August 2004 Archives

Voting Incentives Question


When I read articles like this one on the numerous and subtle shifts in leads among candidates, I'm always left wondering if the writers (and the pundits and campaign pros they discuss) are really getting what's happening when a poll starts to show a "shift".

So I'm torn. Are people changing their minds as new things come to light? Or are polls picking up a solidifying base of people that were either 1) motivated to answer a poll since it's close enough that folks aren't going to respond with the "how early do we start celebrating Christmas" sensation, or 2) getting a larger and more accurate response rate from "likely voters" because people are becoming solidified in decisions that were not yet set? Or some factor not mentioned?

(The above is referencing an amount of people big enough to register as a shift in repeated polling. Certainly, some people are changing their minds.)

I'm rather adamant in my belief that polling is highly flawed largely because of their prominence. They tend to affect the people their meant to sample, the responses are far from accurately given, and the questions are often far from neutral.

I'm just not convinced that much of the campaigning is "swaying" voters from one side to another, so much as it might be inspiring enough to get people to answer "yes" when the monotone voice says "are you likely to vote in November." If this is true, then it might indicate that negative campaigning plays a bigger part than we'd like to admit. Maybe I'm off-base, but I tend to think outrage over an issue might be a bigger motivator than mild indifference. And if that is so, then the best place to start investing money in the campaign is wherever it appears you could motivate a group by giving it something to vote against. (For instance, announcing pro-choice candidate votes in highly conservative areas. Or highlighting spending profligacy to those who consider themselves highly fiscally responsible.)

The old adage is that the only way to make the choir sing is to preach to them. In this election year, when the outcome is expected to be close, each vote is more and more dear (as the decisive group gets smaller and smaller in expectation, each vote nears the point where it is viewed as pivotal, and indeed may well be), a lot of money is being spent on "shoring up the bases" on both sides. But perhaps the real gain is on those people who haven't yet heard something pro or con about a candidate in their particular area of interest?

I know commenting isn't frequent here (and that's perfectly fine as long you come back -- we like having you, loud or quiet) unless you want to talk about Iraqi Dinar, but if anyone has some thoughts on this, I'd love to hear them...

The Quality of Regulation


Did you just buy a Toyota Prius? Feeling pretty good that you just did something good for the world by buying an incredibly fuel efficient car? Well, you might not be doing as much as you originally thought.

How's that? Well, turns out that the EPA is apparently using tests from the 1960s and 70s to figure out the numbers they (and only they) slap on the sides of new cars and use to regulate the car industry in the US.

Like many new owners of the Toyota Prius, Margo Oge noticed something surprising once she began driving her new car last winter: Her gas mileage was well below the numbers listed on the sticker. The popular, pod-shaped Prius--a "hybrid" vehicle with an electric motor that augments the gasoline engine--is supposed to average about 55 miles per gallon. But she was getting less than 40.

That hit home. Oge is one of the top administrators at the Environmental Protection Agency, which sets the mileage figures for cars sold in the United States. And even she acknowledges that the problem is not the Prius's performance but her agency's tests. The EPA's methods for measuring fuel efficiency date to the 1960s and '70s and don't account for a lot of changes. Air conditioning and other new features consume extra energy. There's more traffic now, and driving habits have changed as people have moved to the suburbs. "We need to give more realistic information about fuel economy," Oge says.

When people argue for creating or extending regulation, they never quite get around to discussing what happens when things change faster than the ability of the regulators to deal with. By construction this is true, however. Since the regulators are working to set standards and limits, they are always in the reactionary position. They create incentives, by mere dint of their existence, for people to find ways around the rules; innovation designed to escape or bend regulation. The regulator has no such incentive to figure out ways to get around its own rules, and thus has to adapt to change only once they've finally noticed what the group they're supposed to be covering has done. Add to this the fact that when people talk about regulation, they are almost always talking about government regulation, which will slow down functions even further.

Of course, in this case it's not entirely in the interest of the automobile industry to get the standards changed, since the EPA is overestimating fuel efficiency. From my perspective, however, this is worse than the EPA getting things right. Not only do we have regulation that hampers growth and change (remember how the auto industry responded to the 70s oil shocks -- smaller cars) based on natural market motivation, but the agency we're stuck with is bad at its job and isn't even getting close to meeting the standards that are (somehow) justification for its existence.

Maybe this should have gone under Statsmerkwurdigkeiten. But I think pointing out the oddity of the EPA is a boat that sailed a long, long time ago...

Most investment shows I've seen (and yes, I watch a lot of cable news, so I happen on these on weekend mornings), are studiously trying to predict the results of the coming presidential election. The thought is that, for varying reasons, one candidate might be better for markets (or certain portions of "the Market") than the other.

Barry Ritholtz, chief market strategist at Maxim Group, suggests, in a BusinessWeek Online interview, these folks may well have the causality reversed:

Q: How do you think the upcoming Presidential election is affecting the stock market? A: The markets are impacting the [race]. The capital markets act as a future discounting mechanism, anticipating economic conditions 6 months to 12 months into the future. Politics matters far less to asset managers than whether the economy is expanding or contracting. Markets may not always get it precisely right, but they come close enough that it's wise to pay attention to what they're saying.

I think this is clearly one of the implications of findings from such things as Ray Fair's model for predicting elections: it's not only asset managers for whom the economy matters more. I do think there is some circularity in the whole issue (not in Barry's argument). The markets may drive who ends up in the oval office, but aside from the folks doing the "heavy lifting", portions of those markets are driven by people investing based on who they believe will win (and thus are attempting to capture the best future returns based on their belief about who will be best for the market):

Conversely, when investors expect a slowing economy, which means weaker revenue and lower earnings, they become less willing to "pay up" for earnings. That's what we have seen since January of this year -- the markets became less willing to pay a premium for future earnings.

The difference, obviously, is that the people Barry mentions often have far better information than the average investor.

Since so many people "vote their wallets", it's no small issue. But this could be changing. This may be one of the few times an issue of foreign policy trumps the economy in November. More from Barry:

Q: So you think Kerry will win? A: Here's where things get tricky: Once all the quantitative data is in -- and assuming there's no "October Surprise" -- I look for an analogy with another, historically similar period. This includes economic data -- interest rates, taxes, unemployment, inflation -- as well as geopolitics.

What makes the 2004 election such a challenge to forecast is that we have never seen a Presidential term with a burst market bubble, a recession, a major terrorist attack on U.S. soil, a big tax cut, and not one, but two, wars. So without an analogous comparable, making a prediction with a high degree of confidence becomes quite problematic -- it's just a crapshoot.

If you won't let me weasel out of giving an answer, then I'll fall back on quant work. All four data points [from earlier in the article] suggest the incumbent gets defeated in November.

Two Estimates

The difference is up to an order of magnitude. Which one is more accurate?



UPDATE: A headline without the possibly misleading statistic:


UPDATE 2: You have to love unnamed police sources. From the NYT:

The protest organizer, United for Peace and Justice, estimated the crowd at 500,000, rivaling a 1982 antinuclear rally in Central Park, and double the number it had predicted. It was, at best, a rough estimate. The Police Department, as is customary, offered no official estimate, but one officer in touch with the police command center at Madison Square Garden agreed that the crowd appeared to be close to a half-million.

From the AP:

Police gave no official crowd estimate, though one law enforcement official, speaking on condition of anonymity, put the crowd at 120,000; organizers claimed it was roughly 400,000.

Planned Communities & Wi-Fi

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I had never thought to just park the car in the middle of Cameron Station and see if there are wireless signals I could connect to.

Turn off engine.

Turn on computer.

Seven unsecured wireless networks with internet access--including one from Cameron Perks Coffeehouse!

I'm sad to say that the lack of network security doesn't surprise me. But if someone doesn't protect their wireless network, are they implicitly giving permission for anyone to use it? Can an unprotected wireless network owner be held liable for damages that their wireless networks cause to connecting computers, even if others connect without explicit permission?

Library Book Sales

The Beatley branch of Alexandria (VA) Public Library system sells overflow, discarded, and donated books for 50 cents each. The ostensible purpose of such a low price is to increase the number of books that patrons own and read.

This seems like a great deal for those willing to sort through the junk (an embarrasing assortment of third-rate literature, self-help concoctions, and last decade's programming guides) to find a prize (like I have in Bruno Leoni's Freedom and the Law).

