May 2004 Archives

The Calico Cat has some really interesting thoughts about the market for blogs.

It even kindly mentions this humble corner of the econ-focused part of the blog world. At issue for T&B is that scandals and ribald sites such as the Jessica Cutler/Washingtonienne "event" (personally, I consider it a silly cry for attention from someone who has yet to find a modicum of respect for herself, but "skin" does, sadly, sell) generates a great deal more hits than, say, a more niche player like T&B. (Oh, if only more of the world concerned itself with economics and economics education...).

But don't let it be said that we here at T&B can't learn by example (ok, well, I can only speak for myself, but the rest of the crew appears able in numerous areas well beyond my own meager skills). In that vein, I'd like to point you to one of the more interesting applications of economic analysis I've seen recently: The Economics of Ecstasy. (NB: PDF file, large.)

As the title might imply, it's an economic analysis of the dynamics surrounding orgasms, both honest and...the When Harry Met Sally variety. It's an interesting paper, not simply for the subject at hand. Here's Slate's take on it: The Economics of Faking Orgasm:

The obvious reason to fake is to please your partner. But what about a woman who doesn't particularly care about her partner? Might she still fake? Mialon concocts a scenario—though a contrived one—where the answer is yes. Suppose Adam is very insecure and always suspects Eve of faking. Suppose the one thing Eve really hates is having a partner who's always wrong. Then since Adam always thinks she's faking, she has to fake to make him right. Eve's fakery reinforces Adam's skepticism and Adam's skepticism reinforces Eve's fakery, so we have what economists call equilibrium.

Fair warning however -- especially for Mr. Antler -- the analysis is largely centered around a game-theoretic construct. Signalling games, to be precise.

Orgasms, sex games, and econometrics. The dismal science no more?

Credit Rating Agencies


I was reading this past winter's The International Economy and read an article called, "Das empire strikes back: German banks have had enough of Standard and Poor's and other agencies, and they're not going to take it any more." I cringed reading this(no link since the article isn't available on the mag's site):

For more than a decade, bankers, industry executives and politicians on the Continent have complained about Europe's humiliating dependence on the almighty U.S.-regulated rating oligopoly. Now, the revolt against America's unchecked rating power is pressuring politicians to push the European Union towards regulating the global rating trio. There is a groundswell of support for establishing a European rating agency. But all this is easier said than done.

As European companies move from borrowing money from their banks to tapping the world's capital markets directly--by issuing bonds, medium-term notes, or commercial paper--their securities need to be rated. But there is a problem: Europe doesn't have a major rating agency that would take into account the special characteristics of European accounting or the prevailing differences in financial ratios as they evolved in a bank-based financial system.

Finally, this problem is becoming political. Proposals by the European Parliament's Committee on Economic and Monetary Affairs to establish a European Registration Authority for rating agencies under the auspices of the Committee of European Securities Regulators (CESR) may be far ahead of the curve. They point to "a European nightmare--that unchecked American rating agencies become the Continent's boss men." EU parliamentarians are looking for ways to contain American rating power by putting global rating giants like Standard & Poor's, Moody's, and Fitch under some kind of new EU regulation. So far the Brussels Commission--with the British government keeping a watchful eye on the stakes for London as a global financial center--is playing for time. But the German government, faced with a domestic revolt against damaging rating decisions by Standard & Poor's, is under mounting pressure to control what is perceived as an excessive level of American rating power.

Then I found it amusing. Why does everything have to be humiliating? Overall, it's a pretty good read; the Germans may have an issue or two, but what if they regulate the agencies to irrelavency? For all the sniping from Europe when Worldcom, Enron and so forth happened, European business is more convoluted and the relationship between them and government is cosier. What if they mandate an unsound business practice because it's a local common practice? Of course, when they say American firms don't understand Europe, they have a point; large companies inevitably get bailed out in some form or another, so why bother with ratings at all. If you click below, the guarantees going to the Landesbanks merely turn from explicit into implicit, in my opinion.

edit: A visitor posted an interesting comment, click to read.

In France, the registration of Volvo automobiles increased 33% in 2004Q1 over the previous year, even as total sales dropped 2.8%. Granted, only 2,735 of 506,884 new registrations were for Volvos--a 0.5% market share! 87.3% of Volvos sold were diesel powered. The thread attached to the above article informs me that in France, diesel costs far less than regular gasoline due to inequitable taxation.

To those Law and Economics types out there, I thought this might be of interest: Aaliyah's Record Label Gets Its Day in NY Court

A Manhattan judge has ruled that rhythm and blues singer Aaliyah, who was killed in a 2001 plane crash while filming a music video in the Bahamas, was an "asset" of her record company rather than an employee, freeing the company to sue for negligence in her death.

I'm assuming that this is based on the nature of a contractual relationship that defined Aaliyah more as a component of an overall production system than as an employee directed and tasked by the recording company (the difference between a record deal and being a sound engineer, I suppose). Though it does raise interesting issues. Does a company have a right to the income stream from an employees future productivity they way they do an asset? In situations where this sort of relationship exists (such as football players, as noted in the article), does the company have the right to prevent the actual person from engaging in behavior that could damage the productivity of the asset, such as smoking, drinking, etc.?

Several gas stations tied to Wal-Mart have been charging prices for gasoline that are too low, according to the Minnesota Commerce Department:

The state adopted a law in 2001 that bars gas stations from selling gas without taking a minimum profit.

These days, stations must charge at least eight cents per gallon more than they paid.

The Commerce Department is now issuing its first fines for breaking the law.

It fined Arkansas-based Murphy Oil $70,000 for breaking the law at its ten state stations, which are based at Wal-Mart stores. A Murphy Oil official says the company misinterpreted state law.
The department also fined one Kwik Trip station.

See also this Walter Williams editorial on minimum gasoline prices:
Lobbyists such as WMDA Service Station & Automotive Repair Association, the Gasoline Retailers Association and the Petroleum Marketers Association of America are able to sell legislators on the fairy tale that if high-marketing gasoline outlets such as Wawa, Sheetz, Wal-Mart and others are allowed to charge prices that are too low, they�ll drive all other gasoline stations out of business. Having done so, these high-marketing outlets could charge any price they pleased and make huge profits.

In economics, we call this strategy predatory pricing. It�s an argument that has a ring of plausibility, but there�s little evidence anywhere anytime that a predatory pricing scheme produced results even remotely close to what would-be predators envisioned. Questioning this fairy tale and asking for evidence would never cross the mind of a legislator.

Music Industry and Pharma

Cody Willard of posted something for his trading journal today from a dinner he had last night(It cost money to view, so no link).

I had dinner with Mitch Rose, who is the touring agent of a few little artists like Madonna, KISS and Christina Aguilera (hey, you never know who's reading RealMoney!) last week, and he highlighted some other fascinating ramifications of the disruption that has taken place in the music business.

Gross receipts for touring have exploded to the upside from in recent years. Mitch's thought is that growth has come from two primary catalysts. The decline in revenue from album sales has prompted more artists to tour more frequently. The decline in spending on albums, especially from young adults and teens, has freed up discretionary money that still goes to music, but it goes to live concerts, not to recorded albums.

This summer should be a huge one for touring. Will be fascinating to see if the trend of higher spending on touring continues as the proliferation of free downloading has declined in the midst of the record company going after these thieves.

By this account, people aren't necessarily spneding less money, but just in different ways. So, people have to work harder for their money, it doesn't surprise me that this has happened. Perhaps if they look at the ablum as a marketing tool instead of the prime money maker, much of the controversy would be moot. It wouldn't surprise me that looking deep into why the Clear Channel has become a large concert promoter, it has been this change. Their radio stations have just becoame giant commercials for their shows.

One thing to think about, the record industry is moving from being a business of low marginal cost to high, from producing albums to producing shows. This is entirely due to being easily ripped off, an album can be digitized, but a live performance needs the artists. You can just download a song, but something like pharmaceuticals is much more difficult to stop(Botch, the following few sentences is not what I meant, see the edit at the bottom). This is why drug importation is a hot topic. Not many people are willing to risk their health ordering something over the internet with out assurances of quality, but music downlaoding is something else.

Pharma is stuck because they have no leverage with any of these other countries. If you don't sell them the drugs, they merely make them themselves. Who will stop them? Other countries are acting as Napster, what would be the concert show alternative for Pharma?

Edit: God, I botched that post, never write anything late at night after having a few drinks. What I meant was that both have people trying to undercut them. The record industry competes with a zero average total cost in a digitized world, while pharma has an extremely high upfront cost but low variable cost in production phase, a high average total cost. Governments feel it is within their right to produce drugs unless they are sold to them at a minimum above average variable cost. One of the few countries which currently doesn't follow this pattern is the U.S., but that attitude has changed in the few years as people come aware of the inequity. So the industries are related in that in one, you can't enforce your ownership because it is too easy to skirt, and in the other, governments are actively participating in pushing down prices to AVC. The music industry has an alternative, concert shows, but pharma doesn't. If governments succeed, pharma could exist a while since they would still be able to recover some costs, but eventually stop R&D since it is unlikely they would recoup future fixed costs, politicians don't seam interested in addressing this problem.

