Marginal Revolution

The culture that is Italy

The new (old) labor market idea -- you can call it fifth best perhaps -- is hereditary jobs:

It is a problem many a company faces in these tough times: how to replace older – and costlier – workers with younger, cheaper ones.

A Rome bank has what it thinks is the solution: to make the jobs hereditary. Under a deal signed with unions this week, 76 employees of Banca di Credito Cooperativo di Roma (BCC di Roma) must take early retirement but they will get a choice: either take a payoff or leave your job to your son or daughter (or indeed any relative "up to the third degree", which would allow the post to be left even to great-nieces and nephews).

The full story is here and I thank The Browser for the pointer.

Markets in everything?

A gang in the remote Peruvian jungle has been killing people for their fat, the police said Thursday, accusing the gang’s members of draining fat from bodies and selling it on the black market for use in cosmetics...

Three suspects have confessed to killing five people for their fat, said Col. Jorge Mejía, chief of Peru’s anti-kidnapping police. He said the suspects, two of whom were arrested carrying bottles of liquid fat, told the police it was worth $60,000 a gallon.

Colonel Mejía said the suspects had told the police that the fat had been sold to intermediaries in Lima, the capital. While police officials suspect that the fat was sold to cosmetic companies in Europe, he said he could not confirm any sales.

That's from The New York Times, not The Weekly World News.  Medical "experts" express varying degrees of skepticism about the depth and liquidity of this market, but if you read the whole article you will encounter some truly graphic descriptions of the production process.  Caveat emptor.

*From Poverty to Prosperity* watch

That's the title of the new and self-recommending book by Arnold Kling and Nick Schulz.  This work has text by the authors, interspersed with interviews with famous economists, including Robert Fogel, Robert Solow, Joel Mokyr, Doug North, Bill Easterly, Edmund Phelps, Amar Bhide, William Lewis, and Bill Baumol.  Here is Paul Romer:

It's the kind of culture that can tolerate rap music and extreme sports that can also create space for guys like Page and Brin and Google.  That's one of our hidden strengths.

You can buy the book here.  The subtitle is Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity.

Giovanni Peri's latest on immigration and productivity

Here is the abstract and it has to do with a Smithian theme, namely division of labor:

Using the large variation in the inflow of immigrants across US states we analyze the impact of immigration on state employment, average hours worked, physical capital accumulation and, most importantly, total factor productivity and its skill bias. We use the location of a state relative to the Mexican border and to the main ports of entry, as well as the existence of communities of immigrants before 1960, as instruments. We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other. These results are robust to controlling for several other determinants of productivity that may vary with geography such as R&D spending, computer adoption, international competition in the form of exports and sector composition. Our results suggest that immigrants promoted efficient task specialization, thus increasing TFP and, at the same time, promoted the adoption of unskilled-biased technology as the theory of directed technological change would predict. Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state.

The paper is here.

Economics and biography

I think of the biographer as standing up and demanding that economists take their own method seriously.  Surely the economist should at some point be required to explain something in the life of an actual human being.

That is from my (favorable) review of E. Roy Weintraub and Evelyn L. Forget, Economists' Lives: Biography and Autobiography in the History of Economics.  The review will be published in a journal called Biography.

Only in economics are floors above ceilings!

Only in economics are floors above ceilings!  It might be better to say "a minimum allowed price above the market price" and "a maximum allowed price below the market price," although that is a bit of a mouthful.  I find that the floors and ceilings language does work, however, if the instructor explicitly points out the oddity of floors above ceilings!  In that case, students find the distinction memorable.

The Big Questions

In The Big Questions, Steven Landsburg ventures far beyond his usual domain to take on questions in metaphysics, epistemology and ethics.  Beginning with Plato, mathematicians have argued for the reality of mathematical forms.  Rene Thom, for example, once said "mathematicians should have the courage of their most profound convictions and thus affirm that mathematical forms indeed have an existence that is independent of the mind considering them."  Roger Penrose put it more simply, mathematical abstractions are "like Mount Everest," they are, he said, "just there."

All this must make Steven Landsburg history's most courageous mathematician because for Landsburg mathematical abstractions are not like Mount Everest, rather Mount Everest is a mathematical abstraction.  Indeed, for Landsburg, it's math all the way down - math is what exists and what exists is math, A=A. 

Read the book for more on this view, which is as good as any metaphysics that has ever been and a far sight better than most.  Moreover, Landsburg's view is not empty, it does have real implications.  Since there is no uncertainty in math, for example, Landsburg's view supports a hidden variables or multiple-worlds view of quantum physics.

Speaking of quantum physics, The Big Questions, has the clearest explanation of the Heisenberg uncertainty principle that I have ever read.  In fact, this is a necessary consequence of Landsburg's metaphysical views; since it's all math all the way down, the explanation of the uncertainty principle is the explanation of the math and any true uncertainty or mystery is simply a fault of our own misunderstanding.

Turning to epistemology, the theory of beliefs and knowledge, two chapters stand out for me.  I learned a lot from Landsburg remarkable clear explanation of Aumann's agreement theorem--and I say that despite the fact that in the office next to mine is Robin Hanson, one of the world's experts on the theorem (see Robin's papers on disagreement and also his paper with Tyler, but read Landsburg first!).

Landsburg's skills of explanation are also brought to bear in a wonderful little chapter explaining the theory of instrumental variables and of structural econometric modeling  - and this from an avowedly armchair economist!  

Finally for those, like me, who loved The Armchair Economist and More Sex is Safer Sex there is also lots of economics in The Big Questions.  Highly recommended.

Escalation games markets in everything

Dick Thaler writes:

Swoopo has even sold cash using this format — specifically, checks for $1,000. My colleague Emir Kamenica and I looked at 26 such auctions we found in a data set posted on the Swoopo Web site. For each of these, the average revenue to Swoopo was $2,452. Winning bidders also did well: Of the winners, all but two made money even after accounting for the cost of their bids, with an average profit of $658. Still, the important point to remember is that, collectively, bidders are losing money. Only the lucky last bidder is a winner.

At the end of the column Thaler adds:

In my previous column, I tried to nudge Steve Jobs to have an app written for the Apple iPhone that would allow users to sign up easily to become organ donors.

Mr. Jobs can relax. Raymond Cheung from Serenity Integration read the column and made it happen. IPhone users can download the free Donate Lives app and sign up directly on their phones.

Kelo update

Those who would sacrifice property rights to development end up with neither.

Markets in everything, further evidence that gold is a bubble edition

Wear a Historical Gold Price Chart as Jewelry.

For the pointer I thank Anna Powell-Smith.