Marginal Revolution

The New Palgrave Dictionary of Economics

An overview is here, the list of contributors is very prestigious (disclaimer: I wrote the article on the social discount rate), and the Palgrave name is golden.  The old Palgrave Dictionary of Political Economy still makes for fascinating browsing.  Yet the price tag for the new edition is over $2000, $2500 on Amazon.

Not everyone is good at using Google and Wikipedia.

Sentences to ponder

The "likely consequence" of growing numbers of Chinese learning English without "enough quality spoken practice" means that "more and more spoken English will sound increasingly like Chinese." Already, non-native speakers far outnumber native speakers, and in the next decade, native speakers will make up only 15 percent of those who use the language.

Here is the link, hat tip to Ben Casnocha.

How are wines arranged in the store?

The wine aisle in your grocery store is probably organized this way. Yes, I know there is a California section and an Import section and even a jug/box wine spot, but look within each wine display and you’ll see the clear price stratification effect. The wines you have come to buy are probably on the shelf just below your natural eye level, so that you cannot help but see those special occasion wines just above them (and the higher priced wines above them on the top shelf). Cheaper wines are down below, near the floor, so that you have to stoop down to choose them.

The physical act of taking the wine from the shelf mirrors the psychological choice you make — reach up for better (more expensive) wines, stoop down for the cheaper products. The principle will be the same in upscale supermarkets and discount stores but the choices (what price wine will be at the bottom, middle and top) will differ as you might expect.

Here is the full post, which includes a photo.

Markets in everything?

Who knows, but just maybe:

Doubts about the official version of the rescue surfaced in Switzerland where a public radio station quoted an unidentified source - "close to the events, reliable and tested many times in recent years" - saying $20m was paid to the guerrillas. "It was not a negotiation with the Farc directly but with a person who is very important in that organisation, commander César," Frederich Blassel, a journalist with the Swiss station, told Colombian radio. The reported suggested that a wife of one of the guards - possibly César - had acted as a go-between after being arrested by the security forces.

It's in any case spectacular news and a major blow against terrorism.  Colombia remains an underrated economy and tourist destination and I expect this to serve as a further tipping point toward good things.

The secrets of *Lost*, revealed

Arguably this is a spoiler, so I'll put it under the fold.  But maybe it's not a real spoiler, I'm just speculating but I do think it is possibly true.  I don't want to ruin the show for you but click to read under the fold if you dare...otherwise go on your merry way and visit all the other blogs which don't even worry about this question...

The Buddhist notion of "Dharma" refers to a state of affairs where people are liberated from the cycles of both birth and death.  Babies cannot be born on the island and it is an open question whether one can really die there so the island is an attempt to realize this ideal.  Of course the original project on the island is called The Dharma Initiative.  The Buddhist notion of Bardo involves reviewing the major events of one's previous life, as represented by the show's frequent flashbacks.  More generally the islanders are most likely experiencing a cycling of bardos and it is no accident that we are now peering into their futures.  Ben and Widmore represent two evil spirits of the Buddhist pantheon, dueling for the power to corrupt and to control life and death.  The numbers which reappear in various contexts, including 108, and the sequence of winning lottery numbers, are taken from Buddhist mythology (see the links).  Desmond's retreat from the world, and his ability to foresee Charlie's death, are both very Buddhist themes.  Claire's baby is probably a reincarnation and John Locke is arguably a Tulku and he is explicitly tested as such in the last season.  The names Rousseau, Hume, and Locke are used because one theme is Western philosophy confronting the truths of the East.  Here is more and try this too though it is vague.  Here's the single best page.  Aldous Huxley is an influence as well.  The Buddhist interpretation isn't new, but no one quite seems to have said "This is it."  Toss in time travel, and a bunch of women who look like underwear models, and you can explain most of the apparent anomalies in the plot.

Mental activity halts some of your self-deception and hypocrisy

The main idea is that when you busy people's minds with a routine task, they are less able to rationalize their own behavior and they are more likely to report the truth about what they are doing.  The most quotable excerpt assumes a bit of context

To find out, he and Dr. Valdesolo brought more people into the lab and watched them selfishly assign themselves the easy task. Then, at the start of the subsequent questioning, some of these people were asked to memorize a list of numbers and retain it in their heads as they answered questions about the experiment and their actions.

