Marginal Revolution

W.H. Auden on banking

Auden wrote the following praise to Cyril Connolly about his recently published book:

As both Eliot and Edmund Wilson are Americans, I think Enemies of Promise is the best English book of criticism since the war, and more than Eliot or Wilson you really write about writing in the only way which is interesting to anyone except academics, as a real occupation like banking or fucking, with all its attendant boredom, excitement, and terror.

That is from Stefan Collini's often quite interesting Common Reading: Critics, Historians, and Public.

What does campaign finance do?

Here is Ed Lopez's survey article, here is the survey from Thomas Stratmann.  Overall the academics who work on this issue tend to see the practical ramifications of campaign finance restrictions as very often constituting less than meets the eye.  It's also well understood that most campaign finance reform benefits incumbents, who already have name recognition.

The pointer is from Ed Lopez, who notes:

Consider two ratios.

1. In 2000 the federal government spent about 1.8 trillion (~18% of GDP), and total campaign expenditures on all federal elective offices was about $1.85 billion (about $1b on congressional races, $0.35b on presidential, and $0.5b in soft money). So federal public sector advertising was 1/1000th of federal public spending. Ratio 1 = 0.001.

2. In 2000 the private sector share of GDP was about $7.5 trillion (after federal, state and local spending net of intergovernmental transfers), and total private sector advertising, according to Advertising Age, was $240 billion (Statistical Abstract Table 1251). So private advertising was 3.2% of private spending. Ratio 2 = .032.

By this comparison, private sector advertising is more than thirty times greater than the amount we spend on federal elections trying to make sure we get the right person for the job. Given how much we expect from our federal government, isn't it surprising that campaign spending isn’t twice, or even ten times, more than it is right now?

Ed thinks that campaigns need more money flowing through them, not less; I don't have a personal view on this issue.  Reihan Salam offers interesting comment on recent controversies surrounding Barack Obama.

First Stop in the New World

The subtitle is Mexico City, The Capital of the 21st Century.  If you are familiar with this charming metropolis, it is a superb book.  Excerpt:

Apart from the obvious problems of traffic and transportation, the growth created other confusing complications.  Today, out of the city's eighty-five thousand streets, there are about eight hundred fifty called Juárez, seven hundred fifty named Hidalgo, and seven hundred known as Morelos.  Two hundred are called 16 de Septiembre, while a hundred more are called 16 de Septiembre Avenue, Alley, Mews, or Extension.  Nine separate neighborhoods are called La Palma, four are called Las Palmas, and there are numerous mutations: La Palmita, Las Palmitas, Palmas Inn, La Palmas Condominio, Palmas Avenida, La Palma I y Palma I-II Unidad Habitacional.

Here is the Amazon link.  Here is the author's home page and blog, which has an excellent Raymond Chandler quotation.

Is microfinance the new subprime?

Ryan Hahn asks:

In the case of microfinance, however, it seems to me the problem of limited liability is rearing its ugly head. Poor borrowers generally have little or no collateral, so they usually have little reason to avoid a strategic default.

It is a common myth that microfinance loans have no collateral.  I sooner worry that the process of collateralization is too thorough.  Remember that microfinance loans are made to small groups of five to ten people, typically neighbors.  If you don't pay up, your associate has to.  The reality is that the person left holding the bag -- who knows you well -- will come seize your TV set or in some cases the process is a bit less pleasant.  Part of the efficiency of microfinance is simply the separation of the lending and the "thug" functions.  Banks can lend to high-risk individual borrowers without themselves resorting to the illegal intimidation practices of the village moneylender.  The dynamics of cooperative behavior in the village are not always pretty but overall it works better than the moneylender; if nothing else the person seizing the collateral knows that next time around he or she may be the non-payer.  For more detail, see my Wilson Quarterly article with Karol Boudreaux.

Assorted links

1. Seth Roberts on why people touch their mouths

2. Blogging vs. writing, an excellent piece

3. "Eternal, Maiden, Actualization," hat tip goes to my mother (hi mom!)

4. Interview with the very fetching Steven Pinker

5. Yes, medicine is backwards

China's Silver Lining

An hour and a half out of central Beijing, traveling through orchards of apples and pears and still the smog blankets the fields obscuring the view.  Pollution like this I have never seen.