For most of the junk books sold, 50 cents appears to be the going market rate, or just a bit under it, as you can find used copies on Amazon and used bookstores for that price. The library--and everyone else-- are practically giving those books away. There is always a substantial inventory of this pulp, and a rather large turnover. The market in junk books is efficient; economists will sleep soundly.

But for almost all of the good books, 50 cents is way too low to achieve the desired aim of wide readership. In fact, at this price, selling a limited number of good books to interested readers seems to be almost impossible.

The actual result of such a low price is to make it so that expensive books (which are usually the good ones) are almost always out of stock. The price ceiling has created a class of middlemen-speculators who sort through the for-sale shelves, and purchase anything worth more than a few dollars. (I have talked with several of these speculators, and they uniformly won't buy books that they can't sell for less than $3-$4--as the transactions cost of packing & shipping are too high). If they think something is valuable, but don't know its market price, they use the library computers to check Amazon.

Hence, it is mostly the trash that could be picked up cheaply elsewhere that winds up in the hands of regular library patrons. As I wrote above, occassionally I have found books that the speculators didn't realize were valuable, or perhaps I beat them to it, since I arrive just when the library opens.

Frankly, I'm disappointed that Alexandria library is giving a living to unknown persons, instead of selling its books at market rates online. By selling its books, I think it could make enough money to purchase and maintain a wi-fi network, or to buy better books. (I grant that this assumes competency in identifying and selling expensive books, but we're talking about library personnel, who presumably specialize in books).

If the library wants to be a charitable organization that gives valuable books to the needy at a discount, then it should find ways to actually perform this service, instead giving retired persons a means to profit at taxpayer loss.

Quick Pointer

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Of course, you should be reading everything on T&B first, but if you do have to look elsewhere, I suggest a place I've always liked: Freedom and Whisky (please note the spelling). It includes a great deal of my favorite things; freedom, whisky, and Scotland. Not necessarily in that order.

David has an interesting post up today on oil markets/prices that I thought was worth a read:

For quite a few years now the US Federal Reserve has been printing dollars like there's no tomorrow. This of course means that each dollar buys less and less. Oil is priced in dollars and therefore the price of oil will continually rise, other things being equal.

More on Iraqi Unemployment


I previously linked to an Al-Jazeera report by Ahmed Janabi quoting unnamed economists at Baghdad University who concluded (through means unknown) that unemployment in Iraq was 70%, even though government estimates for the sum of unemployment and underemployment are about 50% (again, these are difficult to pin down concepts, and are used differently in every study or series).

I emailed Mr. Janabi and his editors, requesting the source and/or the authors' names or contact information. After several emails, I received this reply from Mr. Janabi:

Dear Kevin,

Sorry for the late reply. Actually, it was mentioned in the article that the source is a study conducted by College of Economics, Baghdad University. This is my source. The text of the study was published in the Iraqi press. I wish I could get you the text of the study, but sadly Iraqi newspapers have not linked to the internet yet i.e; they do not have websites yet.

Best Regards

Ahmed Janabi
Newsroom Journalist
Aljazeera Online

I replied, thanking him for his time, but asking for the actual source, which I noted I would have translated at my expense. After a week, Mr. Janabi has yet to reply. Reader assistance on tracking down the report is once again requested.

Iraqi Oil & Indonesian Planning

While Alex Tabarrok notes this Foreign Affairs article ($) on how to deal with Iraqi oil, those on the ground are getting exports back online:

Prices fell this week after Iraq restored full crude exports of two million barrels a day from its southern Basra fields and restarted deliveries at 450,000 bpd, half capacity, from its northern Kirkuk fields for the first time since May.
But the high price of oil caught some government planners by surprise. Hence our next Statsmerkw�rdigkeiten award goes to the government of Indonesia, which continues its incredibly distorting "buy-high, sell-low" energy subsidy:
The steep oil price hike since May -- to as high as US$50 per barrel now -- has finally forced the Indonesian government to revise upward from $22 to $36 per barrel the average oil price used to estimate oil tax revenues and the cost of fuel for the current fiscal year....

The government... has decided to abandon its sensible, fuel-economic, 2002 policy to float domestic fuel prices on market quotations in Singapore to encourage efficient use, slash subsidies, target price support only to poor consumers (kerosene for household use) and, most importantly, minimize smuggling overseas. Consequently, fuel subsidies for 2004 will balloon to more than Rp 63 trillion ($7.08 billion), much more than total central government spending on its personnel (civil servants, the police and the military).

Since the government maintains domestic fuel prices way below actual production costs -- applying a blanket subsidy on all kinds of fuel -- the bulk of the subsidies may end up benefiting mostly private car owners (middle and top-income consumers). Most devastatingly, fuel smugglers will receive even stronger incentives, as their profit margins will skyrocket.

True, part of the subsidy will go on kerosene, which is widely used by poor people. But corruption will continue to divert quite a significant portion of this cheap fuel to industrial users and smugglers.

I understand the desire to help the (very truly) poor by keeping kerosene prices affordable, and clearly the result of this policy was highly unexpected. But that's the point that has to be noticed; this example demonstrates that inflexible policies that require a static world (or that require prices to remain within an historical corridor), can fail miserably when price-flexible dyamic markets perform their economic function... Simply put, the Indonesian government thought it could spend freely on subsidies, and didn't see this coming:
Until last year (when Indonesia was still a net oil exporter), any increase in international crude oil prices would give the government net additional revenues. However, starting this year, as the country is already a net oil importer of about 36,000 barrels a day, an oil-price hike immediately cuts into central government income as additional revenues are much less than additional spending on subsidies.

Those Stupid Voters...


Election cycles bring out a few certainties: campaign ads that call the other side names for having used negative campaigning, incessant prophesying about 'electoral math', and journalists (re-?)discovering the oddities and issues inherent in the simple act of voting, among many others.

This last category, however, tends to grate on me the most since it inspires articles such as this one: Do Americans know enough to vote intelligently?

I tend to think the people who write this kind of thing must have had a particularly bad day when they hit on the topic. Someone cut them off in traffic, someone in front of them carried 11 items into the 10-items-or-less line, or they had to be at the DMV that morning. I wonder this because I tend to think that only people with a burning sense of self-satisfaction and superiority could sit down and write an article that basically asks: why should we let people that seem pretty stupid to me, vote? The article is a breathless ping-ponging from "people don't know what they're talking about when they vote" to "people can't get information" to "people are too dumb to sort good information from bad when they finally do get it".

Well, gee. It's amazing we all get up in the morning and put our pants on the right way, isn't it?

For the life of me, I've never understood what the problem is with partially informed people. I don't see the direct line from "more informed" to "a better democracy." In fact, this sense that people should be more active in their civic duties, lest we all fall into a den of iniquity strikes me as the opposite of what we're all on about here. It's a push back to the Platonic philosopher-king, where we hope like hell the really really smart people also happen to be benevolent, since only they get to make decisions. (No, I know this isn't entirely what Plato's getting at in The Republic, but the point is that the character is drawn in this way to get at the larger attempt to elaborate on "justice".)

If we believe that people, of their own accord, will invest their own time and resources into those things that return the greatest value to them (monetarily and emotionally), then perhaps its simply that getting overly involved in politics isn't what drives most folks. Why is this a bad thing? To me it indicates that the ultimate choices made at, in this case, the federal level don't hold massive sway over the lives of the individual. If every four years these people had to figure out if we all are going to be able to travel freely or be registered like cattle, be able to start families or have reproduction limited by law, pay 20 or 75% of our salaries in taxes, then perhaps work to seek out information would grow. Isn't this why the economy turns out to be the most important issue in almost every election? Despite the presidency being one of the least effective institutions for affecting the overall economy, people view the outcome as directly impacting their lives in significant ways. Is this a sign of ignorance or stupidity? Only if we value knowing certain facts as being "intelligent".

Honestly, what good is it to be able to name the Secretary of State? Did we vote for him or her? If we don't like the job the person is doing, can we vote them out? Even if you can rattle off the names of every cabinet member in the last 5 administrations, does this make you somehow more worthy to vote?

One of the many benefits of the kind of aggregation system that we have, both in terms of voting and the market, is that it necessarily evacuates the need for any one individual to be fully informed on every subject. It simply can't happen. But articles like the one linked to above function as a sort of elitist wringing of the hands about just how poorly informed everyone seems to be. Witness the ridiculous idea offered by the Stanford prof: getting people together to discuss topics for an afternoon by paying them money. Clearly, the 364 other days of the year people are too busy picking their noses to pay attention to what the prof thinks really matters.