That little bit of extra mental exertion was enough to eliminate hypocrisy. These people judged their own actions [in assigning themselves the easy task] just as harshly as others did. Their brains were apparently too busy to rationalize their selfishness, so they fell back on their intuitive feelings about fairness.

If you wish, here is the whole piece.

How much do biofuels drive up food prices?

Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian.

The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally-respected economist at global financial body.

The figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises. It will add to pressure on governments in Washington and across Europe, which have turned to plant-derived fuels to reduce emissions of greenhouse gases and reduce their dependence on imported oil.

Here is the story, the report is not yet available, at least not to me.  Seventy-five percent seems like a high estimate to me, especially since many foods are more expensive but they are not all used for biofuels.  Still, the government's estimate of three percent is surely way too low.  Biofuels are maybe a good test case for various estimates of government quality: will the bad biofuels still be subsidized five years from now?

What I've Been Reading

1. Government and the American Economy: A New History, no editor but the book is dedicated to Bob Higgs by Price Fishback.  Imagine essays by economic history luminaries, mostly classical liberals, covering many different eras of American economic history.  For some this is a gold mine.

2. The Third Domain, by Tim Friend.  An overview of archaea, those odd life forms that survive where nothing else can.  A fascinating look at a still mysterious topic.  It's not as well written as the top-drawer popular science books but since you probably know little or nothing about the topic the amount you will learn is high.

3. Empires of Trust: How Rome Built -- and America is Building -- a New World, by Thomas F. Madden.  This book is avowed pro-Roman, pro-American, and sees strong parallels across the two regimes; part of the thesis is that neither wanted to build an empire but had to.

4. The Power Makers: Steam, Electricity, and the Men Who Invented Modern America, by Maury Klein.  This is a big, clunky book with lots of poor exposition.  It also covers a vital era -- the real Industrial Revolution -- which has remained oddly neglected by too many economic historians.

5. The Race Between Education and Technology, by Claudia Goldin and Lawrence Katz.  This is the most important book on modern U.S. inequality to date; here is my previous coverage of their ideas.  I'm still waiting for Paul Krugman to write a critique but right now their core hypothesis is looking strong.

Detroit fact of the day

Among cities with more than 500,000 residents, Detroit has the safest drivers, with accident rates that are 20 percent below the national average.

For cities with more than 1 million residents, Phoenix has the safest big-city commuters, with accident rates about equal to the national average.

Here is much more, Philadelphia is a disaster and L.A. isn't so safe either.  I wonder to what extent these rankings simply proxy for traffic density.  Here are some charts.  Overall Sioux Falls, Tucson, and El Paso seem to be relatively safe cities for driving.

Why Not?

I was just invited to a conference -- a very good one in fact -- where the price of registration rises by $150 for every week that passes.  This encapsulates at least two principles of behavioral economics.  First, it combats our natural tendency to procrastinate.  Second, if you register early you feel you have won a bargain when in fact it still costs something.  This is of course also a planning externality if they know the number and nature of attendees sooner rather than later.

The male and female privilege checklists

Here is the male privilege checklist.  Here is the female privilege checklist.  Robin Hanson, scientist, continues: "The next obvious step is to assign point values to such privileges, so we can add them up and compare totals."  You can imagine how much fun we had at lunch on this topic and yes a woman was there too.   

Why Chinese pollution is such a tough problem

Alex is back, alive and well.  But he still has a raspy voice from sucking in all that air pollution.  Here is one reason why, as explained by Brad Plumer:

China's central government is well aware that its blackened rivers and sunless skies are a problem, not just because they're sparking riots and social unrest, but because out-of-control environmental degradation is imperiling the country's economic growth. Lately, Beijing has issued a slew of bold--at least on paper--environmental regulations. But the laws are doing little good because the central government can barely enforce them in its own provinces. This structural problem will remain the key to China's environmental dilemma, and, as countries attempt to push Beijing toward a cleaner future, they'll discover that the capital is the least of their troubles.

The central government has passed some fairly "green" laws but often to little avail:

Beijing is aware of this local lawlessness, but has had little success handling it. "China used to send in swat teams from the central government," says Barbara Finamore, who directs the Natural Resources Defense Council's (NRDC) China program. "I've seen these campaigns going on for twenty years-- they'll come in, shut down some factories, and, when they leave, they'll open up again."