And yet the intensity of the pollution makes me optimistic.  Pollution in China isn't like the demise of the snail darter or some wispy thing that might take a few weeks off your life if you live long enough.  Pollution here irritates, it chokes and it kills young and old.  Pollution like this people are willing to pay to avoid and as the economy grows the Chinese are willing to pay more and more.  James Fallows, who is living in Beijing, suggests that pollution could be China's Silver Lining, and ours.  I read the piece before arriving but after being here a while it rings true.

High commodity prices

Guillermo Calvo writes:

Incentives to stockpile commodities stem from the combination of low central bank interest rates (especially in the US) and the growth in sovereign wealth funds. The latter, in my view, is the crucial factor. Sovereign wealth funds have been created partly with the intent of switching the composition of government wealth from highly liquid but low-return assets to more risky but much more profitable investment projects. Thus, their attempt to get rid of excess liquidity resembles the econ 101 exercise in which the student is asked to trace the effects of a portfolio switch away from money and into capital.  The answer is – of course – higher prices.

The piece is interesting throughout, hat tip to Mark Thoma.

Atmospheric Disturbances

It may be that friendship is nourished on observation and conversation, but love is born from and nourished on silent interpretation...The beloved expresses a possible world unknown to us...that must be deciphered.

That is Gilles Deleuze and it is the front quotation in the new novel Atmospheric Disturbances, by the very beautiful Rivka Galchen.  The key premise of this novel is that a 51-year-old psychiatrist suddenly believes that his wife has been replaced with an exact look-alike; he refers to her as the Simulacrum.  I read it straight through.  Here is an interview with the author.

Pay For It: Radical Water Privatization for Poor Countries

Here is my piece for Forbes.com on the privatization of residential water supply in the Third World.  Excerpt:

And no, I don't mean a water concession with a price regulated by the government, I mean true laissez faire in water supply. No price regulation, no rate of return regulation, no government ownership of assets, no political pressure to keep prices low. Water companies should be allowed to maximize their profits, and because supplying water is nearly always a monopoly, they should be allowed to make monopoly profits. I know the idea sounds crazy--to an economist, water supply is a classic "natural" monopoly--but on closer inspection the other alternatives might be worse.

And more:

If complete deregulation is too radical for you, consider the interesting compromise proposed by the economist Jeffrey Sachs, currently heading the Earth Institute at Columbia University. He suggests that the private company be allowed to charge high prices, but only under the condition that it allocates a minimum amount of water for everyone, either for free or at a much lower price. Basic water needs would be met, and the company still might make a profit.

That said, I'm less worried about high prices than Sachs. Let's say the new water prices were so high as to capture all the benefits that buyers would receive from the new supply of water. We can expect much lower rates of diarrhea and other diseases, if only because the water supplier can charge more for cleaner and safer water. The resulting decline in disease means that children will die less frequently and adults will be healthier and more energetic. Those long-term social benefits are of enormous help to poor communities, even if high prices take away many of the initial, upfront benefits of the new water supply. In other words, we should consider radical privatization precisely because water is a public good and because clean water is so important for long-run economic growth.

Read the whole thing.

Podcast of my cultural economics talk

It is here, iffy sound quality (I only tested the beginning) but I believe it is mostly intelligible.  I talk about Facebook, Second Life, Kindle, and many other recent changes in cultural markets.  I make the bold claim -- true in my view -- that the last five years have seen more changes in "cultural economics" than in any other five-year period in human history.

Review of Stephen Marglin on economics and community

Wow, is this scathing (or try this version).  It's by E. Roy Weintraub.  I found the pointer on the Oxonomics blog.

More Sex is Safer Sex

In More Sex is Safer Sex Steven Landsburg famously argued (based on work by Michael Kremer) that if more people, especially more sexually conservative people, had sex the AIDS epidemic could be reduced.  Landsburg wrote:

Imagine a country where almost all women are monogamous, while all men demand two female partners per year. Under those circumstances, a few prostitutes end up servicing all the men. Before long, the prostitutes are infected; they pass the disease on to the men; the men bring it home to their monogamous wives. But if each of those monogamous wives were willing to take on one extramarital partner, the market for prostitution would die out, and the virus, unable to spread fast enough to maintain itself, might well die out along with it.