Preventing Foreclosures


Many mortgage companies are offering low-cost or no direct cost involuntary job loss insurance along with mortgages, as a means of cutting down the transactions costs of foreclosure.

The move to attach monthly payment insurance programs to home loans is not a case of sudden corporate charity or heartfelt compassion for the unemployed. It's a bit more complicated. When borrowers lose their jobs because of layoffs or overseas outsourcing, their mortgage defaults are financially painful for more than their families.

Lenders and mortgage insurers get hurt, too. When unemployment-triggered defaults extend for months and lead to foreclosure, the costs for lenders and insurers can run into the tens of thousands of dollars per home. As a result, many are now eager to provide backup payment insurance designed to keep the homeowning household afloat -- and in the home -- until the breadwinners find new employment.

Amtrak and Opportunity Cost


Amtrak owns Penn Station, and doesn't see why it should move next door and rent the planned Moynihan Station:

Amtrak notes that it already has a sweet rent deal.

��We own Pennsylvania Station, and we pay no rent,�� Mr. Black said of the current station below Madison Square Garden. ��We wouldn�t want to incur new rent.��

I shouldn't find it incredible that Amtrak representatives don't understand that owning property is not costless, but I do.

While it's true Amtrak doesn't have to pay to rent for Penn Station, it's also true they don't collect rent from another company. The real cost to Amtrak of owning Penn Station is the highest sale price or rent they could receive if they were to put it to its best alternative use.

Amtrak representatives seem to preclude the opportunity of Amtrak profiting by selling or renting Penn and moving to other rented quarters?

In fact, that was part of the original plan:

According to Mr. Gargano, Amtrak had committed to paying about $3.9 million a year for the space. He also suggested that Amtrak could lease its current space below Madison Square Garden for more money than that.
Of course it's also possible that this is just strategy:
Amtrak may simply be bluffing to get a better rent deal and that the agreement is not in any danger after all.

Pretty soon, the federal government will require every single cow to have a unique, trackable ID number:

The USDA says it will be "technology neutral" about the tracking system. Farmers can use any of a variety of tracking methods -- from physical tags to biometrics and DNA tracking -- as long as it provides critical data about animals' movements...

RFID, or radio frequency identification, is now leading the herd among tracking technologies. These radio ID tags are now widely used in everything from tracking merchandise at Wal-Mart to tracking children at an amusement park in Denmark.

Several countries already have mandatory tracking systems. Australia's National Livestock Identification, which uses RFID tags, has reported virtually no malfunctions since it began in January.

Did I mention that the cow has to be trackable even after being butchered?:

The Importance of Framing

So much depends of how you see something, depends on what perspective you're coming from. For instance, I saw this headline -- GAO: Fed Data Mining Extensive -- and immediately thought "My God, Greenspan's people have been cooking the numbers on regressions?"

What they are actually referring to is the vast amount of personal data the federal government collects and uses on people.

The really troubling thing? I'm not sure I find that worse than my original fear...

I guess I'm not the only one to have considered the potential problems of electronic voting machines that produce no paper trail. Though, now it looks like people are hoping that the paper trail-enabled systems fail: E-Vote Printer's High Stakes Test.

"That's what we're hearing, that a lot of election officials hope we fail because they don't want to be bothered with paper ballots," said Steve George, spokesman for Nevada's secretary of state.

Several states, responding to public outcry for a physical record of votes, have mandated or announced legislative plans to demand that e-voting systems print a paper record so voters can verify that the machine registered their vote accurately before the record drops into a ballot box. The states include California, Illinois, Missouri, Nevada, Vermont, Washington and West Virginia.

But many county election officials oppose the idea, saying printers will create more problems for poll workers if they break down or run out of paper, and they will cause longer poll lines if voters take more time to check their ballots. The officials also don't relish the election recounts and lawsuits that could arise if paper records don't match final digital vote tallies.

Well, that's nice. Are they saying it would be much better if people just didn't hear about the discrepancy between voter intent and the machine result?

I'll say it again, just because I can: this new technology does not solve the problem. There have been no massive breakdowns in voting because of the cost of ballots, or the lines, or people taking time to verify their voting. In fact, the problem in Florida was precisely because people didn't verify their ballots. The only things that have been a problem with voting machines both in Florida and elsewhere is a lack of clarity of use, and no clear intent. That can be solved with a touchscreen and a machine-punched ballot. Attempting to change anything is simply creating more problems than it's solving.

T&B Bids Farewell to Dragos

Dragos Novac has decided that he will leave T&B to focus his efforts on his own Romanian business blog,

Quote of the Day

So what was lacking in my MBA program? Unconventional thinking. Variety. Substance. Sure I learned how to keep the books, how to evaluate risk and return, how to motivate employees, and all about the four P's of marketing. But a lot of that is bullshit. It is not what running a business is all about. It is really about making good fast decisions with limited information. They don't teach you that in business school (not at mine anyway). They act like you always have the information you need to make a decision.

--The one and only Businesspundit

I Think They Mean Me


I tend to dig through referrer files. Sometimes I do it because I like seeing where people are coming to us from, other times I do it to find other interesting sites I may not have known about.

Today, for instance, I saw that someone came here through this link to T&B on the American Economic Association web site.

Next to the T&B link is a place to click to get more information. If you do so, you go to this page, where you'll find this:

Truck and Barter

This blog is written by a group primarily made up of grad students (some in economics, and some in other fields). Its comments are almost on economics (unlike many other economics blogs).

I think that last sentence is particularly telling.

It's a question I find myself asking more and more as the projects pile up right before the end of the year...

In that vein, here's an interesting article in today's NYT: Many Collegians Do Not Graduate in 6 Years, Report Says

The article goes through a good deal of hand-wringing about the rates of graduation at colleges, as well as the differences in graduation rates between minorities:

Only 63 percent of full-time students at four-year colleges graduate within six years - a common yardstick for measuring graduation rates - the report says. And these rates have remained flat for more than 20 years.

Graduation rates are especially low for minority students and those from low-income families, the report says. Only 46 percent of black students, 47 percent of Latino students and 54 percent of low-income students graduate within six years.

20 years, you say? Sounds like a fairly stable equilibrium, to me. Without the data for the report, of course my reading will be off, but might I suggest a different interpretation? Perhaps we're simply seeing a long-standing effect of choice making by individuals weighing their value in the market versus the opportunity costs of continuing in school.

What the article fails to do, though such failures aren't surprising in our journalism corps, is to consider possible variation in graduation rates between various types of majors. An unpublished paper I read recently (yeah, that's a terrible thing to do, I know -- but I'm having a hard time finding any good economic reports that aren't blocked the way JStor and Ebscohost are. I promise to update when I come across some...) indicates that there are vast differences in the effect on future wages based on the quantitative substance of the classes a person might take. The more quantitative, the higher the wages (hourly wages, in the case of the study). It also indicates that there are varying effects based on the actual graduation of an individual. This is often referred to as a "sheepskin effect." That is, the difference in wages between a person with enough credits to graduate, and a similar person with the actual diploma, is nontrivial in the case of quantitatively heavy degrees.

This could indicate that we'd expect to see more "die-off" of students in the softer majors (English, History, Sociology, etc.) than elsewhere, since the process of skill acquisition might be different and perceivable to students. The price of an English major in their third year of school is little different than after graduation. Staying longer adds little to the future value of that person's work.

What prompts these people to leave? Certainly some people experience considerable financial or personal shocks, though I don't expect it to be at the levels that would prompt only 63% of entrants to remain. A seperate possibility is that the person got a job. That is, they found a way to earn money that seemed to be worth leaving school (making money instead of living on loans, possibly). By nature, then, those people who have left are those who are endowed with a natural motivation or ability to find work. Similar students (same major and other demographics, say), on the other hand, may lack a certain something that prompts them to find work. In which case, the people who remain to graduate with a less quantitative degree may not, in fact, be better off than those who left.

Also of importance is the difference in ability between the 4-year graduates, the 6-year graduates, and the 6+ year non-graduates. The curriculum at the vast majority of schools still allows for graduation in 4 years for a Bachelor's degree. Controlling for those students who work as well as attend school, it might be plausible to posit a difference in ability between those who graduate at 4 years, 6 years, and those who do not graduate at all. Again, controlling for those people who work, or who have possibly switched majors to a more technically challenging field, each successive year is worth less and less, but the student remains because 1) he is unable to complete the coursework, or 2) is unable to find a better option (such as a job), and chooses to remain in order to be doing something (potentially finding new skills that are in more demand, though continuing undergrad classes is often simply more variations of subject matter like Deontological Nature of the Victorian Novel, Small Wars of the 1400s, etc.).

This is especially telling:

Two campuses that have shown substantial improvement in recent years, the report says, were Louisiana Tech University (55 percent in 2002, up from 35 percent in 1997) and the University of Florida (77 percent in 2002, up from 64 percent in 1997). The University of Florida has worked to monitor its students better, improve advisory offices and provide more classes that students need.