Has "The Long Tail" been refuted?

Prof. [Anita] Elberse looked at data for online video rentals and song purchases, and discovered that the patterns by which people shop online are essentially the same as the ones from offline. Not only do hits and blockbusters remain every bit as important online, but the evidence suggests that the Web is actually causing their role to grow, not shrink.

Here is the summary article.  Here is the Elberse paper.  Here is Chris Anderson's response.  Overall I cannot call this one for Elberse.  If you take a genre as given, the web looks less revolutionary but part of the long tail is the creation of new genres.  We have blogs now, for instance, and we didn't fifteen years ago, even though blog readership is quite concentrated among the top sites.  Or maybe the "Quickflix rental distribution" isn't so skewed to the left (the least-rented titles aren't so popular) but where were Quickflix, Netflix, and other such services fifteen years ago? 

Static estimation by deciles and related measures is often misleading since in part the "long tail" effect is to make the top deciles thicker than before, not necessarily to raise the status of the bottom decile relative to the top.  In his response, Chris Anderson nails this point:

The best example of this is in what she describes as a growing "concentration" of sales around a relatively small number of blockbuster titles. In the Rhapsody data, she finds, the top 10% of titles (out of more than a million in that data sample) accounted for 78% of all plays, and the top 1% account for 32% of all plays. That sounds pretty concentrated around the head, until you reflect, as she notes, that "one percent of a million is still 10,000--[...]equal to the entire music inventory of a typical Wal-Mart store."

Nor does showing that most of the sales are in the top of the distribution refute the claim.  Arguably it is the middle tail which is suffering and the long tail, and the best sellers, are growing in import.  That seems compatible with Anderson's core thesis.  The long tail hypothesis may be oversold but the data in the Elberse piece don't really dent it.

Elberse wants to define the Long Tail hypothesis as claiming there is more money to be made in the niches than in the blockbusters; while I believe you might find a quotation to that effect from Chris Anderson the more general idea is simply how important the niches are becoming.  Elberse concedes a lot at one point:

It is undeniable that online commerce has significantly broadened customers’ access to products of all varieties, including the most obscure. However, my findings suggest that it would be imprudent for companies to upend traditional practice and focus on the demand for obscure products.

You could have rewritten that as "The Long Tail hypothesis is basically true, just don't sell to the Long Tail alone."  On that we should all be able to agree.

The eleven best foods you aren't eating

This has already achieved widespread circulation through the NYT, but if you don't already know, its presented expected value is high.  A good way to eat pumpkin seeds is to fry them with chopped tomatillos and chopped white onions and a few chiles, then Cuisinart the whole thing into a sauce and use it with the meat or vegetable of your choice.  Tuna works well too, noting that a rural Mexican might add pumpkin or squash.  You can serve it with either rice or tortillas.

There are now 29 chess players rated over 2700

Here is the story and list.  Achieving a chess rating of over 2700 is very hard to do.  This is a reflection of either: a) just how much talent and sponsorship the modern world has, or b) just how narrowly restricted some people's talents are.  In an age where a socially non-adept person still can earn good money in hi-tech, I lean more toward a) than b).  The boom in womens' chess -- not generally foreseen twenty years ago -- I find especially puzzling and it's not all driven by the Chinese government wanting to win medals.

Will sanctions on the paper trade stop Zimbabwe?

When all else fails, try to cut off the revenue source:

The Munich-based company that has supplied Zimbabwe with the special blank sheets to print its increasingly worthless dollar caved in to pressure on Tuesday from the German government for it to stop doing business with the African ruler.

Mr. Mugabe's regime relies on a steady supply of the paper -- fortified with watermarks and other antiforgery features -- to print the bank notes that allow it to pay the soldiers and other loyalists...

Here is the story.  And in case you are wondering, it's the same company that printed up the bills for the famous Weimar hyperinflation of the 1920s.  In fact only a few companies in the world can make so much "quality" money in such quantities so quickly.  When in doubt, go with experience!  They've been airlifting the bills to Zimbabwe in huge quantities; by the way their motto is "Creating Confidence."  Not as good as "Always Low Prices" if you ask me.