In The Wisdom of Whores (see also my earlier post) Elizabeth Pisani says that such a country exists, it's Thailand, and the results of more sex were safer sex - exactly as Landsburg argued. Here's Pisani's story:

Thailand used to fit the the classic 'virtuous girls, philandering boys' model.  At the start of the 1990s, 57 percent of twenty-one-year-old men in Northern Thailand trooped off to the brothel to do their philandering.  More than half the sex workers who soaked up their excess energy were HIV-infected....

Then...the Thai economy boomed.  Girls were getting better educations than ever before...Educated girls were waiting longer before getting married, but not before having sex.  By the end of the 1990s, 45 percent of girls aged 15-21 in northern Thailand admitted to having sex with boyfriends before marriage, compared to less than a tenth of that in a nationwide survey in 1993.

...So at the end of the decade, we have a lot more premarital sex and not all that much condom use with girlfriends.  But now that these young, cash-strapped guys can have sex without paying, they've stopped handing over cash for sex.  By the end of the 1990s, only 7 percent of young men were paying for sex, and HIV prevalence in sex workers had come down too.

....In short, more women having premarital sex equals less HIV.

Pisani cites neither Landsburg nor Kremer so I believe her account is independent.  Note that Pisani also credits Thailand's successful condom program.

Size Matters

Beijing has more modern architecture than perhaps any other city and more of it is going up every day.  Judging by the buildings you would think China is a rich country and it is but China is a rich country composed of poor people.  What China loses in per-capita terms it makes up for in volume.  We are used to thinking of total and per-capita wealth as highly correlated - the EU and the United States being key examples.  We need to rethink some issues such as inequality, power and foreign policy when they are not so correlated.

By the way, the architecture is great but hard to see!  Visibility is limited to 3 or 4 blocks after which everything is a grey haze.  I haven't seen the sun for days. 

Also, I found a way to access Marginal Revolution using an anonymizer.  This is good since the thought that one billion could not access the wisdom at MR was deeply disturbing.

Who is the greatest modern-day thinker?

Stephen Dubner asks, his readers answer.  I say dead people don't count and give your answers in the comments.  Can I consider Tim Berners-Lee for my nomination or Marc Andreessen -- you used a browser to read this post -- or whichever single person is most responsible for Google or search more generally?  I don't intend any slight to Richard Dawkins or the others but I just don't see how they stand up to these guys.

Addendum: Arnold Kling nominates Vinton Cerf.

Fly to Japan and ease your environmental conscience

Remember the question about the environmental impact of flying?  Air Genius Gary Leff puts it nicely:

If you’re pulling inventory out of a low fare bucket, the strong expectation is that there’s little effect at the margin on your buying the ticket because the airline expects to operate a flight that doesn’t come close to filling up.

If you’re pulling inventory out of a high fare bucket, for coach fares at the extreme end if you’re traveling on a Y fare, you can pretty much expect that the flight will be close to sold out and that the airline is willing to risk displacing another passenger in the short term in exchange for your higher fare… or at least that the ticket cost is high enough to potentially influence behavior on the part of the airline...

Reality is even a little bit more complicated than that. Cargo has to come into play, too. Regardless of what you pay and what fare class you’re booking in, your travel on United between San Francisco and Nagoya, Japan is going to have almost no effect whatsoever on United’s decision-making. They’ve got a very large contract with Toyota and they fill up their 747 with cargo and the flight goes out with very low load factors yet is still profitable for them to operate.

Getting a frequent flyer seat also means that your environmental impact is likely very small.  I am pleased, of course, that I often have Gary booking my seats for me, all in the interests of a cleaner Earth.  The bottom line is that if you get a good deal on price, you should feel doubly good about it.

At the Beijing Airport

At the Beijing airport as the customs official questions you, you get to rate them - there is an electronic box, hidden from their view, that asks for your rating of service.  Damn, this is better than democracy!  I was "extremely satisfied."

On the other hand, MarginalRevolution is blocked but I can still access Typepad.