In the first case, the degree is a technical one, and in the growth of the technologically-dependent economy such degrees are a certification process that could be highly lucrative. In the second, the school has a recognized "name" that could be improving in value over time. (This might also work as a postive correlation between school name and graduation rates in the negative direction, as the "name value" declines.) The difference in institution's rates could well be explained by the interest in graduating from a particular school. What's the value of having the name "Harvard" on a degree versus "Chicago State"? The quality of skills learned isn't the question then (and I certainly don't mean that Harvard grads are necessarily better skilled than Chicago State grads), only the value to a potential employer.

Programs at schools designed to make sure more kids graduate would seem to have little use, save for on the marginal student that is faltering between leave and stay. In that case, we'd expect the value of more school and work to be slight anyway, so the "sheepskin effect" probably wouldn't be large. Indeed, if the program starts building in extra incentives to stay (loans, lower prices, etc), it could be that the schools will only succeed in expanding the pool of lesser-skilled (in relation to school) students that exhibit less motivation.

And worse, regulation by States that link school process to loans simply induces greater entrance and retention of those people who don't have more lucrative outlets elsewhere or lacked the motivation for school absent the financial incentives. This exposes more motivated and higher skilled students to externalities such as larger class size, less access to professors, more thinly-spread campus resources -- and in the long run, a graduating cohort that is larger than the market would otherwise demand (since supply was stimulated by a State rather than the job market). Too many people in a cohort (say, the flood of recent college grads that happens every summer) entering the work force, as anyone can tell you, puts a downward pressure on wages. That's just not good for anyone, graduates and non-graduates alike.

[Editorial Update: Some changes made to clarify points I hurried through, some spelling mistakes, etc.]

The new Medicare plan from the Bush administration has been under a lot of heat from political opponents of the President, assorted pundits, and some elderly folk too. I forget who said the following quote, but I think it�s applicable to this situation: �You spend your money on yourself very carefully. You spend someone else�s money on yourself less carefully. You spend other people�s money on other people even less carefully.� It�s a remarkably profound statement about bearing the costs of certain actions. Assume I spent my money on a poor purchase, say a real lemon of a stereo system. When it breaks as soon as I turn it on, I bear all the costs; I�m out the price of the stereo and I didn�t get the utility from it that I expected to get. On the other hand, if I had used a charitable donation from my grandma to buy lemon stereos for the local breakdancing club (i.e. spending other people�s money on other people), I am basically liberated from all costs (except 1. the time and effort spent making the purchase and 2. and the disutility resulting from them not being my breakdancing club friends anymore).

President Bush is essentially spending other people�s money on other people with his new Medicare plan. To be fair, any time a President proposes big spending measures, the money isn�t his except for the tiny percentage of the spending that comes from his taxes. Nor will he be the primary beneficiary of the policy. If President Bush needed Medicare the way some elderly Americans do, I suspect that his policy would be different. I can�t say if it would better or worse, just different.

So I�m not surprised that critics say he is spending our money carelessly. The �rules of the game� give American Presidents very small incentives to be cautious with our tax dollars; those who voted for him in 2000 will likely do so again and those who didn't, probably will vote for someone else. Even if Bush wanted to spend our money as carefully as we would, it would be impossible for him to gauge and aggregate our preferences as accurately as the pricing mechanism of a free market. So while many disillusioned Americans point out the self-centered nature of politicians in regards to reelection, I find it interesting that many of the same Americans expect someone else to spend their money on them as carefully as they would spend it on themselves. And just for the record, I seriously doubt Bush or Cheney will be applying for Medicare come age 65.

Fake Money, Real Incentives


I apparently missed the hullabaloo surrounding this paper -- "Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier" -- by Edward Castronova when it originally came out. It's an investigation into the economics of online mutiplayer games.

There's an interesting article on it at Walrus magazines site: Game Theories. (And no, I didn't like it just because of the name.)


[Castranova] began calculating frantically. He gathered data on 616 auctions, observing how much each item sold for in U.S. dollars. When he averaged the results, he was stunned to discover that the EverQuest platinum piece was worth about one cent U.S. — higher than the Japanese yen or the Italian lira. With that information, he could figure out how fast the EverQuest economy was growing. Since players were killing monsters or skinning bunnies every day, they were, in effect, creating wealth. Crunching more numbers, Castronova found that the average player was generating 319 platinum pieces each hour he or she was in the game — the equivalent of $3.42 (U.S.) per hour. "That's higher than the minimum wage in most countries," he marvelled.

Then he performed one final analysis: The Gross National Product of EverQuest, measured by how much wealth all the players together created in a single year inside the game. It turned out to be $2,266 U.S. per capita. By World Bank rankings, that made EverQuest richer than India, Bulgaria, or China, and nearly as wealthy as Russia.


Not all social inequities are absent, of course. For instance, Castronova discovered that women in the game are worth less than men, in a very measurable way: when he compared the sale of male and female avatars, he found than female characters sold for 10 percent less than male ones at precisely the same power level. Players with female avatars also say it's harder to advance in the game, at least initially — even though the female characters are often being played, in real life, by men. (A study by the game academic Nick Yee found that male players "cross-dress" as female characters at least one-third of the time.) Men play as women characters partly for the kinky thrill, but also because female characters are given random presents of free stuff by other players, a chivalric custom known as "gifting." "Personally, you receive a lot more stuff when you start out as a female," as one male cross-dresser wrote to Yee.

Ultimately, Castronova says, EverQuest supports one of Adam Smith's main points, which is that people actually prefer unequal outcomes. In fact, EverQuest eerily mirrors the state of modern free-market societies: only a small minority of players attain Level 65 power and own castles; most remain quite poor. When game companies offer socialist alternatives, players reject them. "They've tried to make games where you can't amass more property than someone else," says Castronova, "but everybody hated it. It seems that we definitely do not want everybody to have the same stuff all the time; people find it boring." It is a result that would warm the heart of a conservative.

It's not a short piece, but it's worth a read.

The Iraqi Central Bank Law


David DeRosa praises the new Iraqi Central Bank Law:

One part of the Iraq story that gets little attention is what the ruling Coalition Provisional Authority has accomplished in re-building the country, including its financial sector.

The financial architecture for Iraq centers on establishing an independent central bank. What's remarkable is the scope and detail the coalition brought to the task of establishing that institution. In March, the CPA published the Central Bank of Iraq Law, which is far more than a law -- it's a primer on central banking.

The law's 74 articles and 42 densely written pages cover every topic imaginable on how to run a central bank, including: the bank's capital stock, its board of directors, its relationship with the rest of the government, management of its foreign reserves, monetary policy and open market operations, reserve requirements, issuance of currency, supervision of the banking system, the national payments system, compilation of official statistics, audits, criminal offenses and the establishment of a financial services tribunal.

The coalition maintains the "goals of the new law are to achieve long-term growth and prosperity through measures designed to maintain domestic price stability and foster a stable and competitive market-based financial system.'"

Under the official rules, the CBI's first task is to maintain "domestic price stability". However, since "price stability" is not defined in the document, it is left to "international standards", meaning a slow and steady inflation will probably result. Only under a regime of price stability is the CBI permitted to pursue policies to promote "sustainable economic growth, employment, and prosperity."

At least they're making it harder to game the system than before. Still, actively managing a fiat currency is not an easy task; unlike the rather mundane accounting, minting, and servicing tasks of a government currency based on a set number of certificates tied to gold, fiat money is easy to print, and profitable to manipulate.

But an independent central bank presents advantages to professional economists and the general public, as such experts are required to assume positions of importance and power in the polity. We may think Greenspan has way too much influence on the stock market and other areas, and his position may be a net cost to our economy, but it's hard to deny that the public statements of a powerful secular Iraqi central banker might be the only source of finance and economics education for a vast majority of the rural population, and might be a huge stabilizng force.

Anyway, the Law and the extended and detailed Annex makes for fine reading on a Monday evening after your child and wife have gone to bed.

Meanwhile, note that the CBI is authorized to create balance of payments, monetary, and other financial statistics, but not macroeconomic statistics. How are they to manage the economy when they don't have the data?

Note: Also see my earlier posts on Iraqi Economic Statistics and the head of the CBI, Sinan Shabibi.

California HealthCare

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Daniel Weintraub, of the Sacramento Bee, talks about health care in his column today and notes that trend of doctors opting out of the insurance networks is continuing:

Dr. Marcy Zwelling-Aamot is sick of being told how to care for her patients. So the Los Alamitos physician - and president of the Los Angeles County Medical Society - says that as of July 1, she will no longer be working with health insurance companies.

"I am divesting myself of every insurance contract," said Zwelling-Aamot, an internist. "I can offer better care less expensively to my patients. I have a list, a waiting list, and I haven't even started advertising yet."

Zwelling-Aamot hopes she is on the leading edge of a wave of the future, which would really be a return to the past. She envisions an era when doctors and patients once again deal directly with one another, without the reams of paperwork, authorizations, second-guessing and billing nightmares that come with the current system.

All well and good, over on the previous site, we have talked about this trend before. Weintraub then brings up an unfortunate little bill standing in the way of market forces in California, SB 2.

What are They Thinking

I remember seeing this earlier in the week, but forgot about it until perusing the Bangkok Post. Here is some info:

BANGKOK, Thailand -- The Liverpool soccer club agreed in principle Tuesday to sell a 30 percent stake to Thailand.

