the chance they will find a cure or partial solution is much greater.  That benefits many other people, not just yourself.  In other words, you will overinvest in being healthy.  There is much more here.

The permanent tax revolt

...the fractional assessment of homes was easily the largest single government housing subsidy in the postwar era, and it was among the largest categories of social expenditure of any kind, direct or indirect.  Fractional assessment of residential property provided a subsidy that was forty times greater than federal spending for public housing.  It was ten times greater than the home mortgage interest deduction.  It was five times as costly as more controversial "welfare" programs like Aid to Families with Dependent Children.  Although fractional assessment did not show up on official government budgets, on the eve of the tax revolt it was providing more benefits than any other social policy in America except for the twin blockbusters of the federal budget, Social Security and Medicare.

That is from the new book The Permanent Tax Revolt: How the Property Tax Transformed American Politics, by Isaac Martin.  The main thesis of this book is overstated, namely that the professionalization of property tax assessments is the root cause of American exceptionalism on tax politics; nonetheless I found this a very informative and stimulating read.

Why are commodity prices rising so fast?

Well, today they're not, they seem to be plummeting.  Still they have been rising rapidly for years.  Paul Krugman surveys some views, click through to the Frankel post as well.  Yes I do think high and rising commodity prices have been a bubble -- but not just a bubble -- and no I don't think that low real interest rates are much of a factor.  (Recall Cowen's Third Law: "All propositions about real interest rates are wrong.")

My basic explanation for rising commodity prices is simple.  Most commodities are produced under conditions of short-run rising costs, often quite steeply rising short-run costs.  Furthermore many production processes cannot do without these commodities in the short run.  Coal, copper, and the like are not always easily substitutable for a factory within the medium run.  (Furthermore until you are sure that the price increase is permanent, why re-gear at all?  Why switch from copper plumbing to plastic plumbing, when price of copper might fall again?)

Now China has become wealthy quite fast but the country didn't become wealthy by producing more commodities.  That's Albert Hirschman's "unbalanced growth."  So demand for most commodities has outstripped the supply, production can't make up the difference in the short run, and commodity prices can rise sharply.  Don't forget that logistics and transport are a big part of the production process and so infrastructure often constrains the flow of supply.

In the long run price will adjust (even if you believe we are near "peak oil" this is true for most commodities.)  People will substitute or find new sources of the commodity or find new ways of producing the commodity more efficiently.  Infrastructure improves.  But yes those adjustments can take ten years or more.  And in the meantime we have a commodity price boom and on top of that a bubble to make these items look even more expensive.

One final kicker: lots of commodities are produced by governments and/or their production is heavily controlled by governments, most of all oil.  Then supply adjustments will be especially slow and cumbersome.  Read this article about coal:

...94 percent of India's coal mining is in the hands of government-owned companies. The biggest, Coal India, produces four-fifths of the country's coal. Because the government is worried about social unrest, the prices for coal and electricity are kept low.

See the problem?

The bottom line: The best long-run bet is still that there is nothing special about risk-adjusted rates of return on commodities.  That probably means falling real prices and falling real costs over time.  The Chinese demand aberration is a temporary blip superimposed on very consistent longer-run trends.

Why have burglaries declined?

Eric H. points to the question of why burglaries have declined steadily, when other crime rates have been more volatile.  Here is one bit:

Criminologists have a lot of theories why burglaries are so different..."If you're going to do a burglary, you need to have some buyers," Mathis says. "Everybody has everything now."

Mathis says there's just too much on the street already. Everyone he knows already has a digital camera, iPod knockoffs and pirated DVDs shipped in from China. "And if it's not new, a lot of people don't even want to fool with it," Mathis says. Forget about last year's video games and old laptops, Mathis says. And don't even bring a VCR or boxy TV to the street.

"You can get a TV for nothing almost," he says. "People are giving them away now."

In other words, we have fewer burglaries because of low wages in China.  You'll note that the standard Baumol-Bowen model of the cost-disease predicts an ongoing decline in burglaries.  Goods become cheaper over time, and thus not worth stealing, while services grow more expensive over time.  It is usually harder to steal services so burglary rates should fall.

The article also cites the decline of heavy drug use, better locks and deadbolts, and more widespread use of locks, plus less cash left around the house.  Some experts cite greater neighborhood vigilance.  Note that robberies are not falling in similar fashion, which suggests that criminals prefer to get the victim away from home turf advantage.

Here is further information.  British burglary is falling too.

All you can eat?

Allegedly tipped off by senior officials close to the matter, the Financial Times suggests that Apple is in talks with music labels to follow an approach first pioneered by Nokia and Universal Music Group.

