Marginal Revolution

Assorted links

1. WEIRD subjects and their importance for social science.

2. Rational overoptimism.

3. Andrew Gelman will have a second blog.  I don't yet understand the forthcoming principle of individuation across the two blogs.

4. London Review of Books, full issue on-line.

5. Nouriel Roubini on the new carry trade.

6. From Chris F. Masse, nextbigfuture.com, a new science blog.  Here's their update on space elevators.

7. Will Doug Holtz-Eakin lose his health insurance?

8. Is Earth a habitable planet?

9. Germany's new conservative cabinet.  Not like ours would be.

10. Strictly personal interview with Esther Duflo.

11. Why American health care costs so much.

That's a lot but they're all good links.

How to sell a dollar for more than a dollar

In this time of cutbacks and furloughs professors need a quick source of extra cash.  David Zetland explains how to sell a dollar for more than a dollar (and teach some game theory and something about political lobbying at the same time). 

Are stock and bond markets contradicting each other?

Stocks are doing well yet interest rates remain low and flat.  What's up?  John De Palma sends along this very interesting analysis by Paul McCulley.  Excerpt:

Thus, as long as economic recovery appears underway, even if stoked primarily by (1) policy stimulus and (2) a turn in the inventory cycle, there is no urgent reason for investors to run from risk assets. Put differently, investors can be agnostic about (3) the strength of private demand growth until the one-off forces supporting growth exhaust themselves, as long as they don’t have fear of Fed tightening.

In turn, a bull flattening bias of the Treasury curve, with longer-dated rates falling toward the near-zero Fed policy rate, can be viewed as a consensus view that the level of the output/unemployment gap plumbed during the recession is so great that disinflationary forces in goods and services prices, and perhaps even more important, wages, will be in train, even if growth surprises on the upside. Accordingly, Treasury players, like their equity brethren, need not fear the Fed, as there is no economic rationale for an early turn to a tightening process.

Thus, both rich risk markets and the lofty Treasury market can be viewed as rational in their own spheres, even if they are seemingly irrational when compared to each other. The tie that binds them, that allows them to co-exist, need not be a common view regarding the prospective strength of the recovery, but rather a common view as to the Fed’s friendly intent and reaction function.

Is it a good thing when asset markets are so much about the Fed?  There is more to the short essayt, read the whole thing.  Here is his conclusion:

Simply put, big-V’ers should be wary of what they wish for. U’ers, meanwhile, must be mindful of just how bubbly risk asset valuations can get, as long as non-big-V data unfold, keeping the Fed friendly. But that’s no reason, in our view, to chase risk assets from currently lofty valuations. To the contrary, the time has come to begin paring exposure to risk assets, and if their prices continue to rise, paring at an accelerated pace.

Addendum: Arnold Kling comments.

Why are Swedish meatballs so much smaller than their American counterparts?

This topic has been knocking around the blogosphere as of late:

I am a longtime reader of MR and there is a question I have been wondering about for a long time.  I was hoping you could share your thoughts on meatball heterogeneity.  My girlfriend made dinner for me and the entree was Swedish meatballs.  I never knew how small their meatballs are.  It seems inefficient to roll all that meat into such tiny balls.  Wouldn’t it make more sense to roll them into big balls like we do in the US?

First, history + hysteresis play a role.  According to Mathistorisk Uppslagsbok by Jan-Ojvind Swahn, the Swedish concept of meatball first appeared in Cajsa Warg's 1754 cookbook.  Yet as late as the early 20th century, beef was still a luxury in Swedish culture, whereas meat was plentiful in the United States.  America had greater access to game in the more moderate climate and also greater grass resources for supporting cows.  The Swedes were also late in benefiting from the refrigerated transport revolution, which started elsewhere in the 1920s and brought more meat to many households.  (This tardiness was due to the concentration of population in a small number of cities, combined with rail isolation from Europe.)  The end result was smaller meatballs, a tradition which has persisted to this day.

On the plane of pure theory, standing behind the lock-in effect is the Ricardian (or should I say Solowian?  Solow is the modern Ricardian when you think through the underlying asymmetries in his model, which ultimately make "capital" non-productive at some margin) fixed factor explanation.  A Swedish meatball recipe usually involves much more dairy than a non-Swedish meatball recipe.  Constant returns to scale do not in general hold for recipes, much less for loosely packed spherical items involving fluids.

Oddly, the extant literature does not seem to have considered these factors.

From the comments: Lennart writes: "Swedish meatballs, having loads of surface that are fried crispy, are much better than other forms of meatballs for that reason alone. Norwegians and Danish have big meatballs, but that's because they are boiled, so there is no crispy-fried surface to maximize (and hence nowhere near as good)."

Markets in Everything: Media

From a new paper by Di Tella and Franceschelli:

We construct measures of the extent to which the 4 main newspapers in Argentina report government corruption in their front page during the period 1998-2007 and correlate them with the extent to which each newspaper is a recipient of government advertising. The correlation is negative. The size is considerable: a one standard deviation increase in monthly government advertising (0.26 million pesos of 2000) is associated with a reduction in the coverage of the government's corruption scandals by almost half of a front page per month, or 37% of a standard deviation in our measure of coverage. The results control for newspaper, month and individual corruption scandal fixed effects.

In Maharashtra, India a recent report indicates that transactions costs are considerably lower:

The deals were many and varied. A candidate had to pay different rates for ‘profiles,’ interviews, a list of ‘achievements,’ or even a trashing of his rival in some cases. (With the channels, it was “live” coverage, a ‘special focus,’ or even a team tracking you for hours in a day.) Let alone bad-mouthing your rival, this “pay-per” culture also ensures that the paper or channel will not tell its audiences that you have a criminal record. Over 50 per cent of the MLAs just elected in Maharashtra have criminal charges pending against them....

Hat tip to catfish for the second item.