"In principle, they agreed to give it to us and now we are working on details," Thailand Prime Minister Thaksin Shinawatra said. "It has moved forward in a good way ... we still have to work out the details.

"By June, things will probably be concluded officially."

This is probably the most asinine thing I have ever seen a politician do. Thailand is not a rich country; if, say, Singapore were to announce a bid for Manchester Untied, it would be funny. Who knows, maybe they'll get a nice return on the investment and in the end put more resources into education and such, but I doubt it. It's not as if this is a local team, so you can't really compare it to the Green Bay Packer deal. The economics of this are dubious, Thaksin has done O.K. for Thailand, but come on.

Mark Matthews, if you are intrested in SouthEast Asian, mainly Thai, Equities, his is the only place to go, offers a different take:

People who think this is a bad move miss the point.

Emperor Augustus recognized the way to get the people "on side" was to give them "bread and circuses".

That�s why municipal and state governments build expensive football and baseball stadiums. It�s fun to go to the ballgame. That�s why the Olympics happen. And that's what Thaksin's doing with Liverpool. The only strange thing is the circus is in so far away. But I hear part of the deal is to bring them here for part of the year and use them as a base to further sports in Thailand.

Of course, further in the posts, he shows he's probably right:
�ABAC Poll, a survey conducted by Assumption University, shows positive result from its research on Prime Minister Thaksin Shinawatra�s plan to buy a 30 percent stake in Liverpool soccer club, that hopes to take Thai football players to the international level. �Our research shows that 83.2 percent of voters have agreed with the plan to buy a stake in Liverpool,� said Abac Poll chairman Srisak Jamornmarn.�
A summer election
It seems like it is a brilliant move politcally for Thaksin. But 83.2 percent of the voters like the idea? I could make some nasty comments here, but I'll refrain.

Of course it could be worse, he could be proposing a massive new entitlement. This money could be a much cheaper way of keeping the people happy than a nationalized healthcare system, presciption drug benefit, welfare programs, social security and education. Do we get these ideas because the people aren't well-educated or are the people not well-educated because of these ideas?

Wifi @ Panera Bread

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Some personal blogging. Today is my day to read voraciously and write my dissertation; however, the local library doesn't open until 1 PM.

So I left wife and child home, and took the increasingly beat-up Hyundai Elantra to Panera Bread a mile down the road; this Panera is huge, smells pleasant, has comfortable chairs, is only 30% full, and plays classical music at a loud enough volume to drown out any silly conversations. For $1.50, I got a hazelnut coffee, a well lit table in a corner, and blazingly fast and free wireless internet access.

I see another laptop user is going for (unauthorized?) free refills on coffee.

I just realized that my laptop has a higher resale value than my automobile, that I should be reading about economic statistics, and that no matter how hard I try, I cannot stop thinking in the economic way.

J.K. Galbraith on America


Dr. Galbraith does not think highly of the Bush administration. In fact, in this article an unrestrainted J.K. Galbraith concludes that our "economic problem" is mostly--not all--Bush's fault. In fact, he tells us that Bush wants economic stagnation and that "[p]ossibly, this is intentional," as a means to self-enrichment and to justify a tax reduction.

I find it helpful when writers have clear opinions about political and economic phenomena, even when I interpret those phenomena differently. However, I find it frustrating when these clear opinions are so well thought-out that the writer doesn't see a need to share with us the data that ground his beliefs.

Such is Dr. Galbraith's essay.

Incentives Matter: Lawyers' Edition

On page 4 of the latest decision requiring Barbra Streisand to compensate opposing counsel ~$177,000 after losing her civil case, the judge refers to Children's Hosp. and Medical Center v. Bonta, which contains a delightful examination of incentives:

The example DHS finds most egregious is the complaint, which is only six pages long. Respondents� counsel spent 39 hours preparing this document, which DHS says any competent lawyer could draft in an hour or two. We reject this analysis. The length of a document is no gauge of the time needed to prepare it. The pithy pleadings that are most effective usually require more time to prepare than the endlessly discursive and digressive documents judges often receive. Moreover, given the complexities of this case, the precise language of the concise complaint warranted the exceptional attention counsel devoted to its preparation. Judicial use of the length of a pleading or brief as a measure of the time necessary to prepare it would reward verbosity and penalize thoughtful and precise draftsmanship. Given the ponderous plethora of prolix pleadings that inundate our courts, no trial judge in his or her right mind would adopt such an approach.

NonProfit Slowness: The Case of the ASA

Today I registered to become a student member of the American Statistical Association. It's cheap-- $10--and with some small additional fees, I will get electronic access to a bunch of journals I otherwise would have to spend 30 minutes driving to the library to read. (My university doesn't have electronic access to the current editions of some journals).

However, the ASA will not enter my application into their system for 10 business days. Why so long? No explanation is given, although I was grateful that they warn registrants of this slow process. I was still astonished, but that feeling occurred when I forgot I was an aspiring economist.

I couldn't understand why the ASA would have a web form that immediately emails you your registration information, and not have that same information sent to their own membership database.

I should have been able to register online, and have the data immediately sent to a reviewer who could verify my student credentials and give me access in short order.

What really amazed me was that they couldn't speed things up when I called them on the phone and volunteered to go to ASA headquarters, which is only two miles from my home.

Question: Would you shop at a store that wouldn't give you an account for 10 days?

Note: As of the time of this post, the ASA website is currently offline!

Quote of the Day

Ayn Rand said no society can jail an honest man. So if you want to use the power of society on citizens, you have to make normal behavior illegal. The zoning ordinances and environmental ordinances are a classic example. I guarantee you that nobody truly understands them, and no plant can meet all of them simultaneously. So you end up with a dynamic that there are no laws, and there are no rules, and you're completely at the mercy of the local government, and they don't want you there. And they tell you that. So you go away. That's why there's no silicon left in Silicon Valley.
--T.J. Rodgers

More India News

Earlier in the week, I posted some comments of concern that Congress would continue with economic reforms. One of the links in the post was about the former finance minister who actually did much of the reforming a decade ago. It turns out that he Gandhi is stepping aside and the former Finance Minister, Manmohan Singh, will step in. This is great news, but his lack of political skill may prevent reform from getting through when tough votes comes up and a lot of arm twisting is need. The coalition governement isn't very strong and needs the help of communists to stay in power. Some snippets from the Economist:

FOR five enthralling days, Sonia Gandhi was India�s prime-minister-in-waiting. But the honeymoon was over even before the wedding. Although accepted as the prime ministerial candidate both by the Congress party and its allies, Mrs Gandhi decided not to put herself forward. At a chaotic party meeting on Tuesday May 18th, she said �the post of prime minister has not been my aim�, and that she must follow her �inner voice�, which was telling her that she �must humbly decline this post�. Drowned out by howls of protest from her MPs, she said her responsibility was to �provide India with a secular government that is strong and stable�I am not hungry for power.�

On Tuesday evening, crowds of protesting party workers gathered outside Congress's headquarters, with a hysterical few even threatening suicide if Mrs Gandhi did not change her mind. On Wednesday, a number of senior Congress figures quit their party posts and trooped to Mrs Gandhi's home, begging her to reconsider. But she stood firm. Later that day, a meeting of Congress MPs endorsed the 71-year-old Manmohan Singh, a highly respected former finance minister and Mrs Gandhi's preferred candidate, as prime minister (with Mrs Gandhi taking on the role of party chairman). A couple of hours later, Mr Singh met the president, who asked him to form a coalition government.

And this:

Indian investors� main worries were about the future of economic reform under Congress, and about the stability of its coalition. It was the scholarly Mr Singh, in fact, as a Congress finance minister in 1991, who initiated India�s biggest-ever package of reform and liberalisation measures. During the election campaign, Congress promised to increase India�s already soaring rate of economic growth to 10% a year. To do so, it will need to continue the reforms.

However, there are doubts about whether Congress will be free to pursue liberalisation. It will have fewer than 150 of the 545 seats in parliament. Even its �pre-poll alliance� of coalition partners will have only about 220, and a number of those will not join the government. To secure a majority in parliament Congress needs the support of the Left Front, which is dominated by the Communist Party of India (Marxist), or CPI(M). Although in West Bengal, where the CPI(M) has run the state government for the past 27 years, it has recently adopted a business-friendly pose to attract investment, the national party remains bogged down in the old dogma. Already its spokesmen have been demanding the abolition of India�s disinvestment ministry, which oversees its privatisation programme.

The markets may eventually take heart from Mr Singh�s reassuring presence and statements, and the �common minimum programme� Congress and its partners are drafting: on Wednesday, Mr Singh said economic reforms would continue, with a �human element�, and stressed the importance of healthy capital markets. Investors may also be relieved that the Communists have refused to join the government, preferring to offer �outside support�.

This may cloak the government in a paler shade of red. But it hardly seems to promise stability. Congress will remain prey to the demands of what one Indian commentator, Prabhu Chawla, has called �vulpine regional satraps, their egos larger than their parties�.

A postdoc here at Claremont interviewed the future PM for his dissertation and was impressed. His view is that reforms would conitnue because Singh would be FM(it was on Monday, before this news broke). He mentioned other things as well, but it was in a bar(last final that afternoon) and the only other thing I distinctly remember is that the Indian currency is undervalued.