Again, I don't see the causal line between more information and a better outcome. (By the way, that seems an implied statement in the article: how can we all do better, since the only way the US could have gotten to where it is now is through collective stupidity?) More choice can be a highly confusing thing, after all. The ability to meaningfully discern differences between each political position falls as the number grows. Even the learned press can't tell the difference between tax burden and tax rate. Same thing with increasing voter participation. What's the functional difference between a 54 and 59% turnout? If it's a sample of the population, both of them are more than sufficient.

Anyway. I'll stop the ranting now, and get back to work. That is, if I can figure out how to use the funny metal box on my desk with the TV thingy attached to it.

Doom 3


Every so often, journalists discuss the real nature of competition--a mostly-punctuated flux of price cuts, quality enhancements, and total experience improvements--without even realizing it:

The double dose of hotly anticipated games [Doom 3 and Half-Life 2] comes at a time when computer gaming has been in a lull, eclipsed by games designed for play on specialized machines such as Sony Corp.'s PlayStation 2 or Microsoft Corp.'s Xbox. PC games make up about one-fifth of the $6 billion video-game industry, a percentage that analysts say has been slipping in recent years.

But the PlayStation 2, the most popular console, is approaching the fourth anniversary of its U.S. release, and Sony has indicated that it doesn't plan to rush its follow-up to the market. Analysts such as Vince Broady, co-founder of gamer Web site GameSpot, say that pause creates an opportunity for computer game companies to win back players looking for a new thrill....

Even for computer gamers who don't care about Half-Life 2 or Doom 3, the releases are significant because the core software, the "engine" that helps create the games' environment, will probably be licensed by other game developers for years to come. Already, the upcoming sequel to a massively popular online game called CounterStrike is to be based on the Half-Life 2 engine.

You see, common costs--fixed costs spread across multiple products--can be a generator instead of a killer of competition. Also note how AMD focuses some of its precious and scarce marketing dollars--hit the high-end gamer and let him spread his positive experience to others:
The company is a regular co-sponsor of tournaments where the most dedicated gamers come to face off in weekend-long game sessions. Linda Kohout, a marketing manager who focuses on games, estimates that a typical hard-core gamer influences as many as eight other computer purchases a year.

Chicago-Style Voting

In another example of the kind of uncertainty I mentioned around that seemingly sacrosanct number of 537 votes that Bush "lost" by in Florida the "popular" election (I hate even referring to it as an election, save that it works as a reference since it seems to resonate as real to some folks despite there being no such thing), there's this article on dual registrations of some voters.

Thousands Registered to Vote in 2 States-Report

About 46,000 people are registered to vote in two states, New York and Florida, a violation of both states' laws that could affect the outcome of the November presidential election, according to an investigation by the Daily News.

Throwing further doubt on the question of which way the vote would have gone in subsequent recounts:

Of the 46,000 registered in both states, 68 percent are Democrats, 12 percent are Republicans and 16 percent didn't align themselves with a party, the newspaper reported on Sunday.

There's just no way to say that it was exactly 537 votes, or that even if 600 more votes had been cast and agreed on to make Gore the winner, that it would have resolved the issue. If the dual votes were tossed out (and not just in one state, since this would constitute fraud the votes would be eliminated from the count altogether), the majority of votes lost would have been for Gore.

Note this also:

The duel registrations have gone undetected because election officials do not check voter rolls across state lines, the newspaper said.

So far as I know (and this of course could be changing), that isn't going to change with electronic voting.

Vicious Circles and 'The Scream'

Big news in the art world over the weekend: Edvard Munch's 'The Scream' was stolen. (N.B. Oddly, this isn't the first time major art pieces have taken a walk during the Olympics. And this is not the first theft of 'The Scream'.)

During the radio story I was listening to about the theft, I heard something I later thought couldn't possibly be true. Looking through a few news stories, I discovered it was: the painting wasn't insured against theft. What's more, this should not have been surprising. Major works of art regularly go without theft insurance.

The premiums, it seems, are just too high. Flood and fire, on the other hand, are well protected against since the monthly bill isn't that bad. Or at least comparatively. Rather than fork over the cash for the insurance, the above BBC article says, museums and galleries rely on sophisticated security systems. A couple of things spring to mind. First, the premiums really must be very high if the upfront and maintenance costs of state-of-the-art security systems as well as guards is easier to swallow now to protect against the possibility of theft than the yearly cost of gaining surety of financial reimbursement on the event of theft. And second, it's not working terribly well.

This second issue is, of course, likely due to the fact that not every gallery can afford the same level of security. Add to that the fact that the premiums aren't adjusted for the size of the gallery.

Unfortunately, I can't find any statistics on the rate of art crime around the world (one article says it's "on the rise", but that's simply one reporter; here are some stats on the characteristics of art theft and recovery from the Art Loss Register). Knowing, however, that insurance against an act will generally increase with the likelihood of the act, art theft must be common enough to warrant the extremely high premiums.

What I don't quite get is the sentiment from the above article that "it just doesn't make sense" to insure against theft, simply because of the price of the premiums. It would seem useful, at least, to have the financial resources of an insurance company on hand to deal with the theft, possibly through offering a reward for piece, even as bait to bring the thief back in. (Bounties for theives, anyone?) Additionally, the money from the insurance could go to better protection for the remaining pieces. Bulletproof guard stations in Olso, for instance.

If art theft is on the rise, then insurance premiums would be as well, putting them further out of reach for more institutions, who in turn end up relying on uncertain security systems.

Of course, were I completely cynical, I would mention the fact that private ownership spreads the risk out to people who can afford not only the security, but probably the insurance as well. Not to mention the fact that the works would be a lot harder to find, and most likely as well taken care of as in any institution. Though, I should say that among the things not included in the paltry stats linked above is information on the kinds of items stolen in each location. Is more furniture stolen from domestic dwellings? What range of value are the items stolen from each location?

Good thing I'm not that cynical, though.

UPDATE: In an angle I honestly hadn't thought of, this Wash Times article brings up the suggestion that the theives of 'The Scream' might have been motivated by reward money put up by an insurance agency. Since the pieces weren't insured, that won't happen. Whether or not the theives knew they were uninsured is another matter entirely. In fact, it sounds plausible enough, and somewhat akin to kindnapping plans in Mexico and elsewhere. My only objection to this is that I can't imagine that, in the case of art, that an insurance company would hand over money and not attempt an arrest of the thieves. Ultimately, it makes me wonder about the usefulness of a pseudo K&R policy for cultural/artistic works.

Bring in your Starbucks

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This Washington Post article reminded me how much I personally dislike (but professionally understand) the practice of most movie theaters of not letting you enter with your own food and drink:

Gary Rappaport... bought the shopping center at Worldgate in Reston four years ago, just before Loews filed for bankruptcy protection and announced plans to shutter the nine-screen theater that anchored Rappaport's project.

Rappaport considered his options: For $1 million, he could renovate the theater, putting in larger, plusher seats and a new sound system... It was an easy call. Now Rappaport isn't just a developer, he's a movie theater operator, hiring Phoenix Theatres LLC of Knoxville, Tenn., to help manage the venture.

"I've got a good stable place, it's a good experience, it's clean, it's well run, it's more community-oriented," Rappaport said. And though he says he doesn't make as much money as a chain-operated theater, having the movies benefits his whole development. He trains his staff to sell concessions hard ("Do you want candy with that?"), but he'll also let patrons bring in lattes from the nearby Starbucks, something a megaplex would never allow because it has to sell its own drinks to stay in business.

"Economically, my structure is different. I'm the tenant and the landlord," Rappaport said.

The critical difference is not that he owns the movie theater land or building, but that Mr. Rappaport rents to Starbucks and others the right to sell drinks right outside of his theater. Mr. R has found a kinder, gentler way of internalizing the "externality" of higher demand for food and drink around a movie theater.

The reviews of Phoenix 9 Worldgate are excellent. They even have those popular monthly bring-your-baby movie times.

The Chinese government's method of economic liberalization is slow release of control to the people--i.e. to the private sector. This unclenching of the fist is seen clearly in car ownership.

It is no surprise to find that the number of private cars still lags behind the number of public cars in most areas. But the slow, gradual transfer to private dominance uses different methods in different regions--an element of federalism I was surprised to find (being ignorant of Chinese history).

For instance, in Shanghai periodic sealed-bid auctions are held for a limited number of license plates--a regulation intended to limit the number of private cars bought:

Shanghai produces nearly one-third of the country's total sedans, but buying a car is still not easy for upwardly mobile Shanghainese due to increasing licence plate prices.