The deeper question is why any tyrannical government would find such a high inflation rate to be seigniorage-maximizing.  At some point people simply abandon the currency or prices end up rising as fast or faster than the government spends the newly printed money.  (Related query: When the number "quadrillion" is in play, are the "anti-forgery" features of the paper really needed?  Isn't the value of the bill higher as paper in any case?)  Under one hypothesis, the time horizon is very short and the mass printing of bills maximizes seigniorage on a week-to-week basis but not overall.  Under another hypothesis, seigniorage is declining (given price expectations), but without the stream of new bills it would be declining even more rapidly.  I know who to ask.

Authoritarian Regimes

There's nothing like visiting a foreign country like China to get an appreciation of what it's like to live under an authoritarian regime.  I was reminded of this when I arrived home and found that the TSA had rifled through my baggage.

The new Walmart [sic] logo

What do you all think?  To me it looks at least ten years overdue.  Here is more information, including pictures of previous logos, hat tip to Andrew Sullivan.

Medieval cities: Europe vs. the Arabic world

Cities in the Arab world were on average much larger than those in Europe, and the size of the “primate” city – the megapolis such as Baghdad, Damascus, Cairo or Istanbul – was much bigger; a fact that is indicative of a predatory state and low trade openness. Europe, on the other hand, developed a very dense urban system, with relatively small principle cities. Big cities in Europe were quite often located near the sea, being able to optimally profit from long-distance trade, whereas the largest cities in the Arab world were almost all inland.

The sociologist Max Weber introduced a distinction between ‘consumer cities’ and ‘producer cities’. Using this classification, Arab cities were – much more than their European counterparts – consumer cities.

The classical consumer city is a centre of government and military protection or occupation, which supplies services – administration, protection – in return for taxes, land rent and non-market transactions. Such cities are intimately linked to the state in which they are embedded. The flowering of the state and the expansion of its territory and population tend to produce urban growth, in particular that of the capital city.

In Europe cities are instead much closer to being producer cities. The primary basis of the producer city is the production and exchange of goods and commercial services with the city’s hinterland and other cities. The links that such cities have with the state are typically much weaker since the cities have their own economic bases. It is this aspect that accounts for the fact that Arab cities suffered heavily with the breakdown of the Abbasid Empire, while European cities continued to flourish despite political turmoil.

Between 1000 and 1300 Europe acquired an urban system dominated by typical producer cities, which prospered in spite of Europe’s political fragmentation. In fact, this fragmentation was strongly enhanced by the rise of independent communes – city-states, or cities with a large degree of local authority – which form the core of the political system of Europe’s urban belt stretching from Northern Italy to the Low Countries. Indeed, we still find this pattern in the so-called ‘Hot Banana’ – the industrial agglomeration that stretches from the southern UK to the Netherlands, through Germany and down to northern Italy.

Here is the full article.

China markets in everything fact of the day

A Chinese man who set up an online business selling dead mosquitoes says he's received 10,000 orders in just two days.

Nin Nan, of Shanghai, came up with the idea of selling mosquitoes he killed to attract visitors to his online jewellery shop.

"I locked myself in the room, thinking hard of a promotion plan. With a 'pa' sound and a dead mosquito, I came up with this weird idea," he told Qianlong News.

Nin sells his mosquito corpses for six yuan - about 45p - each. His ad reads: "Truly killed by human hands. Can be used for science studies, decoration, and collection."

Here is the story, and thanks to Allison for the pointer.

New York City talk, Thursday night

The venue is The General Society of Mechanics and Tradesmen, 20 West 44th Street, 7:00 p.m.  The speaker is yours truly and the topic is which problems we need to worry about and which not; you probably get to meet the very impressive and very famous Victor Niederhoffer as well.

Assorted links

1. How bad will things get?  A symposium.

2. How smart is the octopus?

3. Single-factor Gaussian copula.

4. Avner Greif responds to critics.

5. "Stairway to Heaven" revenues: one guesstimate is $562 million.  And they don't even put it on iTunes.

Which books to take to Africa?

Niall writes me:

I have an optimization problem that I thought you and other loyal MR
readers, like myself, could help me with.

The Question: How should I go about selecting books to bring with me for
a year of field research in rural Africa?

Conditions:
1. I have a limited amount of weight I can carry on the flight
2. There is little or no access to additional books where I will be
3. I only expect to return to the US once during that year

Thanks for continuing the to make MR the most educational blog on the web.