Dubbed Comes With Music, the upcoming service has customers pay more for a cellphone in return for as many a la carte music downloads as the customer likes over the course of a year. In this implementation, customers can either renew a subscription once it expires or else keep the tracks they've downloaded, even if they switch to competing phones or music services.

Here is the article.  One point is that songs will get shorter and their best riffs will be held to higher standards of immediate accessibility.  If the marginal cost of a song is free, people will sample lots more and they will give fewer songs a second listen (higher opportunity cost); of course the opening bits of a song are already free in many cases but this will make sampling even easier.

Second, this will redistribute more of the market surplus away from song providers and toward hardware providers.  Say everyone bought the "all you can eat" version and Apple received zero revenue per song (there are few songs that will swing a decision to subscribe or not).  TAddendumhat helps Apple in its bargains with individual song providers.  If you have a hit song, and Apple controls iTunes, there's an element of bilateral monopoly.  So Apple is better off if it can precommit to not caring whether they have your song or not.  On the music company side, there would be a tendency toward consolidation, and bargaining over catalogs rather than songs, to offset Apple's new bargaining advantage.

What other effects can you think of?

Addendum: Some sources are claiming this is just a rumor.

Liability Law and Firm Size

I would like to tile my front porch steps and have been shopping.  Lowe's and Home Depot have plenty of tile but although they advertise installation they won't install it outdoors.  The salespeople, however, will surreptitiously recommend small family contractors.  Call Jose, they tell me handing me a number.  Why won't the big firms install outdoor tile?

As best as I can figure the answer is liability.  A few slips, falls and an enterprising lawyer or two and Lowe's could be out millions of dollars.  The revenues aren't worth the risk so small firms step into the breach.  The key, of course, is that the small firms won't be sued because they are judgment proof.

Roberta Romano was here yesterday and offered another example.  The big auditing firms won't do SOX audits for small firms because the revenues are low relative to the risks.  The smaller firms must turn to judgment proof auditors of less reliable reputation. 

In one sense, this is a good workaround for a liability system that seeks out deep pockets.  Consumers are better off than they would be if neither Lowe's nor the judgment proof firms offered services and they are also better off than if Lowe's was required to offer services, because the price at which Lowe's would do so voluntarily would be prohibitive (consumers would be forced to buy insurance they didn't want at the price). 

But more deeply the resulting system is inefficient.  Consumers don't get the insurance that the liability law is supposed to provide and they must turn to lower quality, higher cost service providers even when they would prefer larger firms with solid reputations. 

Assorted links

1. This is not a Belgium

2. How to focus in clutch moments

3. Is the Riemann hypothesis being solved?  More here, on de Branges (gated, but excerpted in the comments section).

4. The latest books on happiness

On the way to the airport

Here are my tips for how to survive a trip to or from NYC's LaGuardia airport, always a daunting experience.  You will notice the piece is on Mark Bittman's new New York Times food blog, which you should be reading anyway.  Don't forget these words of mine:

Just think how much you are saving: what’s really scarce in life is your time and the mere willingness to get up and go. Just do it.

Elsewhere in the world of food blogging, there is a new blog on the economics of food and wine.

The realignment of the regulatory powers

Two thoughts: First, the very active role of the Fed in the Bear Stearns crisis must, in the long run, give rise to a fundamental revaluation of the role and powers of the SEC, the entity technically responsible for investment banks.  The SEC now appears relatively toothless.

Second, the more commitments made by the Fed, the more we lose the (quasi) independence of our central bank; for a large commitment Treasury sign-off is needed.  The realignment of the regulatory universe will eventually emerge as a big story from the current crisis, though it is hardly commanding much attention right now.

Paul Volcker comments.

Sherry Glied's new health care paper

It is one of the best health care papers in recent times, it is here, I cannot find an ungated version.  Glied reminds us that only about 1/3 of American health care spending comes from private insurance.  Moving to international comparisons, the more general point is that:

...there is no persistent and regular relationship between the structure of system financing and the rate of growth in per capita health expenditures in a health system...the efficiency of operation of the health care system itself appears to depend much more on how providers are paid and how the delivery of care is organized than on the method used to raise the funds.

In other words, as I've stressed before, the health care cost problem comes from immediate suppliers, namely doctors and hospitals, and not from health insurance companies.

The best parts of the paper concern equity.  It is GPs which help the poor, not additional spending on technology or surgery; see p.18 for other comparisons along these lines.  Furthermore, and this you should scream from the rooftops, consider this:

...patterns of health service utilization in developed countries suggest that the marginal dollar of health care spending -- money used to purchase high tech equipment or specialist services -- is less progressively spent than the average dollar.