The city authority controls the number of new cars on the road by strictly limiting the issuance of new plates to the public through auctions.

Due to that policy, the average price of Shanghai's licence plates hit a record high of over 40,053 yuan (US$4,820) at the monthly auction over the weekend. In January, the average price stood at 39,516 yuan (US$4,770), also a historic high compared with last year's figures.

Just imagine such a restriction in Detroit in 1950! To ease some of the disparity, the local government has halted giving license plates to the government and associated industries, until it can set up a system of auctioning plates to institutions just like it does for private cars!

(Note that some people claim that license-auctioning violates Chinese law).

This might not seem like a big deal, but it is. Faced with a severe traffic constraint, this institiutional decision to 1) restrict a government perquisite, and 2) put the private and government sectors on an equal footing is both economically sound policy and something rarely seen in a "normal" developing country like Russia.

But of course, registration in Shanghai is only for the rich. However, cars seem to have been finding the path of least resistance onto the streets of Shaghai, as residents have taken to registering their cars in neighboring provinces:

The restrictive auction policy is obviously at odds with the central government's line to encourage car buying and in particular, foster domestic automakers who are mostly struggling for the low-end market...

Many Shanghai residents opted to turn to agencies which can manage to licence their cars in neighbouring cities such as Suzhou and Hangzhou. Despite various restrictions on cars licensed outside Shanghai, these licences have become a big lure to Shanghai people because the cost is mere peanuts compared to that of the local licences.

It is estimated that more than 2,000 cars owned by Shanghai residents have been licensed in the neighbouring town of Kunshan alone, not to mention other bigger cities. For each of these cars, Shanghai losses about 12,000 yuan (US$1,449) in road tolls and other charges each year.

The costs are so large that it's more like running a jitney in NYC than having your car registered in a different state. However, the governments seem to have unsuccessfully banned the practice of distant registration.

China, Autos, and Oil

Stanley Crouch insists that a fine way for the world to kick its oil dependency is for the Chinese government to greatly restrict the use of gasoline powered automobiles:

But rethinking is what we need, and we need it now. Even the Arab oil states are concerned about their ability to supply the world with enough oil, now that China has stepped into the industrial ring and needs that black gold like everybody else.

China can, therefore, do something that it has not had the actual power to do for hundreds of years. It could turn the entire world around and take the lead in settling this oil problem by relying on the profit motive to inspire a completely new direction.

How? The Chinese could turn to the automobile industry and say that since it has great pollution problems already, it would greatly prefer an automobile that did not use gasoline.

This would get an immediate response. Why? Because China could guarantee sales of at least 500 million automobiles over the next decade.

500 Million?

An estimate of 500 million new automobiles over the next decade seems rather high to me, considering the recent slowdown in sales.

In the first half of 2004, Daimler, GM, and others had record sales, with triple digit increases year-to-year. But auto sales in China have been declining for the past several months, hitting the small players more than Volkswagen or GM. That's because the big buys are selling the quality and luxury cars. See also this nonrespresentative sample of Chinese consumers who are not that confident:

In one of my speaking classes, the topic of car ownership came up. When I asked how many of the 20 students' families owned cars, two students very shyly raised their hands, clearly fearing they would appear boastful. When I asked who expected their families to have cars by the year 2010, two more students raised their hands. Now admittedly that's a doubling of the number of cars, but still only 20% of the families represented in my class.

Incentives and Cost Burden

Anyway, I won't contest his assertion that a no-gas or little-gas requirement will create massive incentives for automobile manufacturers to final alternative power sources--and right quickly.

But frankly, I'm dumbfounded that he seriously expects the Chinese to bear the tremendous cost of conversion for the entire world, while we enjoy cheap gasoline.

After all, the Chinese already have plans for tougher emissions standards than the U.S. does, and are already investing heavily in fuel cell technology. (I'm not certain how much of this is just a rip-off of other companies' ideas and technology).

Perhaps Crouch asumes that the benefits of lesser pollution will more than pay for the added costs of lower emissions automobiles; unilateral Chinese action would benefit them more than it would cost. But if this is true in China, why is it not also true in Europe, the US, Japan, or Korea? Since per-capita income in the relatively propserous regions of China is about $4,000 a year and far higher in the developed countries, why should those with lower incomes subsidize the gas-guzzlers and pay the costs of cleaning their air? Crouch writes: "At the moment, no one can imagine China being that farsighted or that bold. " Nor could I imagine them that generous or stupid. Their automobile production and consumption has already started expanding...

I'm not the most ardent fan of the Electoral College that you're bound to find, but I do usually end up on the side of keeping it around.

Most of the arguments I've heard about abolishing it hinge, to greater or lesser extent, on the feasibility, desirability, simplicity, or similar aspects of turning entirely to the popular vote. I've just finished reading Tim Noah's two-part (so far) dressing-down of the electoral college (Part I, Part II), "America's Worst College" and I have to say I remain not only unconvinced, but rather depressed by the attempt.

First off, I'm surprised at the ease with which Noah assumes the recount process went in Florida 2000. Those 544,000 votes, and the 537 votes in Florida, appear obvious to hindsight. But it's worth remembering that the massive legal battles raging in Florida and elsewhere were largely about the method used to count those ballots. At the time, it was not clear at all how many went to either side. And thus we still, to this day, have cries about disenfranchisement during the process.

The uncertainty isn't just a tale about badly-punched cards. It raises the very real, very problematic issue of measurement error. Just how certain are you that every vote was counted correctly, every time, everywhere? If you claim 100% for numbers in the millions, we need to schedule a trip to Vegas, you and I, where I plan to take you for a good deal of money. From what I know of the recount process, that 537 number is, at the very best, the center of a range of possible numbers that it could have been. But lest you think we're talking about a couple of votes in either direction, just remember that as the number of total votes climbs, so too does the absolute number of miscounted votes in the total population of votes. In 50 million votes, the range would include thousands in either direction, maybe more. (The precision is growing with computer voting, I should say, though even that is subject to problems.)

But this is almost secondary to the other fallacy Noah appears desperate to hang his argument on: that the popular vote makes each vote "count more":

Remember, also, that under a popular-vote system, all votes are equal. Under the Electoral College's winner-take-all allocation (in all states but Maine and Nebraska), votes in big states count more than votes in smaller states because they can leverage a lot more electors.

Eh, no.

What do we mean by a vote "counting"? Well, there is of course the notion that your vote registered as part of the overall tally. You got your vote in, and the person doing the counting got yours and put a vote in the column for your choice. Civic pride abounds! But then there's the idea of one vote counting "more" or "less" than another. How does this work? Well, think of it this way: you're town is going to vote on a building a new bridge over the local stream. It's a town of a cozy 10,000 people. You live on the other side of the stream from the town, so the bridge is a good thing (assuming it outweighs the costs of the new tax that will have to be levied) and you plan to vote for it. Now, your 1 vote is entered, along with all 9,999 others. Your vote has counted. But of course, most of the town lives on the other side of that stream, so it looked like the bridge was going up, no matter what you voted. Did your vote really "count" then? Couldn't you have just stayed home, grilled a couple of burgers, and been happy the next day that you got the bridge and invested no costs in voting? After all, it's not like your vote would have been decisive...

And there's the rub. When we talk of voting counting more or less, we implicitly refer to the probability that your vote will be decisive in, say, an election. As the number of voters increases, that probability decreases. Would you have a better chance in your town of 10,000, or in your state of 10 million? If everyone is split perfectly 50-50, your chances are about the same. But shift the percent a little, and it's a proportionately bigger group that gets to be decisive one way or another. And so it is with the states. Voting in Montana means being one of 902,195 people. Voting in Florida means being one of 15,382,978 people. Where do you have a better chance of being decisive?

Being decisive, in the case of a presidential election, means having the chance to throw an entire state's electoral votes in the direction you prefer. Do you have a better chance of swaying Montana, or California? With the electoral college, the small states do get over-represented to some extent, since they all the get the same +2 for senators as the rest. But this is to help make sure the state's interests aren't avoided in federal policy making. By moving to the "popular vote", we simply become a nation of some 105,405,100 voters.