Sadly I do not know this fine gentleman.  But I'll suggest the following five books: Moby Dick, The Bible (but it must be a serious translation), Plato's Dialogues, Homer's Odyssey, and a long, fun book of science fiction or fantasy that you haven't already read.  LOTR would be a fine first choice if it fits that bill, otherwise ask around.  The basic principles are that the works should be long, deep, divisible into smaller parts, capable of sustaining rereadings, culturally central in some way, and last of all you need one piece of pure fun.  Readers, can you improve upon these tips?

I'll add that if you read some language other than English, and thus read more slowly in that language, pick a book or two there as well.

A Biological Model of Unions

That's the title of a paper by Michael Kremer and Benjamin Olken.  The bottom line is:

...a union that implements workers' preferences will not be evolutionarily stable.

The union that survives must either extract fewer rents for the workers (thus lowering anti-union expenditures from the employer, or helping keep the employer in business) or spend excess funds on organizing and bolstering union membership in the broader economy.  A union that spends on membership and organizing drives tends to spread from one firm to the next.  If a union were truly controlled by its members it would take lots of current rents with little concern for the longer-term future of the firm or for the longer-term future of the union.

Here's a neat paragraph:

The dynamics of unionization levels also bear a similarity to those under the Susceptible-Infected (SI) model of epidemiological dynamics...In that model, new potential hosts are born uninfected; the chance that they become infected increases with the number of hosts already infected; and once hosts are infected, they stay infected until they die.  Note that this comparison is purely positive, not normative.

Yes the paper does offer some evidence but it is more interesting as a theory piece.  Here is an earlier ungated version, there is also 2001 version listed at NBER and here is the current version.

0.4% of gdp

Paul Krugman explains.

The history of America since 1980

Brad DeLong spells it out:

1. The end of the Cold War
2. Other winner-take-all factors that have, in combination with education, pushed American income polarization back to Gilded Age levels.
3. The failure of American taxpayers to support their state and local governments in expanding funding for public education--and the impact of reduced public education effort in sharpening the distinction between rich and poor.
4. The computer revolution in productivity growth.
5. The rise of China (and soon, we hope, India) as industrial powers.
6. The extraordinary social liberalization of America--if you had told any Republican in 1980 that 2008 would see (a) a Negro with an Arabic-Swahili name beating a veteran fighter pilot in the presidential polls and (b) gay marriage as the big cultural issue of the day, said Republican would have blown several gaskets. And if you had said that this would have been the result of an "Age of Reagan" said Republican would have melted down completely.

I'm mostly on board (and read the broader post) but, in addition to mentioning Latinos, I'll suggest two revisions.  First, on #3 I doubt if the stagnation of American lower education is the result of insufficient dollars.  It is notoriously difficult to find a convincing link between educational expenditures and educational quality and I don't think that is econometric problems.  On #6 I never saw most of the Reagan Republicans as especially prudish or socially conservative; that was just a lie told to one of the interest groups attending the party.  Revolution in the Head -- which is oddly enough a social history of the Beatles -- is especially good on the connection between 1960s morals and the Reagan Revolution.

"eBay ordered to pay damages in sale of fake goods"

That's the headline, the country is France.  Is there any efficiency rationale for this decision?  The alternative equilibrium involves a fair number of fakes, some good discounts for real items, an overconcentration of trading activity is easily verifiable or not worth faking items, and of course a diminution in the value of brand names.  The latter effect may even be welfare-improving once you consider price discrimination and the association of brand names with monopoly rents.  You can put the penalty on the seller but how is eBay to detect possible fakes?  Buy and inspect the wares?  Shut down trade in any fakeable item?  I would think it is also easy enough to "buy fakes" from your buddy, in essence keep the cash, give him a percentage, and then sue eBay for the "loss."  If the owner of the brand can sue would not the French court consider a suit from the buyer of the fakes as well?

Very good sentences

...many of the same people who ridicule the idea that private-sector output is meaningfully reduced by higher taxes are convinced that private-sector output is meaningfully raised by higher subsidies.

That's from Don Boudreaux.  You'll also find that many proponents of hiking the minimum wage think that subsidizing low-wage jobs will work.  There are models where the relevant effects switch at just the right margins, of course; surely those models are true.