In other words, egalitarians should not allocate marginal government spending to health care.  And there is evidence that the more a government spends on health care, the less it spends helping people in money ways.  That is, there is crowding out. 

Finally, Glied offers a summary comparison:

Putting $1 of tax funds into the public health insurance system effectively channels between $0.23 and $0.26 toward the lowest income quintile people, and about $0.50 to the bottom two income quintiles. Finally, a review of the literature across the OECD suggests that the progressivity of financing of the health insurance system has limited implications for overall income inequality, particularly over time.

Highly recommended.

The economics of "bailouts"

Paul Krugman writes:

...(according to Reinhart and Rogoff) the resolution of Sweden’s financial crisis imposed a fiscal burden — that is, required a taxpayer-financed bailout — equal to 6 percent of GDP. That would be $850 billion in America today. Just saying.

It's worth noting that such costs consist mostly of transfers rather than real resource costs.  Most of the costs of overinvestment in housing already have been borne in the form of lower living standards, namely we have fewer non-housing goods and services.  Making debt obligations whole again does involve higher taxes but most of the money is sloshed around; the government doesn't dynamite any factories or homes.  It should bother you if you think taxes are already too high but of course that doesn't describe everyone.  Furthermore if the destruction of the debt claim would otherwise have been deflationary, some of that debt can be monetized (thus, taxes don't go up) without raising the risk of inflation.  (TC: the Swedish number seems to be wrong, see the first comment.)

Here are a few other points about bailouts, or non-bailouts, as the case may be:

1. Most plans for Fed assistance aren't bailouts at all.  It is pretty easy for the Fed or Treasury to virtually wipe out shareholders.  The real "bailouts" come when the institutions are allowed to stay open and continue taking risks.

2. The Fed's regulatory powers make crisis deals less than fair.  If you, as a bank, don't accept the Fed's terms, you can be prosecuted or thrown in jail or at least ruined by your friendly regulator.  Being an advocate of the rule of law, I'm not entirely comfortable with this arrangement, but it does mean that the Fed has a much easier time managing crises. Keep in mind also that the failing banks are indeed the most likely ones to have been criminal, so the unfairness is not usually being applied to the innocent.

3. If you think the managers were in charge, and will remain in charge, the real moral hazard problem is the severance pay for the failed managers, not the so-called bailouts.

4. If you're a critic of bailouts, you can't have it both ways.  If the Fed or Treasury is guaranteeing loans, yes that does put taxpayer dollars on the line.  But if you think the system can hold up, as do most bailout critics, those guarantees are unlikely to cost very much.  The Fed or Treasury may even turn a profit.  If you think the system cannot hold up, the bailout is probably necessary even if costly.  So you can't claim: "The bailout isn't needed" and also "The bailout will burden taxpayers." 

Addendum: By the way, do read David Leonhardt on "what really happened."

How bad news can be good news

This is from an old MR post, summarizing Bernanke's contributions to economics:

1. The theory of irreversible investment, circa 1983. Before Bernanke, Dixit, and Pindyck, models often assumed that investments could be reversed or "taken back."  Bernanke outlined how the irreversibility of investment might matter.  Often individuals will choose to wait and sample more information, rather than make an immediate decision.  Small changes in information could lead to big fluctuations in investment.  Large changes in interest rates might have little effect.  Bad news can hurt you more than good news helps you.  This was Bernanke's first major contribution to economics [and I believe part of his doctoral dissertation].

In this model it is also the case that bad news can cause equity prices to rise.  If the bad news resolves outstanding uncertainty, people may be willing to go ahead and invest, rather than continue to play wait and see.  One way to think about it is that the news could always have been even worse, so bad news can in effect be good news.  Another way to think about it is even truly bad news gets the waiting over with and spurs investors to cross a "do something" threshold.  Now I'm not saying that is what happened today, I'm just saying that maybe this thought crossed Bernanke's mind...

Addendum: Elsewhere in the wonderful world of finance, here is why Bear Stearns is selling for more than $2 a share...

Markets in *everything*, a continuing series

*Tenure*, the movie, starring Luke Wilson.  Seriously.  They are about to start shooting.

Fear

We have nothing to fear but fear itself, but fear itself can be pretty scary.

...Fear is ruling the financial markets. Billions of dollars have been lost in mortgage-related investments. The Federal Reserve worked madly over the weekend to engineer a takeover of Bear Stearns and avert a systemic meltdown. But the big fear remains. How low will house prices go?