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My name is Bob, I'm going to be blogging here on T&B. I'm an open-minded virgo with undergrad degrees in economics and spanish. I play lacrosse and I study phillipino martial arts (sticks and knives). I also have a cat.

Like most people who visit or post on this site, I find economics to be an excellent lens for looking at the world. One of the reasons I enjoy economics so much is that I love disagreements with other people. Not the violent, I'm-going-to-smash-your-face disagreements; the intellectual kind. With economic principles tending to be opposite what most politicians and idealist say, I have plentiful opportunities to argue the virtues of Wal-Mart and free trade.

I am most interested in the application of economic principles to the politics and everyday life. (Thomas Sowell is one of my favorite authors). I am a registered independent though, so if my blogs seem politically charged, rest assured that my disdain for all but a few politicians is equal in its veracity.

All that being said, I look forward to disagreements, discourse and fine economic thinking!

Lots of good stuff in the news today.

A group of Fortune 500 corporations are getting together to offer health insurance to their non-full time workers.

What I find most interesting about the move is that it appears to be a direct reaction to the long-term externalities of an uninsured populace: the shifting of costs from the uninsured to the insured. Long term concerns play as much of a role in evaluating costs as do short run concerns, so this seems only natural. The Christian Science Montior agrees, but responds to the possibility that others may be scratching their heads.

But so what if self-interest is at work? That's how many social problems are solved in a market economy. The big-business alliance would help solve this one by pooling workers, thus offering them lower insurance rates which they couldn't find as individuals. The alliance estimates it could cover as many as 4 million people - 10 percent of the uninsured.

The presence of uninsured does have direct consequences for the insured. But it would seem wrong to believe that the presence of uninsured indicates a complete and continuing market failure that can only be addressed by government intervention.

The Difference a Word Makes

For those who aren't yet hip to the whole XML feed aggregation thing, I'd recommend getting yourself a copy of FeedDemon. Aside from the joy of consolidating numerous news feeds, it sometimes provides a perspective you might not get from surfing lots of sites.

Case in point, these two articles from USA Today that we situated next to each other on my screen:

Schools embrace innovation (
Struggling schools forgo innovation for familiar fare (

From the first article:

In addition, 49 states have developed new performance standards, and most are on their way to developing assessment systems, tougher definitions for teacher quality, a framework that will disclose more student-performance data than ever before and provisions for communities to hold their schools and policymakers accountable. How much more innovation can we ask public schools to undertake?

From the second:

While such creative solutions initiated by outside groups have raised students' academic achievement, superintendents and school boards tend to stick with familiar academic methods, even when they aren't working well.

There's a lot of information conveyed in that word, "struggling".

Is the distribution of "innovation" in schools correlated with those that are succeeding? The implication could be that new methods are available only to those who already find themselves in the upper half of the distribution. Then again, these are just newspaper stories. And the USA Today at that.

We have Charts!

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Back to the quick-hit posts while I try to finish up this school thing over the next couple of weeks.

I received the following chart from Chart of the Day (though, if you subscribe to the free version, it's more like Chart of the Week), and thought it was interesting:


From CoD:

Although it took 29 months, there are finally more jobs now than when the recession ended. While it took much longer than the 1954-1990 average during which job growth tended to be immediate, jobs are currently heading in the right direction and at a pace similar to that of previous job growth two plus years following a recession.

I suppose partisans will get into the typical good news/bad news debate ("look how the economy is rebounding!"/"it took too long because of bad policy!"), but it just leaves me wondering if technological improvements in productivity over the 90s impacted job growth by changing labor demand. That is, what does it mean for job growth if it takes substantially fewer people to make the same (or more) stuff now? Should we pay more attention to sector-based changes to get a "truer" feel for the employment situation? And in the medium to long run, what are the implications of productivity outpacing retirement from the workforce?

Poland's Auto Industry

What happens when The Washington Post's automobile reviewer writes about Poland's integration into the EU? An exciting microeconomic drive through the country's economic development.

Although known for his off-topic auto reviews, Warren Brown makes Poland a sizzling hot topic, and keeps the reader's eyes squarely on the web page, until...:

Put another way, every car company doing business in Central and Eastern Europe increased market share last year. Automakers sold 479,000 cars and trucks in the region in 2003, a 25.6 percent increase over the number of new vehicles sold in the area in 2002, according to Global Insight's research. Polish consumers bought 55,276 new vehicles in 2003, a 16 percent increase over the number sold in 2002, according to the research.
(Emphasis added). Business has been so good in Poland that the laws of arithmetic have been broken--it is now possible for everybody to get a larger share of a pie. :)

(Side note: I've previously written about income percentiles, arguing that snapshots of income distribution give a distorted picture of low-income well-being. Now I realize, with Mr. Brown's help, the impossibly high standard of many who yearn for social justice: everybody must get an equal and ever larger share of income).

But back to the article, which outlines the course of Poland's economic development through foreign investment. It's worthwhile to note that, to start, Poles will earn far less than an average American or European salary. Some people will insist this is cruel exploitation of the poor that must be stopped. Others will insist that the only path to riches tomorrow is by exploiting the poor today:

The Delphi Krakow Technical Center employed 240 people when it opened in 1994. It now employs 2,400, the vast majority of them Polish nationals. It plans to hire more....

But car manufacturers and their suppliers see [Poland's] dismal wages and employment figures as blessings in disguise. As Barth noted, the automotive industry is a capital-intensive business. Such businesses are forever in pursuit of profits through the acquisition of talent, skills and quality production at the lowest possible price.

That makes Poland, with its large reservoir of existing and trainable technical talent, an attractive employer's market for companies like Delphi...

More jobs mean more money, and probably rising salaries. That turnabout could erode Poland's value as an employer's market but greatly increase its worth as a consumer market, Barth said.

That's right--Polish economic development is all about the Polish economy eventually pricing itself out of jobs, which will then relocate and perform their economic development function elsewhere.

Economic development is really about generating efficient and timely production facilities in diverse industries--combining non-human capital and human capital to get the best mix of price and quantity.

When Delphi no longer finds Poland as attractive as it once was, it will move some capital elsewhere. By then, other capital-investment opportunities, reflecting the higher real wages of Polish employees, will have entered Poland. This leads to a spiral of ever-higher wages. To many this seems counterintuitive, but the history of economic growth in societies respectful of markets and property requires us to take an optimistic stance towards our own pessimism.

Questions:Should Poles want job security at the wages they are currently earning? Aren't most far better off to let creative destruction wreak havoc?

Allow myself to introduce... Myself

As Austin Powers said "Allow myself to introduce... myself". My name is Taggert J. Brooks, I'm a recently promoted Associate Professor of Economics at the University of Wisconsin - La Crosse. I answer to my intials, T.J., since that was my intended name, but unfortunately people convinced my mother to give me a *real* name. She wanted something out of the ordinary which she definitely got when she stumbled on the name Taggert while reading about one of Charlie Manson's victims . Taggert Ohta, son of Dr. Ohta and only 11 years old, poor kid.

Now the only people who call me Taggert are credit card companies with amazing deals on payment protection. I do use the name Taggert professionally mostly becuase I look like I'm 16 and initals would make me sound like it as well. Besides I'm not famous enough to just use my initials. I've thought about using T. Jonathan but it doesn't have the ring of N. Gregory or J. Bradford, or the myriad of other people using their first initial and middle names.

Anyhow, enough about names, on to the important stuff, my interests. There isn't much in economics that doesn't interest me, but these days I seem to be working on economic education stuff, and I still write on exchanges rates, in particular PPP, becuase there aren't enough PPP papers out there. I'm up for tenure in the Fall so my *real* research interests will remain a mystery until then.

Finally thanks to Kevin for the opportunity to blog here, I hope to help improve his Marginal Product, and in the process hopefully not dimish mine. I will still try to post on my own blog as well: A Random Walk.

Doctors Pay Athletes for Medical Care

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Bill Pennington of The New York Times reports that, in exchange for promotion rights, tickets, and other goodies, doctors and hospitals are paying sports teams (rr) and providing free or highly discounted medical care:

Despite concerns among many doctors and the players' unions over the ethics of putting health care out to bid, about half the teams in the four major North American professional sports are now tied contractually to a medical institution. Industry analysts expect that number to grow significantly....

The Mets, for example, are paid more than $1 million a year by the New York University-Hospital for Joint Diseases, with the hospital providing the services of its doctors at no cost. In return, the hospital advertises at Shea Stadium and receives free tickets and periodic visits from players at hospital events. When the Mets signed their seven-year deal in 2001, their longtime team doctor, Dr. David Altchek, was let go.

Some medical care consumers might complain that this only makes healthcare more expensive for the rest of us. But this isn't so, since these organizations would have huge advertising and marketing budgets even without spending money and time on professional athletes.

Many doctors have a hard time accepting that their service should be packaged, marketed, and sold:

Many doctors, however, are deeply concerned about the propriety of these arrangements. "These groups should have to put out a disclaimer: `We paid for the ability to treat these top athletes,' " said Dr. Robert Huizenga, a former team doctor for the Oakland Raiders and past president of the National Football League Team Physicians Society. "What's it say about our profession when the most high-profile jobs are awarded not by merit, but by auction?"