Markets in everything, cultural diplomacy edition

In Paraguay the latest hit record -- and yes it is a hit -- is by the U.S. Ambassador singing Paraguayan folk songs in the language of Guarani.  Crowds love it, though one Paraguayan critic compared it to "the monotone of a tired bird."  The ambassador had no previous professional singing experience.  One Paraguayan Senator is asking his Congress to denounce the diplomat.  "Paraguayans cry when they hear it" is another, more laudatory assessment.  Here is the interesting story.

Here is a speech by the ambassador, excerpt:

We are not building a military base………  We are not stealing the Guarani aquifer………….  We are not buying up the Chaco…………….

The truth is that our agenda is very positive, both for the region and for Paraguay.

With oil at $140 a barrel, can you still love Julian Simon?

Remember Julian Simon, the guy who argued that resource prices would fall, fall, fall in real terms?  I loved spending time with him and to this day he remains an underrated economist.  (By the way, the very first piece I ever wrote was a guide to using Julian Simon for high school debaters.)  But can we still advocate his major thesis?

The possible belief space includes the following:

1. There is still a good chance that future resource and oil prices will fall dramatically, so Simon should not be dismissed.  Still, the single best estimate today can be inferred from the current market price, which implies a good chance that resources will get more expensive.

2. Simon is right and futures markets currently indicate that the price of oil is expected to fall dramatically.

3. Simon is still right, the rest of the world is wrong, and betting on this is how I will get rich.

4. Simon is right but current markets don't allow us to bet on his major claims.  Futures markets extend for only a few years' time, not for say the twenty years or so that are needed to validate his prediction.

4b. The deliverance of plenty is truly far away and no one is willing to take those margin calls for the next 187 years; in this scenario the present expected value of the future improvement is pretty low.

5. Simon is right but nominal interest rates will soon fall so low that successive short selling of oil in the futures market won't yield supernormal returns.  (This can mean, for instance, that you'd rather lock up all your money today at the higher rates, rather than short selling.)

No way does #2 work, though there is often slight backwardation in the futures price.  I've never heard anyone argue #5 and indeed most people haven't even thought of it as an escape hatch.  My belief is closest to #1.  Bryan Caplan argues for #4 but Arnold Kling shows that doesn't fly.  If you're always rolling over a successively renewed short position in the futures market, sooner or later the price decline for oil will yield you supernormal profits; in the meantime your margin deposit is earning the rate of return on T-Bills, noting that you must buy into the new contract cycle before your old contract expires so as not to miss the window of opportunity.  OK there is margin call risk, etc. but if Simon is right that is small relative to your potential gains.

(Alternatively you might argue that if you are in contract cycle #3, the good news will arrive to affect the pricing of cycle #4 before you can buy in, adding on that even after the future good news is announced the MC curve is so steep that you don't gain much on contract cycle #3.  That's possible but a) ex ante you still have supernormal returns since it may not work out that way, and b) the reality is that huge good supply news, whether for oil or some other energy source, would lead to lots of pumping today and a plummeting oil price right away.)

I invite Alex to accept #1 or otherwise indicate his stance.

It's amazing how much, on this issue, some people resort to what can only be called technical analysis -- inferring future price movements from past trends -- when they would scoff at that approach in almost any other context.  It's OK to argue that belief #3 held for most of world history --before we all read Simon and perhaps before there were futures markets in oil -- but I want to know if you are betting on #3 today and if not why not and also what other ways there are to get very rich that you can tell me about (does only the oil market malfunction so?).

I'll also note that current oil prices hardly suggest (do click on that link) a level of bone-crunching, civilization-ending scarcity, so you can believe in #1 and still be an optimist overall, as indeed I am.  I'm just not nearly as much of an optimist as I was when oil was $10-$20 a barrel, wasn't it even $8 a barrel for domestic oil less than ten years ago?

Also on belief #4 note that: forward contracts allow for longer bets than do futures contracts, contract length is endogenous to important events (though synthetic contract positions mean we don't need all of the possible longer term contracts), and it is odd for libertarians -- combinatorial prediction market fans at that -- to suddenly cite missing markets to defend their broader position.

Addendum: Oh, yes, there is one more option.  I call it "#3 is correct but my wife won't let us get rich."  I'll say this in response: for all the virtues marriage has for men, when you look around and study it more closely, you'll find the institution has even more virtues than you had thought.