Why do we touch our mouths so much?

Seth Roberts asks:

The photo shows the full faces of 22 men; 7 of them are touching their mouths. I have noticed something similar at many faculty meetings. I started to notice this after I read about its observation in a study designed to measure something else.

I’ve known about this for many years but have never read an explanation. Do we enjoy touching our mouths — or is the absence of touch for a  long time unpleasant? If so, why?

Here is one poker player's answer.

The Price of Everything

Here is Ezra Pound's Usura Canto, here is a link to Russell Roberts's The Price of Everything: A Parable of Possibility and Prosperity, available for pre-order.  Can you guess which one has the better economics?  In fact Russ's book is the best attempt to teach economics through fiction that the world has seen to date.

Here is Russ's summary of the book.  Here is Arnold Kling on the book.

Who is the happiest-looking economist?

A group of researchers showed photographs, taken from economists' home pages, to the public and the winner was Edmund Phelps; here is the paper.  Will Wilkinson, source of the tip, summarizes further (with photos) and offers this quotation:

...advice for young academics is: if you seek happiness, become a macro-economist and research happiness; a Nobel Prize does not make you happier; if you want to be popular with the ladies, take lessons from Edmund Phelps, Bruno Frey and Richard Easterlin; if you are looking for the ability to age like a red wine, Joseph Stiglitz and Jean Tirole have the trick, but not Richard Easterlin.

I thought that Milton Friedman usually looked very happy though he was not included in the poll.

O Economista Que Há Em Si

That's the Portuguese-language version of Discover Your Inner Economist, the Amazon link is here.  Here are various Portuguese-language web sites about the book.  I am pleased to be represented in the Lusaphone world, as Portuguese is a very beautiful language, even when the topic is economics.  Oddly Natasha insists that, heard at a distance, Portuguese sounds a great deal like Russian.

And of course the English language paperback edition of Inner Economist, just out and only $10 on Amazon, can be found here.

The one hundred item challenge

Could you live with no more than one hundred possessions?  A group of Americans have accepted this challenge.  I found this passage insightful:

Walsh isn't surprised that decluttering is so popular these days. Between worrying about gas prices and the faltering economy, people's first reaction, he says, "is often, 'I need to get some control over my life, even if it is just a tidy kitchen counter.'"

And of course there are cheaters:

One of the trickier questions is what counts as an item. Bruno considers a pair of shoes to be a single entity, which seems sensible but still pretty hard-core when you're trying to jettison all but 100 personal possessions. Cait Simmons, 27, a waitress in Chicago, takes a different approach. Although she has pared down her footwear collection from 35 to 20 pairs, she says, "All my shoes count as one item."

The pointer is to Jason Kottke.

The environmental cost of flying

Minderbender, a loyal MM reader, asks:

How should we think about the environmental costs of commercial flying? It seems as though the average cost is high, but the marginal cost is quite low. When I fly across the country, it doesn't cause any extra flights, it just makes the one I'm on slightly heavier. Yes, the increased revenues might give the airline an incentive to increase the number of flights, but this effect seems very weak - much lower than the average cost of my flight (the consumption of fuel divided by the number of passengers). Maybe I'm just miscalculating?

I think about this every time I fly.  A simple model of route expansion is that higher demand increases the number of total flights by some probability.  For the system as a whole, the decisive flying unit has to come somewhere and there is no reason why, on average, it can't be you.  In other words, at least in stochastic terms you can't escape the blame.

A second simple model of route expansion is that gates and other airport facilities are scarce and underpriced relative to demand.  When demand goes up, supply is not very elastic and mostly they raise price rather than increasing output.  Those who feel very guilty should prefer this second model.

The more they cut back on flights, as they have been doing, the more likely the first model is true.  The second model is most likely true if you are flying into regulated foreign markets although I believe the Europeans are now opening up for U.S. carriers.

You might ask comparable questions about eating meat and killing cows.  If you're worried about your net impact, eat animals from countries with very privileged, monopolized and highly regulated, supply-inelastic livestock sectors.   

Very good sentences

Liberals tend to believe that sexual orientation is determined by genetics but that gender-difference in behavior is not, whereas conservatives tend to believe the reverse.