Dr. Dan Brock, director of Harvard Medical School's Division of Medical Ethics, called the marketing arrangements unseemly....

Dr. Gordon Matheson, editor in chief of The Physician and Sports Medicine, a journal, and Stanford University's team doctor, said: "It hurts us all. Do physicians fight over the right to take care of a run-down section of town? These arrangements can't help but imply some competition for secondary financial gain, and that doesn't jibe with the central values of health care."

I think doctors have to stop kidding themselves. Most people--including doctors--strive to make money, regardless of their occupation. There is no reason why a responsible, moral person cannot make money providing medicine for people willing to pay. I gather that Dr. Matheson insists that money-striving doctors treat people who cannot pay along with those who can. But his argument in favor of medical charity has nothing to do with any particular advertising plan implemented by a medical facility.

Is he seriously arguing that without such an advertising-care agreement, the best possible care would always be given regardless of cost? Or that a greater emphasis will be put on cost-savings than was before? And that now, a lesser quality of care would be given?

Surely all these are possible outcomes, but how likely are multi-millionaires to accept bad medical care? How likely are sports team to compromise the health of their employees who make them all their money? Won't a contract for medical care specify the quality and cost up front, with appropriate punishments for not meeting the contract? If so, what's there to complain about?

In fact, some professional athletes are terribly concerned about the new arrangements, in spite of finding their medical care far more than adequate:

Mets pitcher Tom Glavine said he was satisfied with the care provided by the Mets' doctors but concerned about the principles of the new financial model. "Potentially, it's an issue that could be disturbing or warrant concern," he said. "You'd like to think the team is getting you the best possible care and you're not just treated by whoever gives the most money."
Let me put Mr. Glavine's words into a different context:

As a fan, you'd like to think the team is presenting you with the best possible pitching, and you're not just treated to whoever makes the most money for the team.

But, I submit, if you think that, you're absolutely clueless.

In sports and medicine, putting together the best possible team--the one the wins the title or has the best record in saving lives--is a surefire way to become rich and famous.

Some say that fielding a top-notch team is only possible with an enormous salary fund. Others say you can do so by picking and choosing lower-cost options wisely. We've seen winning sports teams come from both management philosophies. How about medical teams?



It is with some apprehension that I comment about the Indian election; the issues are complex for somebody like myself, sitting several thousand miles away. I have over the last 3 or 4 years tried to follow developments in the country before it was cool. Despite the terrorists attacks and subsequent war, I was as optimistic as anybody could be about prospects for global economic growth, of which, India was a key component.

For the last fifteen years, liberalization has been the trend even though it has taken a few bumps across the world in Asia, South America and Russia. It is probably with this wind to the back of market economics that the Economist writes this:

An unstable coalition government, relying on the support of the Communists, is unlikely to prove radical, and may be short-lived. But there are some grounds for optimism: Congress�s manifesto commits it to a policy of sustaining and even accelerating current rates of economic growth. With luck, the coalition it is likely to lead will quickly realise that this will be near-impossible without continued reform: cutting the fiscal deficit; continuing to foster competition; and privatising more state-run enterprises. Rural India�s rebuke for the BJP should encourage the new government to spread some of India�s alleged shine to the gloomier parts of the countryside. Properly interpreted, it should not thwart reform, but spur it.

As many people have pointed out, the Congress party are the ones who started the reform effort over a decade ago that kick started the economy. The question needs to be asked if any left of centre party is committed today as it was a decade ago to liberalising their economies. I don't think the answer to that question is yes. Today, as markets in Asia are tanking, I read this little snippet posted on Drudge from Bloomberg:
India's Mumbai stock exchange halted trading for an hour after the Sensex slid 10.9 percent. The benchmark had dropped 6.1 percent Friday after the new government, led by Sonia Gandhi's Congress party, said it won't sell profitable state assets.

I take to mean she's trying to attract the communist party, who want to end the privatization program, into her government. From what I can tell, the communist's bark is worse than its bite, as this little snippet from the IHTsuggests:
Moreover, when they are not campaigning, the Indian Communists are a realistic bunch.

The only Indian state "where information-technology-enabled services are labeled essential and therefore unable to go on strike is in West Bengal, which is ruled by a Communist party," said Vivek Paul, vice chairman of Wipro, India's largest computer software company by market value, who is based in Mountain View, California.

Don't confuse me as a supporter of the BJP, I have read enough to make me not a fan the party. However, I hate communists even more. This is not to say that the economy will slow or stagnate if the reforms stop. In all likelyhood, the economy will probably continue to grow fast for several more years as the changes made a decade ago were substantial, at least that's what the growth models say. Either way, the election was a win-win situation for the U.S., either it grows fast or more immigrants come here.


Much has been made of the low birth rates in places such as Europe and Japan, but Singapore also has the same problem. An economist offers a solution:

Prominent economist Lim Chong Yah presented this stark choice at a seminar yesterday when he suggested tackling the birth dearth by leveraging on the value Singaporeans place on education.

He said the Government can do this at three levels:

For the first child, provide free education from nursery school to Primary 6

For the second child, continue this to secondary school and up to A levels

For the third child, give free education all the way up to polytechnic and university level.

On the basis of merit, a student should be able to attend the school of his choice, including more expensive independent schools, and the state would pick up the bill for his education, said Professor Lim.

One of the odd pieces of data is that Singapore has a low level of educational attainment compared to its GDP. From some brief searching today, it appears that the city-state does charge some fees to parents for their children to attend school. I had chalked it up to some sort of lag effect, but it may be that a not insignificant number of kids drop out due to cost. It seems worth investigating further, I'll put it on my things to do this summer.

Another economist summed it nicely:

Said NUS economist Cheolsung Park: 'A couple will have a child if they expect the lifetime benefit of having the child, such as happiness, is greater than the lifetime cost of having the child, such as monetary, psychological and time costs

One more idea, since Singapore has some of the highest alcohol taxes anywhere, a cut may be in order.

Edit: It turns out I didn't need the whole summer at all; I have the Barro-Lee educational attainment data on my USB flashdrive(as everybody should because you never know when somebody is gonna call the American people stupid or morons). It turns out that Singapore(8.12, highest level of schoolings age 25 and over) is catching up quickly, is past Italy(7.00) and not far behind France(8.37). BTW, the Scandies, Canada, Australia, New Zealand, Swiss, S, Korea, a few others and the U.S.(12.25, the highest), lead the way. And, education isn't statistically significant as a determinate of per capita GDP, in case you didn't know.

That I tend to view all arguments about "cultural" factors influencing economic development with the same sort of eye that I lend to "social capital" arguments (especially the egregiously awful book Bowling Alone) probably has something to do my being a born skeptic. On the other hand, I've yet to see a decent argument about the mechanics behind the idea that cultural inputs drive economic growth.

From the loose definitions of culture to the lack of resolving the bi-directional issue (that cultural outlets are more numerous in economically developed areas looks to me like it's as much of sign that growth in disposable income drive an interest in the arts as much as it is that a culturally diverse city attracts a broad range of people and talents, and a host of other arguments and counter arguments) the work leaves me cold and confused. I just haven't seen much to say that there is much reason for a city that has to make tough economic choices to invest in the arts. That said, however, I don't think most city managers agree with me, especially not those in Cleveland:

A new Cuyahoga County program that will disburse $375,000 in arts-related economic development grants is to go into effect Monday.


Commissioner Peter Lawson Jones said an important part of the grants' value will be to "convince the public that tax dollars are well spent" on arts projects that fuel the economy.

The commissioner has set an awfully high goal, then. I'm more than willing to accept the value of art for its own sake, the utility people get out of seeing art, preserving art, etc. What I don't follow is that argument for cultural projects being some sort of collective good that fuels productivity (as would, say, more students graduation from highschool with the ability to read). What I've read of the field of cultural policy studies essentially relies on interpersonal comparisons of utility to make arguments about positive externalities; why it is good that artisits and yuppies comingle, or the value of having more playhouses, etc. Even the purely economic arguments about the effects of museums and the like tend to ignore the circularity inherent in their subsidization arguments. If museums are subsidized so that they're not too expensive to enjoy, then you will get a greater number of people attending that don't/can't put more than the price of admission (a "donation") into the surrounding economic environment.

The crux of the issue for me is this: if you want to show that arts investment is worthwhile, I need to see reasons for the "arts" to be the important part of that phrase. Why choose arts over better access for the small businessman looking to open a coffee shop, a bike repair place, or just about any of the myriad of economic activities that one could undertake apart from the "arts"? And it can't be an argument based on there being too many of the other types of things keeping the arts under-represented. If your town has enough people spending enough money to keep 12 Starbucks open, then there aren't "too many." Showing that there are unrealized gains to be had in the "art" part of "arts investment", that demand is going largely unmet and providing incentives to correct that benefits the taxpayer in a way other than assuming I'm better off when there is more sculpture in the world than yesterday -- that would convice me that there are "too few" arts.