Second addendum: Here is Jeffrey Sachs on this topic.

What determines fertility?

Here are some thoughts:

So there would seem to be two models for achieving higher fertility: the neosocialist Scandinavian system and the laissez-faire American one. Aassve put it to me this way: “You might say that in order to promote fertility, your society needs to be generous or flexible. The U.S. isn’t very generous, but it is flexible. Italy is not generous in terms of social services and it’s not flexible. There is also a social stigma in countries like Italy, where it is seen as less socially accepted for women with children to work. In the U.S., that is very accepted.”

By this logic, the worst sort of system is one that partly buys into the modern world — expanding educational and employment opportunities for women — but keeps its traditional mind-set. This would seem to define the demographic crisis that Italy, Spain and Greece find themselves in — and, perhaps, Japan, South Korea, Hong Kong, Taiwan and other parts of the world. Indeed, demographers have been surprised to find rapid fertility changes in the third world, as more and more women work and modern birth-control methods become standard options. “The earlier distinct fertility regimes, ‘developed’ and ‘developing,’ are increasingly disappearing in global comparisons of fertility levels,” according to Edward Jow-Ching Tu...the birthrate in 25 developing countries — including Cuba, Costa Rica, Iran, Sri Lanka and China — now stands at or below the replacement level.

Saudi Arabia fact of the day

Saudi Arabia accounted for 28 per cent of all global amphetamine seizures in 2006, the latest year for which data are available...

Yes there are enforcement differentials and various measurement biases, but that still sounds like a lot of amphetamines, especially for a country of only about 27 million people.  Here is the full story.

Can past nuclear explosions advance art history?

A former curator from the State Russian Museum in St Petersburg believes they can. She has developed a new method for dating paintings in collaboration with Russian scientists which, she says, provides “indisputable” evidence of whether a painting was made before or after 1945.

According to the inventors, the new patented technology is based on the idea that man-made nuclear explosions in the 1940s and 1950s released isotopes into the environment that do not occur naturally. The tiniest traces of these isotopes, Caesium-137 and Strontium-90, permeated the planet’s soil and plant life, and eventually ended up in all works of art made in the post-war era because natural oils are used as binding agents for paints.

Therefore, they believe that any work of art originally believed to pre-date World War II, but which registers trace amounts of Caesium-137 and Strontium-90, can be “definitively” declared a post-1945 forgery.

Here is the full story.  It's worth noting that many categories in the art world show rates of forgery approaching 50 percent or higher.

More on speculation

Here is Paul Krugman's model, Mark Thoma covers related ground.  I view this as an intertemporal Hotelling model and not as analogous to a currency model as Krugman suggests.  In the bottom right hand graph of the four graphs in Krugman's post, I don't understand what institutional force hinders a market-clearing price.  More concretely, if expected future price goes up (or interest rates fall), the supply curve in that graph should shift back to the left (wait and pump more later for the higher price) and/or the demand curve in that graph should shift out to the right (buy now rather than later at the higher price).  Measured inventories will rise to the extent the demand curve does the shifting; if the supply curve does the shifting the "excess inventories" stay in the ground.

It is possible to derive Krugman's desired result through another and indeed simpler channel.  Define speculation as the desire to hold more oil because of the perception that oil now has a greater convenience yield.  As Jeffrey Williams points out, a big part of convenience yield is the option value of selling the oil on favorable terms.  If you're guessing that option value will pay off, it's not unreasonable to call that speculation.  We now have a one-line proof: because of "speculation" the demand to hold oil goes up, and so the stocks of oil held will rise.

This again illustrates the value of starting with Holbrook Working when analyzing futures markets.

And it's fair to say, as Krugman still does, there is no evidence that this mechanism is what is driving the higher oil prices.  Of course the people who are blaming "speculation" don't seem to have any coherent definition of the concept in mind; that's another problem with their argument. 

Ching Ching Desserts

If you are ever in Hong Kong try the cream of almond and black sesame soup at Ching Ching Desserts on Electric Street just around the corner from the Tin Hau metro.  It's like drinking marzipan - with a little garnish and served in style this dessert soup could find its way onto the menu of any five star restaurant in the world but you can get a bowl in Hong Kong for less than three bucks.