If prices continue to fall, mortgage defaults will move well beyond the subprime sector. Trillions of dollars in losses for investors are not impossible. But that doesn't mean they are inevitable.

That's me in today's New York Times.  Believe it or not, my piece is one of the more optimistic pieces you are likely to read on the housing crisis.

I think that housing prices went beyond the fundamentals sometime around 2004 (and I said so in 2005, see here and also note my warning that prices could fall dramatically here).   But 2004 levels are still well above long run trend.  Thus my optimism stems from thinking that unlike Japan, our housing prices need not fall back to long run trend (see my piece for graphs).

But the problem is that we can overshoot the fundamentals going down as well as going up and the United States now faces two potentially self-fulfilling prophecies.

If the financial markets can predict where and when house prices will stabilize, then credit conditions can quickly return to normal, the economy can expand and house prices will indeed stabilize.

But if the financial markets remain uncertain about when the decline in house prices will end, then fear will tighten credit even further, which would strangle the housing market and generate even more fear.

Unfortunately, I do not know what will push us into the right prophecy (but read my piece, that will help!)  Thus, I am more optimistic than Paul Krugman, who thinks that we may have slipped into the state where no prophecy can bring us back to a good equilibrium, but I'm not that much more optimistic.

Claims about Spanish banks

...perhaps the most important reason why the Spanish financial system is unlikely to suffer a meltdown is the virtual absence of Special Investment Vehicles (SIV) and conduits. These animals allow banks to move mortgage-backed securities off their balance sheets, thus obscuring the exposure of individual institutions and escaping capital requirements.

There is much more here.  Note also that Spanish originators keep a share of each mortgage they securitize.  In case you didn't know it, Spain too has had a bursting of its real estate bubble, although so far they have not had comparable troubles with their banks.

gdp vs. gdp per capita

Using growth in GDP per head rather than crude GDP growth reveals a strikingly different picture of other countries' economic health. For example, Australian politicians often boast that their economy has had one of the fastest growth rates among the major developed nations—an average of 3.3% over the past five years. But Australia has also had one of the biggest increases in population; its GDP per head has grown no faster than Japan's over this period. Likewise, Spain has been one of the euro area's star performers in terms of GDP growth, but over the past three years output per person has grown more slowly than in Germany, which like Japan, has a shrinking population.

Some emerging economies also look less impressive when growth is compared on a per-person basis. One of the supposedly booming BRIC countries, Brazil, has seen its GDP per head increase by only 2.3% per year since 2003, barely any faster than Japan's. Russia, by contrast, enjoyed annual average growth in GDP per head of 7.4% because the population is falling faster than in any other large country (by 0.5% a year). Indians love to boast that their economy's growth rate has almost caught up with China's, but its population is also expanding much faster. Over the past five years, the 10.2% average increase in China's income per head dwarfed India's 6.8% gain.

Here is more.  Of course it is wrong to think that one measure is necessarily better than the other.  And immigration and more births both raise absolute gdp though you may not view the gdp gains in each case as having the same moral status.  One simple adjustment that could be made is to subtract the income an immigrant would have earned, had he or she not moved to a new country.

Forget your cares and dream about Alesund

That's in Norway and if you live there you don't even have to worry about oil prices going up; fortunately I've been paying off the mortgage rather than buying new stocks (though JPMorgan is up), so maybe I can visit.  Here are other memorable photos, albeit not of Alesund.

My podcast on macro and monetary policy

It is with Russ Roberts and it covers the roots of our current crisis, why things are far more troublesome than most people expected (and that is the really tough question; real estate bubbles have burst before), why monetary policy matters at all, the tricky balancing act played by the Fed, why a gold standard isn't the answer, and many other macroeconomic topics.  My core attitude, in case you don't already know it, is that monetary policy is both an art and a science and there are no secret ways of getting it right, understood by only a few.  The podcast is here. 

Addendum: Arnold Kling summarizes.

The Holiday-Year Challenge

Suppose you want every day to be a holiday.  To fulfill your dream you can travel around the world.  You can take up to a 3-day holiday, like Japan's 3-day New Year, but not the 12 days of Christmas.  You can also count Sunday or equivalent day of rest as a holiday.  Can it be done?  What is the longest holiday stretch possible? 

Surely you all wondered the same

Not all investors are expected to be pleased with the deal. A conference call with investors and analysts on Sunday night was broken up when a Bear Stearns shareholder sought an explanation of why he would be better off approving this transaction rather than seeing Bear Stearns file for a Chapter 11 bankruptcy.

The JPMorgan executives demurred, instead referring the investor to Bear Stearns executives for an explanation. The shareholder declared that he would vote against the deal.