But just to show I'm not one to criticise and ignore, or that I simply am writing it off as "can't be done", there's a conference I highly recommend if you're at all interested in the topic, and in Chicago. (Which one is the more limiting condition, I'll leave up to you to decide. ...what? No rim-shot for that one?)

Help Increase my Marginal Product!


My marginal and total products have been decreasing in practically every task lately--in particular at my paid job. Some people would call it a bad slump; I call it a dangerous one.

I know I'm overextending myself with the job, baby, dissertation, and blogs, but I find myself unwilling to lower voluntarily my committment to any of them. Hence, economic law has stepped in, and nature is lowering my productivity at all of them--except perhaps the routine tasks and pleasures of taking care of a baby.

This is most dangerous at work, where I used to pride myself on productivity and achievement--leaving me ample time for the grad school coursework and blogging. But now I find myself wasting more and more time every day, and I'm getting further behind.

Hence, expect my posting to be pulsating and bizarre for the next two weeks or so, as I try out various work/home schedules, so that I may once again try to write a dissertation without quitting my job, or driving my wife nuts, or never seeing my son.

Also, I'd like for your assistance in my quest for a higher marginal product. Truck and Barter could use an additional blogger or two. If you'd like to blog about economics on T&B, email me. Novices welcome. Experts will be given a laurel and hardy handshake. I'll even give you an email account, if you want.

WM & Creative Destruction

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On Always Low Prices, I insist that Wal-Mart is the cutting edge of creative destruction.

Accounting Definitions


If you're reading this, you're probably looking for accounting definitions. I suggest this single-page, no-advertisement website for easy to understand explanations. Before you go there, I suggest you take a look around my weblog, Truck and Barter; you might find our economic analysis fun and addictive...

A lot of the economic literature I read has economists carping about how accounting definitions are not the same as economic definitions. Usually, economists want accounting definitions to shift towards their own usages, not realizing that many accounting definitions are hard enough as it is to keep straight.

At SynergyFest, Melissa Hershberger is doing a fine job in her new series on accounting definitions.

It all started after a productive lunch meeting:

some very bright colleagues and we were exchanging stories about businesses that thought all was well and then one day woke up and realized they couldn't pay the bills.... Hardworking individuals that had dreams and good ideas (and employed people) and managed their way straight into the ground because they didn't REALLY understand the difference between: Free Cash Flow, EBITDA, Depreciation, Profit and Net Profit.
I took accounting in college (from a Wall Street analyst who lectures on the side), and hated it. I even sold the textbooks after the class was over.

Lesson: Have accountants and business managers--not economists--teach you accounting.

The Perils of Choice


The topic is not a new subject around T&B: the impact of high levels of choice on the consumer.

This time it's manifested itself in the world of Medicare. Tthe range of discount card options has hit 73, and seniors are saying that it's tough discerning which one is the right one for them.

I have to admit, I'm not entirely sympathetic to the issue. Complexity of choices is inherent in a great deal of daily life, and building policy based on the perceived cognitive power of those to be affected strikes me as a quick way to devlove the whole issue into a "you don't know enough so let the government decide" sort of argument. (To put it rudely, I don't think we should regulate based on intelligence versus stupidity.)

On top of that, there seems to be a bit of a discrepancy in the story:

When Mildred Fruhling and her husband lost their prescription drug coverage in 2001, they suddenly faced drug bills of $7,000 a year. Mrs. Fruhling, now 76, began scrambling to find discounts on the Internet, by mail order, from Canada and through free samples from her doctors. "It's the only way I can continue to have some ease in my retirement," she said.

Last week, when the federal government rolled out a new discount drug program, Mrs. Fruhling studied her options with the same thoroughness. What she found, she said, was confusion: 73 competing drug discount cards, each providing different savings on different medications, and all subject to change.

Well, if one is able to keep track of deals from multiple websites, the mail, personal contact with physicians, and international comparisons, I'm not entirely sure why turning to a website as a single source of information should be that difficult. Certainly I can understand that government intervention has created a bit of a hydra here, when there are certainly more efficient ways to shift the price of drugs off of seniors to somewhere else, but compared to the adhoc method Mrs. Fruhling and others were resorting to before, isn't this at least a marginal improvement by way of reduced transaction costs?

My Stats Profs Would be Proud


This is just a humorous aside.

I used to want to be able to say, in as many languages as possible, "Where are the guns for my revolution?" (Please not the order of the possessives. Not "my" guns", but "the" guns. Not "the" revolution, but "my" revolution. I find this part very important.) So far, I've gotten it down in a few tongues.

But I think maybe I should move on to something a little So, I propose this as the alternative:

"Correlation does not imply causation."

I thought of this, and I've gotten a head start, after reading referrer logs and finding a site that generously linked to an interesting post from Kevin. A site in German.

Nun muß man eingestehen, dass Korrelation keine Kausalität ist. Somit bin ich vorsichtig den Schluß zu ziehen, dass Freiheit und Öffnung gegenüber anderen Ländern zu steigendem Wohlstand führt.

If I remember my college German, and that's a big if, this is saying that freedom/liberty and openness lead to increased prosperity. (NB: That took a lot of time and effort to hammer through my fuzzy banks. I'm not even close to competent to read a newspaper, let alone conversant. I've switched my language interests to Arabic. No mean letters about bad translation, please.)

So, consider that one down (Correlation does not imply causation: dass Korrelation keine Kausalität ist), hundreds more languages to go.

Anyone want to offer others?


Zimran Ahmed hasn't posted much lately, but what he has posted is very much worth reading.

More on Knut Wicksell

I previously linked to two short biographies on Knut Wicksell. I hadn't realized that Richard E. Wagner had summarized his main contributions more beautifully and tersely.

More on China and Oil

The comments of Randall Parker and Tyler Cowen require me to summarize my beliefs about China's increasing use of oil. In the short run:

1. The rising demand for oil by China and the resulting higher prices make the US worse off.

2. The rising supply and lower costs of manufactured goods from China make the US better off.

You do the net valuation of 1 and 2.

In college, I saw a flyer from the Columbia School of Mines declaring that "Everything you have, you have because of mining." It's not true--there are other factors involved--but you get the point. In this vein, Randall points out that 1. further enriches Middle Eastern resource holders, who will be paid by the gains in 2. However, his post makes me think that in the long-run:

3. The rising demand for oil by China and the resulting higher prices will cause the US to substitute away from oil.

Given many of the factors cited by Tyler in his post, the extent and consequences of 3. are inherently unpredictable.

Thomas Sowell on Price vs. Cost

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Sometimes all you can do is link and quote:

The difference between prices and costs is not just a fine distinction made by economists. Prices are what pay for costs -- and if they do not pay enough to cover the costs, then centuries of history in countries around the world show that the supply is going to decline in quantity or quality, or both. In the case of medical care, the supply is a matter of life and death...

When politicians talk about "bringing down the cost of medical care," they are not talking about reducing any of these costs by one cent. They are talking about forcing prices down through one scheme or another.

All the existing efforts to control the rising expenses of medical care -- whether by government, insurance companies, or health maintenance organizations -- are about holding down the amount of money they have to pay out, not about reducing any of the real costs...

For political purposes, what "bringing down the cost of medical care" means is some quick fix that will win votes at the next election, regardless of what the repercussions are thereafter.

World Competitiveness


In addition to not inducing and sustaining market-failure, governments should be laying down institutions to support competitive business activity, instead of just supporting specific businesses owned by relatives and cronies of the rulers.

The governments of many countries do this well; others have a long way to go.

IMD has released their 2004 World Competitiveness Rankings. I see some Swiss commentators are absurdly forecasting lower standards of living for children than current adults, and Collin May notes that the big EU nations are far down on the rankings.

The current rankings have the US first, as it has been for 5 years. I won't go into the methodology of the report, which basically results in an enormous index number. This procedure means that results could vary depending on what on thinks is most important for competition.

However, shifting the weights doesn't actually change very much. Another national competiveness assessment, independent of the IMD, has a pretty tight correlation with the IMD report over the past few years.

Also, as much as I'd love to blame the governents of poor countries for their citizens terrifying poverty, and as much guilt as they deserve, I gather that a long-term history of terrible governance is really hard to overcome...

Inducing Market-Failure

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I must agree with Don Boudreaux. From my perspective the most critical economic function of a government is not its ability to correct externalities and market-failures, but its ability to induce them. The institutions that governments maintain can either sustain and enrich or feed off and combat economic activity.

As a result of geographical monopoly and historical accident, a range of governmental forms--and resulting economies--can be found. After a cursory analysis, it becomes absurdly clear that the power to induce and sustain market failure is most often found in the poorest countries.

I could be pursuaded otherwise, but I hold fast because of two charts that Don asked me to quickly assemble a few months ago--plotting Economic Freedom and Freedom to Trade vs. GNI per capita:




Saw this article over here. In a plan being put together by Australian states premiers that would appearantly put all schools under the control of government bureaucracy and create a new one for national healthcare, they are calling it reform when it really is nationalization. It is unclear from the article if it would include private healthcare in the proposal, it's implied, but I don't want to make that assertion. When they say,

" they want families to be "enrolled" with a selected GP or health clinic for life."

you can't be too encouraged on that front. The main points:

� Replacing COAG with a stronger and more influential Council of the Australian Federation.