A couple of things happen. First, your chances of being decisive drop dramatically. The psychological effects of this are akin to those that prompted news outlets to stop forecasting results too early on election night: if you don't think your vote matters (well, less than generally for this case) you just won't go to the polls. Second, the areas with the highest population become far over-represented, since they have better information-sharing abilities. (Newspapers reach more people, television stations have more viewers, a single place holds a larger number of people at once, etc.) Politicians will simply work on those areas that are densely populated, rightly believing that they will get a much higher return on their investment in campaigning. Why spend $1000 a head to get a message out in Montana, when you can reduce your marginal cost per person in California and hit $10 per (I'm making the numbers up; the effect is what I'm trying to highlight)? In effect, NYC, Miami, Chicago, and LA will be electing presidents. Which means that policy will naturally follow.

While large states have more electors, the current electoral system attempts (to use an analogy) to use the group of people that voted as a representative sample of the whole state. Contrary to Noah's view, this isn't an accidental process. Had the number of popular votes been more condensed in one place or another, the electoral votes might well have gone differently. But as it is, with such a closely divided populace, the uncertainty in measurement is purposefully traded in favor of greater representation of diverse interests.

Simplify Your Life


Spending more than you earn? Want to cut down those expenses?

Simplify Your Life, a blog written by a BA in Economics and Business, presents expense-saving tips ranging from the obvious to the drastic--from disconnecting cable TV to selling your car and riding mass transit. From the FAQ:

Why does this blog exist?

It's quite simple, really. I've made a lot of mistakes, learned from them, and would like to share what knowledge I've acquired.

A lot of the tips in this blog will be so common-sensical you would think someone would have to be stupid not to know them. Well, at one point I was likely stupid enough to make that mistake myself, so I won't cast judgements on others. I'm sure plenty of people have made the same mistakes I have.

All about Oil

I found James Picerno's recent posts on oil prices, oil stock prices, production, and political economy very readable and interesting. Keep scrolling.

Iraqi Airways


Continuing our assessment of the once and future Iraqi economy, we focus on the state of Iraqi airports and the condition of Iraqi Airways, the formerly proud national air carrier. We start by noting that Baghdad International Airport is fully repaired, is being run by Iraqis, and that most other regional airports are ready for domestic flights:

There are approximately 108 airports and airfields throughout Iraq. Baghdad and Basra both have international airports, while Mosul, Kirkuk and Irbil have domestic airports.

Iraq's airports are heavily outdated, having suffered from a lack of maintenance and shortages of parts for a number of years....

Baghdad International Airport (BIA) is open and has successfully processed more than 4,500 non-military passengers since July 2003. BIA's commercial capability continues to be expanded by a number of renovations, while Basra has almost completed its commercial preparations. The evaluation of Mosul Airport's reconstruction requirements was recently concluded.

The airports in Iraq have, as in many of the country's sectors, suffered from a shortage of power, water, sewage and telecommunications, with new plans for the installation of a number of communications systems necessary for safe and effective air traffic control measures, enabling safe air travel.

Iraqis have their own share of Chutzpah; one example is the national carrier declaring in January that it intends to resume international flights, even though it cannot field even a single plane:
Iraq has invited international investors to help revive the country's national carrier by assisting in the operation of the five remaining planes from what was once a large fleet. A local newspaper advertisement said that Iraqi Airways was accepting bids to overhaul three Boeing 727s and two 747s. The planes have been inactive in the Jordanian desert and in Tunisia for more than a decade. "The planes are to be operated on joint basis, taking into consideration the experience and abilities of Iraqi Airways," reads the advert.

Wars and a crippling economic embargo have wiped out most of the Iraqi Airways fleet, except for the five planes, which were moved out of the country to avoid destruction during the 1991 Gulf War. Iraqi Airways has not operated an international flight since. The US-led administration in Iraq had planned to sell off Iraqi Airways. However, the plan was scrapped following objections from the Iraqi Governing Council (IGC).

Now operating as a skeleton company, Iraqi Airways still has status as a public enterprise under the jurisdiction of the Ministry of Transport. It is not yet clear when an Iraqi Airways plane could take off, or whether indeed the fleet is still operable. Baghdad International Airport (BIA) has been closed to regular traffic since last year, although it was repaired following damage from heavy bombing during the US-led invasion.

Indeed, this terrifying photo of an Iraqi Air 727 cockpit reveals the fleet to be almost irreparable. (The tails stored in Tunisa were vandalized and ripped apart for scrap).

I was going to write that there could be a thriving domestic and international aviation industry in Iraq, initially supported by cushy U.S. government contracts, and that the Iraqi authorities have chosen to shackle the industry in a bureaucratic mess. While possible, I don't think that would have been a likely outcome. The real, likely alternative to government ownership might have been a Russian-style oligarchic ownership by crooks and insiders. And I'm not about to argue that a cheap fire sale to corrupt industry neophytes is better than government bureaucrats. As detailed in this report:

Iraq Revenue Watch has obtained a confidential document that reveals plans to privatize Iraq�s air transport industry despite the CPA�s recent pledge to postpone privatization until a sovereign Iraqi government is in place. The powerful Khawwam family, which had close ties to Saddam�s regime, is set to assume control of 75 percent of Iraq�s air transport industry�bypassing any public bidding process. The deal, brokered by a senior official with the Ministry of Transport, would include the assets of Iraqi Airways, the national carrier, which at the same time is seeking to revive its operations. U.S. carriers are reportedly looking to partner with these post-war oligarchs-in-the-making.
As we have seen, there is little left to the actual airline except, perhaps, airport slots and a few marginal aircraft, so how big a threat this sale presented to the future airline industry could easily be overblown.

(Note: Image from this website.)

UPDATE 8-25: Iraq to Jordan test flight completed successfully:

(MENAFN) The Director of Iraqi Airways said that the airline sent a test flight from Jordan to Iraq, the first such flight by the state airline since the 1990 U.N. sanctions on Saddam Hussein's regime, the Associated Press reported.

An official at the airline's Amman office said that this was a test flight and comes as part of our effort to resume regular flights by Iraqi Airways at the end of this month.

In the first stage, Iraqi Airways will fly once a week from the Jordanian capital to Baghdad, while more routes will be added later.

For now, Jordan's flag carrier Royal Jordanian Airlines and the Virginia-based Air Serv are the only two airlines with regular passenger service to Iraq.

Rational Ignorance


Picking up on some of the recent discussions concerning education, I would like to offer up one of my pet peeves about the subject. The Orange County Register reports that students, in the place for which the paper named, did well on the new test needed to graduate. However, right in the middle of the article, it qoutes a student saying something which drives me up the wall:

"You're probably not going to be using ... something like geometry for the rest of your life," he said. "Common sense, that's what you're going to use the rest of your life. So make it simple, and make sure the teachers are doing their jobs."

Excuse me, how the hell does he know what he'll need for the rest of his life? I have heard this a lot from high school students. "My older sister says that you don't need X in the real world." Well, do you want to be a stripper like your sister who flies off to Vegas every weekend? Perhaps a few weeks ago I should have posed the question "don't you wish you studied a little harder back in school?" to the woman, in said town, at the end of her career of "dancing" while she was lamenting going to cosmetology school.

Few people in high school actually know what employment they'll pursue later on in life. I always thought I would go into politics or government up until my last semester in college. I wound up in finance where all that math from an early academic stint as a computer science major paid off. Many of the people I worked with lacked any math ability and it showed.

The problem lies in the fact that students have the view that geometry and calculus takes a lot work, yet, they don't see the rewards that competence in the math and science fields gives, hence, rational ignorance. I have no problem with students going into vocational school rather than calculus, but most students don't go into this training. By allowing students to avoid challenging subject matter, their later careers are limited.

Stability and Autocracy

Despite the common arguments about the complementary aspects of political and economic liberalism, there are some instances when autocracy is rewarded: Oil Falls on Reduced Concern About Venezuelan, Russian Supply.

Also of possible interest during this time of electoral uncertainty in Venezuela is Acemoglu's paper: A Theory of Political Transitions.

Boy, do I wish Marginal Revolution had comments enabled. Since they don't, I'll just take advantage of the whole Trackback thingy -- ain't technology grand?

Tyler Cowen raises some points in service to a skeptic's take on whether or not education is actually a significant contributing factor to economic growth. Rightly, he focuses on the tenuous relationship inherent in the word "cause".

But what interested me enough here was the argument from the Spiked essay here. The article goes to great lengths to highlight the problems with the notion that education causes growth.

I see a general problem in the whole debate, however. Comparisons across education systems aren't entirely useful. The issue is more about who is being educated, rather than how much is being spent by the state on education. Highlighting South Korea as compared to Egypt doesn't account for the fact that the kind of spending was massively different.