That's Matt Yglesias.

Assorted links

1. What makes Jeff Koons great; the best parts of this insightful article come in the middle and toward the end.

2. Dani Rodrik on Samuelson-Stolper and why it might not hold.

3. Wealth of Nations board game; it seems to emphasize the imperialist reading of Adam Smith.  There is more information here.

4. Movies are getting longer.

5. The cap and trade bill fails.

Best economics paper of 1958

Leonardo Monasterio asks:

Which paper/book should we celebrate its 50th year? Obviously, my vote goes to the paper that started the cliometric revolution:
The Economics of Slavery in the Ante Bellum South
Alfred H. Conrad, John R. Meyer
The Journal of Political Economy, Vol. 66, No. 2 (Apr., 1958), pp. 95-130
Is there any other contestant?

The two obvious competitors are Modigliani and Miller on financial irrelevance (AER) and Paul Samuelson on the overlapping generations model (JPE).  I'm inclined to put M-M first and Conrad and Meyer second.  Am I missing anything?  Don't one or two of Schelling's famous game theory articles date from this year as well?

Postwar American economics was splendid.  WWII meant that many thinkers (Friedman, Samuelson, Schelling, others) had real world experience with tackling big problems.  At the same time these people were just getting their hands on quantitative thinking and some more technical tools, yet the profession still valued breadth to some degree.

What you don't know that you don't know

Bryan Caplan writes:

A common Austrian slogan is that "Neoclassical economists study only cases where people know that they don't know; we study cases where people don't know that they don't know."

He demands a good example in support of the Austrian view.  I would cite the arrival of the Spaniards during the time of the Aztecs and the subsequent conquest (see also Fabio's comment on Bryan's post).  This was not literally an unimaginable event, since it had (in modified form) been foretold by Nahua prophecy, but still the Aztecs had no ability to respond effectively, given their prevailing mental frameworks. 

More generally, look at the implied volatility embedded in options prices.  Is it forecasting how much volatility is really out there?  Here's one possible quantitative measure: if you have futures on options, take the measure of "surprise" in implied volatility (the change in implied volatility not forecast by the futures price for the options contract) as the relevant measure of "what you didn't know that you didn't know."  I'm not saying this figure is large, or even necessarily positive on average, but I do think it is a meaningful concept.  Arnold Kling responds to Bryan as well.  Here is my previous post on this topic.

China Op-Ed of the day

"Obama is a graduate from a first-class university," the editorial continued. "He is a symbol of assimilation rather than a representative of different races coming together. Obama did not break the superiority complex of white people. On the contrary, his appearance strengthened the superiority complex of white people."

The article is interesting throughout.

The decay of gratitude

[Francis] Flynn asserts that immediately after one person performs a favor for another, the recipient of the favor places more value on the favor than does the favor-doer.  However, as time passes, the value of the favor decreases in the recipient's eyes, whereas for the favor-doer, it actually increases.  Although there are several potential reasons for this discrepancy, one possibility is that, as time goes by, the memory of the favor-doing event gets distorted, and since people have the desire to see themselves in the best possible light, receivers may think they didn't need all that much help at the time, while givers may think they really went out of their way for the receiver.

That is from Robert B. Cialdini's fascinating Yes! 50 Scientifically Proven Ways to be Persuasive.  Cialdini's earlier Influence remains one of my favorite social science books.  Here is a link to Flynn's paper and related work.

As goes New Zealand, so goes the world?

The land of the long white cloud has enjoyed a 10-year economic boom driven by exports of milk, butter and cheese, a population riding a housing market boom and tourists eager to sample the landscapes depicted in Hollywood films such as The Lord of the Rings.

But New Zealand is on the cusp of a downturn and risks seizing the dubious honour from the US of becoming the world’s first developed nation to sink into recession, as measured by two consecutive quarters of negative gross domestic product growth.

GDP numbers for the January-March quarter due this month are forecast to show a contraction of at least 0.3 per cent. TD Securities and other economic forecasters are predicting a 0.2 per cent decline for the April-June quarter.

Here is more information.  Elsewhere in the Commonwealth, one UK supplier is now charging $14-15 a gallon ($18 for a UK gallon) for gas, he wants to make sure his customers can always get the product.