� Creating a new public education system which would include not only government schools but also Catholic and independent schools.

� Encouraging greater integration of the health sector with less duplication and more services tailored specifically to meet patients' needs.

� Forming new national bureaucracies to reform and run the health and education sectors.

It is only a working paper of the Australian states premiers, but is worth watching in the run-up to the general election. I somehow doubt this women would be for such a plan:

A WOMAN who was told she'd had a partial miscarriage saved her unborn baby's life by getting a second opinion.

Toowoomba Hospital doctors told Sherri Ann Buchanan on April 28 she had had an incomplete miscarriage and booked her in for a curette the next day to remove the remains of the fetus.

After waiting for about five hours for the surgery, Miss Buchanan, 20, said "it didn't feel right" so she left and sought advice from her GP.

The mother-of-one, who is almost four months pregnant, said her doctor referred her to a private clinic and an ultrasound showed her baby was alive and healthy.

"I couldn't believe it. I just broke down," Miss Buchanan said.

It could be worse, my friend's sister had her baby die in the womb and they didn't notice for six weeks. The amazing thing is they did tests during that time. The fine hospital who did such a thing was Northwestern Memorial in Chicago(the lawsuit was settled some time ago, it damn near killed her). There could be incompetence by both private and public healthcare providers, but it seams that the latter was lacking in resources for the public(which seems implied in the article) hospital the Austrlian women went for her needs.

For those who may have been paying attention, there's apparently a bit of a shake-up in the adult film industry. It seems that several performers have tested positive for HIV. In the wake of such a tragedy, the entire US business has placed a 60 day moratorium on the production of hardcore films. And it's a ban that's working, apparently.

Now, I don't mean to come down on either side of the debate about adult films in general, and don't really care to bring it up here. My interest is in the mechanism that's resulted in the shutdown of production. The current California law hasn't mandated such a move. There isn't a national adult films regulatory agency that's enforcing it. Apparenlty, the decision is made from a (sane, if you ask me) rational decision that everyone should stop until widespread testing clears as many people as possible. The costs of defecting are incredibly high, of course, making cooperation seem like the best idea.

Not surprisingly, however, the government of California has a slightly different take on things. Presented with this level of cooperation and self-regulation, they decide...more state interference is clearly necessary:

LACounty Department of Health Services has issued an emergency order forcing the industry's own health clinic to hand over the medical records of quarantined performers. And a bill introduced into the state assembly proposes increasingtesting from every month to every two weeks, and making condom use mandatory.

So long as adult films are legal, people are going to make them, which means that people will be willing to engage in incredibly risky behavoir, as I believe it is their right to do (of course, when they are illegal, people will still make them -- just fewer of them). The industry-wide shutdown of production brings to a halt film production. And in a rather insular industry, I would assume that communication is quick and comprehensive. Deviation from the ban won't go unnoticed, making the defectors virtual pariahs. Increasing testing won't stop the behavior, and the cost of monitoring condom use would be incredibly high. Should the taxpayers be forced to pay for the state's attempts to either be on sets or watch enough videos to catch people breaking the rules when there is a self-enforcing system already in place?

Even the potentially economically untrained members of the adult industry know a thing or two about incentives:

Industry leaders are themselves not immune to such suggestions but weigh the desirability of tighter regulation against the risk of porn production going underground or - worse still, from a business point of view - fleeing California for Nevada or Arizona.

The first actor to have tested positive, according to the story, contracted the disease in Brazil. Another performer worked as a prostitute as well. The disease, then, was contracted outside both the scope (Brazil) of California regulation and the reach of California enforcement (prostitution -- though the article doesn't say the performer was a prostitute in California; I'm assuming here the same inability to rid the streets of all prostitution). Increasing the state regulation simply pushes otherwise compliant productions to the other side of the law; the regulation does nothing to stem demand.

Catching the disease before it spreads to another person is of considerable value. The system in place, however, has been responsive, and could prove adaptive (more frequent testing). State law won't change the risk attitudes of performers, it will only reclassify what they do as illegal. People will either get better at lying, making it harder for the industry to regulate itself, or move work across borders.

In this case, regulation not only leads to more crime, but less business as well.

Echoing Steve Verdon's words disagreeing with Zimran Ahmed, I simply can't take the marginal cost of music via Napster or Kazaa to be $0, and for precisely the same reasons Steve mentions -- the costs are the effort to locate the song and then the time it takes to download several versions in the hopes of getting one good one copy. Given what else you might be doing with your computer at the time (the programs are RAM-heavy and the downloads can choke even a DSL line), the opportunity costs aren't exactly ignorable.

To emphasize this point, there is a new tactic in the market for fighting illegal downloading of music: frustrating the music pirates to the point where the effort is no longer worth the benefit of locating the song. This is done through flooding the P2P systems with bogus files that mimic real files.

A computer science professor and graduate student have been awarded a patent for a method of thwarting illegal file sharing on peer-to-peer networks by flooding the network with bogus files that look like pirated music.

The software creates bogus files with attributes -- such as file names and description tags -- that make them look like the real thing, but they are in fact white noise, low-quality recordings or advertisements to buy the song. What's more, the software sends out thousands of decoys to frustrate P2P users with fruitless downloads.

I've downloaded music, but fully admit it's breaking copyright (I've since stopped -- I buy CDs and use iTunes). I can attest to the frustration created by bogus files and bad quality. This strikes me as one of the best tactics to fight the practice I've yet heard. I espeically like the ability to use the files as advertising. If there's anything that'll drive users from such a system, it's excessive exposure to corporate shills.

The marginal costs might have just gotten a lot higher.

Paul Krugman on Oil

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Paul Krugman warns that the supply of oil is finite; and the demand curve keeps rising, yielding ever higher prices and adaptation. This simple framework is only the beginning of the story, however.

Stephen Karlson notes that short-term price spikes have aleady yielded some adaptation--as people shift towards smaller automobiles--in spite of "fuel-efficiency" regulations.

Don Boudreaux notes one potential alternative supply of oil, to offset the long-run price rise.

Steve Verdon insists that we will never run out of oil, and discusses problems of some of the alternatives out there.

John Quiggin agrees with Steve, and notes the exchange rate causes of higher oil prices, although he believes prices are likely to rise further.

I say that if the only way we can run automobiles, factories, and offices is with oil, then clearly higher long-run gas prices are unavoidable, and we will all be worse off in the future because of it. But such a scenario means that little adaptation is possible or economically feasible, and I don't believe that.

What is adaptation? It means that--in the near and distant futures--we use less oil or none at all. Still, in current uses, we must assume that oil is the most efficient means of power production. So even if we assume adaptation to the most efficient alternative, any and every adaptation is a net cost.

But is that true for tomorrow? Next year? In 2025? Can any economist predict how the individuals, firms, and governments will respond in the short-run or long-run? Can we predict the long-run relative price for oil compared to all alternatives? I highly doubt it.

Higher oil prices, and consumer and producer adaptation to them, might put us onto a energy production timeline that yields lower energy costs in the future than if oil prices stayed low and we didn't adapt.

Regardless of the high current prices, in the future, making energy with factor X might be cheaper than making energy with oil. But factor X might not come about unless we adapt today.

Higher spot prices make R&D into oil alternatives far more lucrative. With luck, persistence, and the proper economies of scale, our adaptation to higher prices today can help drive energy prices lower tomorrow than they would have been if oil prices were still low today.

What this means is that at some point in the future, high oil prices might be irrelevant because we will be using something else that is cheaper. That is how market economies have adapted in the past. Asking how much better off we all could be if whale oil were $15 a gallon is not relevant to today's economy. In the future, asking how much better off we all could have been if oil were still $20 a gallon might be just as irrelevant.

Do high prices make us worse off in the short-run? Yes. In the long-run? Who the hell knows? Dr. Krugman doesn't tell his readers that market economies routinely solve seemingly intractable problems like this one, and that market economies have persistently beat the pants of pessimists willing to lay down their money.

(Also see the rest of the bunch who've discussed Krugman's latest.)

Quote of the Day


Ivan Janseens:

Sometimes I think the only thing that is worse for poor countries then being exploited by multinational corporations is not being exploited by multinational corporations. Granted, no country should for it�s development be dependent [on] foreign companies. But being dependent [on] the handouts of foreign governments or foreign bureaucracies like the IMF or the Worldbank is probably even worse. Indeed, there is no denial that multinational corporations can be a powerfull force for economic growth and development.

I'm taking him slightly out of context.

Welcome to the New T&B


T&B has moved over to Movable Type; I've worked hard so that nobody can see too much of a difference.

The old blogger archives will be up and running, but will not be imported into the new framework. You can still access them on the right side...

Look for subtle--and not so subtle--changes in layout over the coming months.

Please go here to see recent posts in May--like Ian's on E-Voting, Regulation Causing Higher Crime, and Taxing Everything; my recent posts show why high school basketball stars should go straight to the pros, and how the man behind Two Buck Chuck wants to covert the US into a wine-loving nation.

Also note that the syndication link has changed--I've deleted the old one.


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This page is an archive of entries from May 2004 listed from newest to oldest.

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