Afterward, Mr. Cavanaugh said JPMorgan felt comfortable in pulling the trigger despite the short due-diligence process. “We’ve known Bear Stearns for a long time,” Mr. Cavanaugh said.

Vis-a-vis that last sentence, last year the stock price was $170, late Friday it was $30 a share, yesterday the deal was done at about $2.  Here is the story.  From published accounts, the nature and extent of the Fed and Treasury obligations is not yet clear.

Always Low Prices

Given that the company headquarters is said to be worth about $1.2 billion, that gives the BS [Bear Stearns] banking business a value of negative $1 billion.

That's John Quiggin.  As Matt Yglesias points out, maybe the building isn't worth $1.2 billion any more but that isn't reassuring economic news either.

Common Wealth: Economics for a Crowded Planet

That's the new Jeff Sachs book.  It promotes resource pessimism, Nordic-style social democracy, foreign aid, and a fundamental rethinking of U.S. foreign policy.  Most of all it expresses a faith in global cooperation.  Sachs is very smart and, though I do not agree with him, there is often more to his views than his critics admit.  But my browsing of this book never gave me the feeling that I had access to the mind of Jeffrey Sachs.  It doesn't even read like a popularization.  Imagine a smart and diligent but not insightful or self-reflective person doing a "color by numbers" version of what a Jeffrey Sachs book should read like.

Chicken

Suppose that Monday morning, Ben Bernanke is presented with a deal, under which a buyer gets Bear assets on the cheap, Bear stockholders get paid out, and the Fed (implicitly or explicitly) bears residual risk. If the Fed doesn't approve, executives say, Bear will file for bankruptcy. Dr. Bernanke will then have an unappetizing choice. He can say yes, and hope that there aren't any more rumors out there about any other firms. Or he can say no, and make it very clear that if Bear Stearns files for bankruptcy despite the Fed's continuing provision of liquidity, he will do everything in his power to hold Bear executives personally responsible for the crisis that results.

Who do you think has more bargaining power in this game?  The firm with the reputation for obnoxiousness and recklessness, or a charming, intelligent and indeed gentlemanly central banker?  We may know soon enough.  Here is more, and here, and don't forget this.  Here is a news report, if you are interested in the background.

Update: Seems to be a deal...at about $2 a share.  Book value of about $80 a share. 

Cop in the Hood

Motivated primarily by a desire for court overtime pay, police officers want arrests on their own terms, ideally without victims, complaints, or unnecessary paperwork.  Young officers make more arrests than veteran officers.  These officers believe that making arrests is police work.  In my squad, the top three officers in arrest totals were three officers with the least experience.  An arrest-based culture can exist in a low-drug environment, but without a limitless supply of arrestable criminal offenders, an arrest-based culture cannot make a lot of arrests.  Neighborhoods, without public drug dealings will not produce a high number of arrests.

That is from Peter Moskos's truly excellent Cop in the Hood: My Year Policing Baltimore's Eastern District.  This is one of the two or three best conceptual analyses of "cops and robbers" I have read.  It is mandatory reading for all fans of The Wire and recommended for everyone else.

Assorted links

1. Greg Clark on China and Arrighi

2. Economists study African-American women

3. New futures/options on non-farm payroll

4. Gambler sues bookmaker after losing his money

5. Markets in everything: a whole radio channel devoted to Spitzer news

6. The raid on UC Berkeley?

Many thanks to readers for these pointers...

How many books should be facing out?

To boost sales, retailer Borders Group is taking a simple but radical approach, our colleague Jeff Trachtenberg reports in today’s Wall Street Journal. Borders is increasing the number of books that it displays with the cover facing out (rather than the spine facing out), even though this shelf-space-eating approach will require cutting inventory at each store up to 10%. Says one analyst: “Breakfast cereals are not stocked end-of-box out. […] It’s a little bizarre that it’s taken booksellers this long to realize that the point of self-service is to make the product as tempting as possible.”

The link is here.  I understand the basic model as follows.  Superstores first invest in high inventory and a tony reputation.  You start thinking of them as "the place to go" for books, or in an earlier era, for music.  They then devote more and more of their space to non-book items.  The number of greeting cards and chocolates stocked by my Borders has risen steadily over time, as have the size of the coffee shops.  Having more books "face out" -- at least they are books -- is one of the lesser aspects of this more general problem.  It's related to why most trendy restaurants peak in the first year and a half of their operation, followed by decline and then stagnation.  Once they have a high enough (and sticky enough) reputation, it is time to cash in and lower the quality of the product to the informed and more sophisticated buyers.