What to read on a 28-hour plane trip

Chris Blattman gives his tips.  Most of all, read this blog post, which will tell you not to take a 28-hour plane trip.  If you must go, and can't break it up by feasting on chili crab in Singapore, rethink at least one aspect of your life.  But if you are stuck the preferred advice is to start with a bunch of fun books you can finish quickly, move to a longer, more serious work than will command your full attention for quite a while and you won't want to end, and then have some fun stuff left over for the end.  I wonder how general this is as an optimal pattern of intertemporal consumption.

Will 3-D movies succeed?

I say basically not:

There’s another potential glitch in Hollywood’s 3-D scheme: Theaters are losing their appeal. “3-D doesn’t address the core problem,” says George Mason University professor Tyler Cowen, who has written extensively about the economics of entertainment. He says that people don’t go to theaters because the screen is bigger or the image is in 3-D; they go because they want to go out. Theaters have suffered to a large degree because they fail to provide their customers with great going-out experiences: They have crummy seats, sell expensive and bad food, and don’t serve alcohol.

Here is much more, do any of you think I am wrong?

Who are the aggressive drivers?

Watch out for cars with bumper stickers.

That's the surprising conclusion of a recent study by Colorado State University social psychologist William Szlemko. Drivers of cars with bumper stickers, window decals, personalized license plates and other "territorial markers" not only get mad when someone cuts in their lane or is slow to respond to a changed traffic light, but they are far more likely than those who do not personalize their cars to use their vehicles to express rage -- by honking, tailgating and other aggressive behavior.

It does not seem to matter whether the messages on the stickers are about peace and love -- "Visualize World Peace," "My Kid Is an Honor Student" -- or angry and in your face -- "Don't Mess With Texas," "My Kid Beat Up Your Honor Student."

...Drivers who do not personalize their cars get angry, too, Szlemko and his colleagues concluded in a paper they recently published in the Journal of Applied Social Psychology, but they don't act out their anger. They fume, mentally call the other driver a jerk, and move on.

"The more markers a car has, the more aggressively the person tends to drive when provoked," Szlemko said. "Just the presence of territory markers predicts the tendency to be an aggressive driver."

Here is much more, with some interesting theory in the article as well.  Apparently bumper stickers indicate that the driver has a particular, and potentially dangerous, sense of territoriality.

Bottomfeeder

The author is Taras Grescoe and the subtitle is "How to Eat Ethically in a World of Vanishing Seafood," buy it here.  Yes this is one of the best non-fiction books this year so far and yes I say that after having read (and mostly liked) the last five books on the exact same topic.  I hope it does well because this book is an object lesson in how to best your competitors and we'll see whether or not that matters.

Did you know that the average cell membrane of an American is now only 20 percent omega-3-based fats?  In Japan it is 40 percent.

Or did you know that American sushi restaurants promising you "red snapper" are usually serving tilapia or perhaps sea bream.

The book has a superb explanation of how "frozen at sea" fish are now better, safer and tastier than "fresh fish," including for sushi.

English fish and chips was originated by Jewish merchants in Soho, drawing upon the same Portuguese traditions that led to tempura in Japan.

The Japanese are experimenting with acupuncture to keep fish alive and "relaxed" on their way from the ocean to being eaten.

Two of the practical takeaways from the book are a) if only for selfish reasons, do not eat most Asian-farmed shrimp, and b) eat more sardines.  They are, by the way, very good with butter on sourdough bread.

This is one of the best single topic food books of the last five years.  It is historical, practical, ethical, and philosophical, all at once.

The War with Mexico

The Mexicans made strong appeals to U.S. troops to switch sides, targeting immigrants and Catholics in particular.  Their broadsides emphasized the injustice of the invaders' cause in the eyes of "civilized people" and stressed what North American Catholics had in common with Mexican Catholics.  Alluding to well-known riots by U.S. Protestant nativist mobs, a Mexican pamphlet asked, "Can you fight by the side of those who put fire to your temples in Boston and Philadelphia?"  Mexico also offered land grants to opposing soldiers who would desert and claim them: two hundred acres for a private, five hundred for a sergeant.  Together, the inducements and propaganda had an effect.  The first shots in the war were fired on April 4, 1846, not between Mexican and U.S. troops, but by American sentries at an immigrant deserters swimming across the Rio Grande to the Mexican side...Among three hundred U.S. deserters, the great majority of them Catholics and/or immigrants, joined the Mexican army.