Spending that simply increases the number of people in school (whatever grade it might be, though I think primary education like reading and writing a native language has been proven incredibly useful so this tends to focus on education beyond basic life functions) will invariably draw people for whom more education is useless. Making school cheaper (and more beneficial through the benefits of being in school, like meals or health care) pulls people out of pursuits they may have been more suited for, simply because school becomes the easier alternative.

Perhaps better would be a review of requirements to move on to each grade, entry requirements to higher education, or the amounts of "academic" versus trade schooling that is available. Naturally, some people will be better at economics, while others really ought to be mechanics. Massive spending by the state in an attempt to fatten the school rolls will obviously distort the distribution of abilities in school.

Spiked doesn't take its use of human capital theory far enough. The article mentions the "individual", but seems to skip by the implications it brings up. Yes, in simplification human capital is a measure of worker skill, but its also largely concerned with returns on various personal investments. There is a return on education that may increase skills, but this is certainly not uniform across all people. (Also, depreciation of capital is considered in human capital theory, so the fact that skills are lost is accounted for.)

You could put me in a chemistry class, with all the tutors I could ask for, access to the world's best laboratory equipment, and a stockpile of money to do what I like with it, and you'll never get a chemist walking out the door at the end of the day. I'm bad at it, and I don't particularly care for it. But a friend of mine went to bed at night dreaming of molecular chains and fluid dynamics. More power to her, I say. While we were free to pursue our own paths, indiscriminate state spending will have a hard time sorting the two of us out.

Which is precisely the problem with using Britain as an example. That country's high spending on education is in an effort to make sure native Britons don't face high tuition costs. Trouble is, it is those high costs that tend to weed out those people who will see a high enough return on the time and effort in education to mitigate them. Lower the entry costs a bit, and the marginal person is likely to be induced into attending University, rather than entering the work force right away. (NB: This effect tends also to have a negative impact on the population for whom higher costs would be no deterrent. Classes become overlarge, perhaps, or are changed to accomodate less competent students, making the experience less useful for those who would naturally get a higher return. Ironically, keeping tuition low or free has been a way to fight the flight of students to other countries, when in fact it may well be a factor causing those students to leave.) The number of years in schooling will the be inflated, since it makes more sense to stay in school than to leave it for that marginal person, despite the individual having gotten very little out of it.

There's another issue to be considered with more people in school: it dilutes the value of the signal attained in whatever education was completed. If more people are graduating from a program, the value of the diploma is that much decreased since it loses some prestige (the resource is far less scarce and thus less valuable). Then there's the negative reputational effect of having people with a certain degree underperforming as compared to someone else with the same degree. Since entry was easy, there will be much greater variance in skill level upon graduation. A company might like that you have a University of Chicago degree, but since they recently hired me, and I've performed barely above the level of a drunk monkey even with my very own University of Chicago degree, the value of your achievement is thus dragged down, no matter how well you might perform. More practically, the problem is this: it means nothing to have more people graduating from high school in Egypt if those people have little skill to show for it, and could have been better off in some other pursuit.

I suppose I have to agree that the causal link between education and growth is murky; but I do so because I think the question is over simplified. Mixtures of educational opportunities (vocational schools, competitive academic institutions, part time education, etc.) might indicate an ability for people to find the level of education that is most usefu to them. In the aggregate, then, higher levels of education may contribute to growth much as more efficient allocation of productive resources contributes to the health of a company.

UPDATE: Merits of pay schooling versus free schooling in Ireland is over at AtlanticBlog.

Mr. Ferguson's Data


Via AL Daily and Cafe Hayek, we find Niall Ferguson insisting that 1) the unemployment rate in the US has averaged 4.6% over the past 10 years, and that 2) higher religiosity causes Americans to work more than some Europeans.

The first claim:

There are, for example, many more Europeans out of work than Americans; over the last decade, U.S. unemployment has averaged 4.6%, compared with 9.2% for the European Union
Let's see. I don't know what series Mr. Ferguson was using, but the standard series--the CPS Unemployment rate for those 16 and older (LNS14000000)-- yields a mean monthly unemployment rate of 5.1% from August 1994 to July of 2004. Only 43 of the last 120 months had an unemployment rate equal to or below 4.6%. You get a similar number if you use the annual data. His claim still holds, but why not use familiar and common data?

The second claim:

In 1999, according to the Organization for Economic Cooperation and Development, the average American in employment worked just under 2,000 hours a year (1,976). The average German worked just 1,535 � fully 22% less. According to a recent U.S. study, the average Frenchman works a staggering 32% less.

Twenty-five years ago, this gap between U.S. and European working hours didn't exist. Between 1979 and 1999, the average American working year lengthened by 50 hours, or nearly 4%. But the average German working year shrank 12%. The same was true elsewhere in Europe....

[M]ore than twice as many North Americans as Europeans attend religious services once a week or more.

I do not say this is the sole explanation for the fact that London today is lethargic while New York toils away as usual.

First we inquire whether there actually has been a relative decrease in church attendance in Europe since 1979. Apparently so:

Church attendance has dwindled by more than 30% in Britain since 1980. Over the same period, the percentage of the population claiming membership in a religious denomination has dropped more than 20% in Belgium, 18% in the Netherlands and 16% in France. Christianity remains Europe's main religion, with about 550 million adherents. But the number of Europeans who identify as Catholic � by far the biggest denomination on the Continent � has fallen by more than a third since 1978.

Second, the time series data on church attendance in the US uses a different question starting in 1990, yielding inconsistent and hence inconclusive evidence... even though it strongly suggests that religiousity has been essentialy flat in the US. (This is one of the best examples of question bias I have ever seen--increasing the "never attend church" respondents by about some 20 points after 1990).

Third, Mr. Ferguson's claim that, "Between 1979 and 1999, the average American working year lengthened by 50 hours, or nearly 4%." really means that the time series is essentially flat also--meaning that the working hours of Americans are relatively unchanged since 1979 (see chart 6).

So we have European church attendance and working hours decreasing, while those in the US remain about the same (even though some studies show an increase in American working hours).

Beautiful national correlations, but no causation. In fact, I think that causation must work at the individual level, and should be seen at a more disaggregate level. Does this "religious effect" work within nations--at the state, local, and other levels? Shouldn't the religious be working harder everywhere, not just in countries where they represent the majority?

If so, the mean "annual hours" reported are not representative of the whole distribution (which should be bipolar in each geographical region), the "hard work" pole being far larger in the US than in Europe. If real, this should show up in the data someplace, and would make a fantastic chart. And if it were real, Mr. Ferguson would be making comparisons of states with high religiousity and hard work with those of low religiousity and little hard work.

Since neither of these has, to my knowledge, occured, I doubt the economic significance of church attendance as a causative factor in hours worked.

Scoring Kerry's Plan

This is offered without political comment.

An Analysis of the Ten-Year Costs of Senator Kerry's Spending Proposals

While I certainly have my opinions on governing and political figures, I tend to think folks on both sides of the aisle are profligate spenders. In fact, that's their job: take money from one person, and give it to another. Sometimes it's necessary, but not at the levels currently undertaken.

That said, I thought the scoring was interesting. (Note the source: AEI. Not the most liberal of think tanks, but certainly not as far right as you could get.)

Capitalism: You may say you hate it...

Via Jacqueline Passey's blog, I found this little gem of a movie:


A cute poke at those people who decry capitalism's "dehumanizing" aspects. Though the movie only hints at this, I think it's also worth pointing out (largely because, yes, I do get that pedantic at times) that really only a flourishing capitalistic system can make possible the easy access to a wide range of "alternative" products one might buy if one is disinclined to consume goods that have a certain corporate "taint" to them.

3rd Party Toothpaste

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Much has been made of the 3rd party �spoiler effect� this election cycle. For example, many Democrats are angry that Ralph Nader is running again. They fear his being a possibility will draw votes away from Kerry and hand Bush his second term. �A vote for Nader is a vote for Bush,� is a common phrase used by Kerry supporters. Of course that is based on the assumption that Nader supporters prefer Kerry to Bush, which may or may not be true. Let�s think about it.