That is from the excellent What Hath God Wrought: The Transformation of America, 1815-1848, by Daniel Walker Howe.  The rate of desertion in the Mexican-American War was the highest in American history and twice that of Vietnam.

Google bidding games -- markets in everything?

What would happen if MicroSoft or Yahoo or a MicroHoo went to the 5 top results for the top 25k searches and paid them to leave the Google Index?

A theoretical maximum of 125k sites, but with overlap, probably closer to 100k or less, times how much per site on average?

The math starts to get interesting. At $1,000 per site average times 100k sites, thats only $1 Billion Dollars. The distribution would obviously favor the larger sites, so of that billion dollars, would the top 1k sites take 500k each and the remaining 99k split the rest?

Given the stakes, why stop at $1 Billion Dollars ? Would the top 1k most visited sites take a cool $1mm each, plus a commitment from Microsoft or Yahoo to drive traffic through their search engines to more than make up for the lost Google Traffic. After all, once consumers realized that Google no longer had valid search results for the top 25k searchs, that traffic would most likely go to Microsoft and Yahoo...

What would it cost to get that number of sites to turn Google off and stay off, and would the traffic created as users switch from Google more than compensate for the cost?

Or would Google recognize the risk and jump in and offer more to websites to stay?

That's Mark Cuban, but I say no.  Is there any precedent for successfully undermining a popular "monopoly" (in this case a free one) by paying the input suppliers to go take a hike?  If bidding ever did get underway (unlikely), those suppliers are worth more to the relatively efficient company, which is probably Google and they are certainly less liquidity constrained than just about anybody else. 

Yes, Google does reap profit from the free content supplied to the web, but the chance of content suppliers colluding to keep reap more of those gains are small.  If anything the relevant externality is that Google could pay for gated content to be accessible to search engines but I wouldn't bet on that happening either.

Irish thoughts

Henry writes:

In particular, German parliamentarian Axel Schäfer’s comment that “With all respect for the Irish vote, we cannot allow the huge majority of Europe to be duped by a minority of a minority of a minority,” would have a bit more credibility if, you know, the majority of the majority of the majority had been given a chance to vote on the Treaty themselves.

I can imagine a few other lessons:

1. Give people a referendum on a big question and they will use it as a chance to voice their general displeasure with many other matters.  New Zealand made that mistake on electoral reform.  The Irish vote was strongly divided among rich-poor lines.

2. According to polls, the Irish are not especially Euroskeptical.  I guess that is "Eurosceptical".  In any case multilateralism has limits.

3. The option under consideration *was* Plan B.  There is no obvious Plan C.

4. It worked last time (2002) to ask them to vote again.  Few people think that gambit can be played a second time.

5. One Irishman opined: ""We're told we can vote no, that the system requires unanimity. But when (a `no' vote) actually happens, every time, the EU tells us: You really only have a right to vote yes," said Dublin travel agent Paul Brady, who voted against the treaty.

6. Some deluded soul in the EU read a copy of John Calhoun instead of Buchanan and Tullock's Calculus of Consent.  Hadn't they remembered the history of 17th and 18th century Poland and decided that a unanimity rule is a bad idea?

7. If European nations demand a unanimity rule (which I can well imagine), is that not a sign that they have a free trade area but nothing close to a real political union?

Teaching

Roland, a loyal MR reader, sends me this quotation from Max Weber:

The primary task of a useful teacher is to teach his students to recognize ‘inconvenient’ facts - I mean facts that are inconvenient for their party opinions. And for every party opinion there are facts that are extremely inconvenient, for my own opinion no less than for others. I believe the teacher accomplishes more than a mere intellectual task if he compels his audience to accustom itself to the existence of such facts. I would be so immodest as even to apply the expression ‘moral achievement’, though perhaps that may sound too grandiose for something that should go without saying.