It seems to me that the market for toothpaste is essentially a two party system. Crest and Colgate look like they have substantial market shares. Suppose I were Aquafresh man. When I check out with my Aquafresh, no one says to me, �You know that buying Aquafresh is like buying Colgate because you�re taking that profit away from Crest.� Sounds ridiculous, doesn�t it? In fact, buying Aquafresh is not like buying Colgate at all. They are not perfect substitutes. Neither are Kerry and Nader or Bush and Badnarik (the Libertarian Party candidate). I don�t care that Crest is not getting money from me because I don�t prefer Crest. I prefer Aquafresh. A vote is like a purchasing decision. It is an expression of preferences.

Those of us who vote for 3rd party candidates are not doing so because we don�t understand the consequences of our actions. On the contrary, I think I am acting very rationally. I get more value out of supporting whichever candidate I prefer than I would voting for the Democrat or Republican I dislike least. I understand that allegiances to political parties are stronger than allegiances to toothpaste companies. Nonetheless, the comparison is interesting to ponder.

As it turns out, I�m a Colgate man but I still plan on voting for a 3rd party. And what about the half of the Americans who don�t vote at all? Well, they just don�t care about their teeth.

I know which I'd put my money on

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Which is the better predictor of election outcomes: polls or futures markets? The NYT has an quick look at the current discrepancy between the two regarding the possibility of a second Bush term.

Should anyone give credence to such exchanges? "Our contracts have a much higher predictive value than any public opinion poll because people have to put their money where their mouth is," said Michael Knesevitch, director of communications and business strategy at Intrade, which was founded in 2001. "We predicted all the primaries. We also had Edwards as being the vice presidential nominee back in May."

The Iowa market, housed at the University of Iowa, has been around since 1988 and makes somewhat less exuberant claims. A comparison of 596 opinion polls with Iowa's presidential futures prices at the time the polls were conducted shows that the futures prices were closer to the actual result 76 percent of the time, according to Thomas A. Rietz, an associate professor of finance at the University of Iowa and a director of the market. As of Friday, Iowa traders thought that Mr. Bush had a 52 percent probability of winning.

Actually, I have reservations about both methods of predicting elections. Markets are just second worst of the two.

Revisiting Edmund Andrews

Last October, I noted with sadness that I could no longer trust The New York Times business section for Mr. Andrews' failure to substantiate claims regarding the "majority" of economists' and forecasters' views on the economy. I argued that factual assertions made in news articles require source statements; only when social facts are established within reason can we move forward in public debate.

Now, Russell Roberts is all over Mr. Andrews for a whole shopping cart full of intelectual crimes: drawing conclusions from inconclusive data , stating opinions as facts, using political sources without disinterested affirmation, and simply getting the numbers wrong. He concludes:

I suspect the New York Times reporter misread it to mean that the number of jobs in the high-paying industries is unchanged, ergo, zero job growth in the high-paying industries.

I have a call into Mr. Andrews. I'll re-post if anything changes.

But here's what's amazing and a little bit frightening. This claim that no new jobs are being created in the highest-paying industries will become what Joel Best calls a "mutant statistic." Whether it's true or not, because it was in the Times, it will get quoted and cited as fact. I don't think it is. If I'm wrong, I'll let you know.


The macroeconomic condition of Iraq is impossible to cover thoroughly and objecively without reasonably accurate statistics, which exist for some government-controlled operations, and little else. Hence, data on the decentralized labor markets are nonexistent, except for nonscientific "expert" estimates, which I've already shown to be an inconsistent mish-mash.

One of the most recent estimates was made by unknown experts with unknown agendas at the college of economics at Baghdad University. On Aug. 1, Al-Jazeera reported:

A study by the college of economics at Baghdad University has found that the unemployment rate in Iraq is 70%.

The study says the problem of high unemployment is going from bad to worse, with the security situation deterioriating and the reconstruction process faltering.

No further detail is provided--like the authors' names, when this study was conducted, what methods were used (did they ask 10 men in Baghdad?), which geographical areas were included (probably excluding the Kurdish regions), and who funded the work. Are the sampling and nonsampling error 5% or 30%?

The article does note that scam artists are are rampant (absolutely credible), and the reporter is sticking to the story that most Iraqis believe that working for the US is treason.

The article spread like wildfire on alternative media outlets (Google 70% unemployment in Iraq), and I report it here only because I insist on finding out more. I have emailed the author of the Al-Jazeera article, Ahmed Janabi, asking him for either a copy of the report or its authors' contact information.I will not stop my inquiries until I get a copy of the report.

Note: Any reader who can connect me with the economists at Baghdad U. will be greatly admired and appreciated.

Quotes for Reflection

In Italy for thirty years under the Borgias, they had warfare, terror, murder, bloodshed. They produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland, they had brotherly love, five hundred years of democracy and peace, and what did they produce? The cuckoo clock.

-Orson Welles (cited in Impossibility: The Limits of Science and the Science of Limits, by John Barrow, p.31)

It is probably no coincidence that the hotbed of medieval Europe�s inchoate capitalism was Italy, with its Mediterranean exposure to Islamic culture.

-Robert Wright, Non Zero, p.158

Prisoner of the Month

A prominent Maldivian artist Mr. Naushad Waheed is being profiled at Writers in Prison for this month:

A cyberdissident and prominent artist in the Maldives, Naushad Waheed has been an outspoken critic of the government for many years. His latest arrest took place on 9 December 2001 in Mal�. He was held in Dhoonidhoo detention centre for about five months before being transferred to house arrest. On 14 October 2002 he was tried in the Criminal Court without access to a lawyer or the opportunity to defend himself and ten days later was sentenced to fifteen years. He was charged with treason, reportedly because of his involvement in public debates deemed critical of the government and correspondence with Amnesty International detailing human rights abuses�

The following Amnesty report comments on the dire states of the human rights situation in the country including the state of the criminal justice system:

As some may or may not remember, I recently relocated to the Washington, DC area (Falls Church, so stress on the "area" for those who don't know the layout). Not having the time or capital to invest in buying, I was once again plunged into the ugly world of renting an apartment.

I found a place for a price I was willing to pay and just moved in. During the process of investigating the place, I was told repeatedly that the management company had a hassle-free, 30-day, don't-like-it-you-can-leave-for-free policy. At first I thought, well, ok, that's nice. But I didn't think much about it until later.

Later, of course, when I was considering taking them up on the offer and getting out of the place I now find myself. The apartment is passable, but has some features that, on the margin, would put it below other places I had seen. Of course, I didn't know of these until I moved in.

Which, conveniently or inconveniently depending on which side of the table you're sitting on, is when I thought more about the 30-day policy. While it's pitched as a way to guarantee that "you'll be happy" with your home, it really does something much different: it prevents the management from having to be responsive to situations that are brought up during move-in.

In both time and money (though mostly money), it's not worth it for me to leave, despite the numerous problems I've encountered. None of them make the place "unlivable" by any means. They are, however, enough that I sought out plenty of people to complain. In the midst of an argument, I realized what was going to happen should I suggest that I wanted to leave. "Fine," I heard the likely reply "we'll get you your security deposit right now."

The cost to the management company is very small should I decide to leave, especially when the housing market is as tight as it is here. I, on the other hand, have to face considerable costs should I wish to pack up again, find a truck or movers, locate a new apartment, and get out of the deal. And I'm on the low end of the spectrum of this situation. Recently, in the management office, I witnessed a similar problem being voiced by another tennant: a blind man with a seeing-eye dog that had been given a place without specific features he needed. His ire over this was met with cool patience: he is always free to leave if it's that bad. I didn't see how it worked out in person. Rather, when I went to voice my own complaints, each person in the leasing office mentioned to me that he had stayed (they knew I had seen it, and at least pretended to be upset that it had gotten to that point).

"That's no victory," I said. "In fact, it probably simply reinforces your poor performance." I spoke calmly, but could tell the manager was offended. I tried to explain the problem: the guarantee dramatically lowers the cost to them when someone is very unhappy because it is included in every contract that the lease can be nullified within 30 days. The fact that the residence company only has to hand over the small check (they don't require a full month's deposit) means they didn't lose out on much in principle or interest. And the time to end the contract is very different than a long argument between landlord and tennant about the condition in which the apartment ought to be when moving in takes place. In contrast, the blind man would have to begin his search again for a place that fit his needs, then go through the process of packing and moving all over again (which, I'm assuming, is quite a bit more of a hassle than it was for me). Knowing that, the company can let the problems with the current place be more significant than other apartment complexes, and still retain tennants. We're free to leave because it's so easy for them to end the contract, or to dawdle while answering service requests that they just don't face much cost in turning the apartments over.

To which the manager told me, "No, the guarantee is there only for your protection."

One of the major barriers to economic reform in Russia is the in-kind welfare benefits given to veterans, who are generally perceived as deserving. These in-kind benefits are housing, medical care, public transportation passes, etc.

The Russian system is geared not just to finance such welfare benefits but to directly allocate and provide them. One result is a two-tiered system: 1) a privately-run Western system of medicine ("American doctors"), new apartment buildings, and Mercedes for those young, adaptive, and perhaps unscrupulous, and 2) a publicly-run network of 1930's-1970's quality medical system, decrepit apartment houses, and creaky transportation options available to the State-dependent. In my opinion, almost everybody tacitly recognizes that the latter are horrendously inefficient and welfare-reducing (subject to bribery, graft, fraud, ineptitude, rudeness, dirtiness, etc.). But these systems are not wholly independent; you can't sustain a sea of prosperity within a ghetto, and the public systems are holding back the advance of the private system...

Hence, I applaud the Putin-Duma's initial attempt to create a schism between finance and production in welfare, in the hope that the public systems can eventually be absorbed into a quasi-private sector:

The new system will also increase transparency, and crack-down on those who use fake ID to abuse the system.

But many genuine claimants see losing their automatic benefits as an insult. Millions of Russians are entitled to state help in recognition of their role fighting or working for their country. They see that as a mark of respect.

Some pensioners say they will suffer serious financial implications...

''Our benefits have been paid for by the blood of our fathers - by our own hard labour," her letter read.

"Keep your paws off them, or face the curse of the nation. You still have time to change your mind - use it! Signed - Lidiya Malokeeva, Murmansk, a victim of your repressions."

Analyst Stanislav Belkovksy believes opposition to the reform is as much emotional as economic - a hangover from Soviet times.

''For this nation, the role of the state as a father and mother is of paramount importance," he explains.

"It's much more important than any money, and especially in the sort of amounts suggested by the new law."

I tend to perceive such moves as sacrificing Russia's poor at the altar of hope for its future generations. Russia's government is no longer letting them get in the way. Some--probably many--invalids, veterans, etc. will find their purchasing power severely eroded, as has happened with the disproportionate increases in the regulated prices of public transportation. As a result, how will the poor respond? Nobody is suggesting that they will starve to death, but only those with children and grandchildren they haven't alienated will probably see little difference in living standards.

I hereby initiate a new series of posts on T&B entitled "Statsmerkwürdigkeiten", which is German for "the remarkable things of the state". The word has an origin in Gottfried Achenwall's lectures in the 18th century, although we use it with an impish sarcasm. (I found it in a translation of Meitzen's History, Theory, and Technique of Statistics). See page 5 of this document for orginial German context.

Our first example of Statsmerkw�rdigkeiten is this Washington Post piece, demonstrating that there is no invisible hand coordinating the master development plans set by local governments.

Ask youself what happens if the big players in a tight network of local governments use their zoning power to plan for ~2.6 jobs for every home in the community, but people prefer to live in densities of ~1.5 jobs per home:

Attracting workers -- but not the homes for all of them to live in -- is not just official policy in Clarksburg and Montgomery County; it has increasingly become the practice across the region. Local governments believe this makes financial sense because workplaces pay more taxes and use fewer government services than homeowners do. And governments maintain this imbalance through zoning and other development controls.

But by creating housing shortages, the policies push developers, home buyers and renters farther and farther away to find available land and more reasonably priced houses.

This migration, in turn, produces longer commutes to work, more road congestion and the destruction of remote natural habitats, planners say. The extra auto travel contributes to other troubles, including air pollution and the "dead zones" in the Chesapeake Bay. And, most of all, sprawl.

"Many local governments haven't controlled growth, unfortunately -- they've deflected it," said Gerrit Knaap, a planning professor and the director of the National Center for Smart Growth Research and Education at the University of Maryland.

Developers are often blamed for sprawl, and as self-interested businesspeople, they often lobby for road and home-building projects in outlying rural areas. But to a large extent, they are only catering to the housing demand in the Washington region within the constraints placed on them by local governments.

"Developers do what makes them money -- they build what they find to be profitable," Knaap said. "But what they find to be profitable is determined by consumer preferences and public policy."

Government officials find that they're punishing people who never live in their area, since they buy their homes elsewhere:
Several jurisdictions in the Washington area have pursued a strategy of attracting more workplaces than homes, but Montgomery County under County Executive Douglas M. Duncan (D) made it an explicit goal. Duncan proposed -- and the County Council approved in June -- a policy calling for faster job growth than housing growth.

New residents generally cost the county money. The average household in the county pays about $6,500 in property, income and other taxes to the county. But the county spends about $8,500 a year educating the average school student, not including state and federal aid.

"This policy is good for the tax base," Duncan said.

Or, as a Montgomery County booklet puts it: Creating workplaces faster than homes is "the economic development strategy yielding the greatest long-term net fiscal benefits."

County policy aims for employment growth of 2 percent and household growth of 1.4 percent annually. Though it won official approval only this summer, it appears to have been in practice for more than a decade.

Good for the tax base or good to get him re-elected?

Union Busting

I was going to post the recent happenings north of border dealing with Wal-Mart's union troubles, but Kevin beat me to it. I searched for more info on unions in Canada and came across a rather disturbing case of employer intimidation:

Toronto, Ontario: The Ontario Labour Relations Board will begin a hearing tomorrow into unfair labour practices filed by the Ontario Public Service Employees Union against the Governing Council of the Salvation Army in Canada and Salvation Army Community Living, London, Ontario.

The union has been on strike at Salvation Army Community Living since December 14, 1999.

The union is charging that the employer and a private security firm retained by the employer, have engaged in unlawful conduct by:
conducting surreptitious audio and video surveillance of the picketers;

intercepting private communications between persons on the picket line;

intimidating and harassing picketers through verbal abuse and sexual harassment;

and physically striking picketers by running into them with their vehicles

If you see one of those guys ringing the bell hop into a car after you just blew him off, run!

As a resident of the district represented by Democratic Congressman Jim Moran, I've just received an email from his office. The email includes a survey with the following multiple choice question:

1-Which statement best fits your views on our country's fiscal situation?

The President's tax cuts should be fully repealed in order to reduce the deficit and pay for the war on terrorism.

The portion of the President's tax cuts that benefit the wealthiest two percent of Americans should be repealed in order to reduce the deficit and pay for the war on terrorism.

We should keep the current tax cuts intact and continue deficit spending required by the war on terrorism.

We should cut taxes further and continue even more deficit spending required by the war on terrorism.

Notice the missing option: I would like for you to cut federal spending on everything but defense issues.

Woodchip Stamps

Celebrating the national timber industry, Switzerland's post office is selling stamps made from pine; every one will be as unique as a snowflake.

In addition to stamps that smelled like chocolate, last year they made a "high-sensory-impact" Braille stamp.

HP goes to the Penguins


Thought this was an interesting announcement from HP: first notebook with Linux installed.

Apart from issues about usability, I've found no one who doesn't seem to think that Linux is a better operating system in terms of flexibility and reliability. Which is why I've always been interested in why it wasn't a bigger seller. One of the usual answers would be path dependence, arguing along the lines of the story heard in most econ classes: the QWERTY keyboard versus, say, the Dvorak one. The Dvorak configuration has been shown to be more efficient, plus, it's not that hard to switch our current keyboards into that configuration. So why do we persist with inferior solutions? Are people just sort of lazy and/or dumb? (I tend not to think so, but this is often the tone I hear in economists voices when they talk about the fact that people don't regularly conform to models of rationality.)

In Microsoft, issues of (possible) path dependence have gotten big enough to warrant investigations about predatory practices and monoplist behavior. Everyone uses it because, well, everyone uses it. We've settled on an equilibrium that tends to reinforce itself, since the cost of getting out is view to be higher than the benefits gained from the move. And the more people settle into it, the harder it becomes to get out. But, is there really any good reason to stick with Microsoft, other than that fact that it's simply everywhere? If not, should we expect to see increasing migration away from Microsoft as its market share decreases since ubiquity, then, was the real strength?

I've no desire to see the government get into business doing anything it doesn't already do. But every so often I see a small reminder that wireless networking just might be a huge boon to large parts of the population if it were uiquitous and cheap.

This weeked I flew to Chicago to attend the wedding of a longtime friend and now a current coworker. This, of course, meant I had to fly back to DC. Which, as luck would have it, was covered by thunderstorms. The delay set in motion a series of events that culminated in one of the flight attendants on my plane having to stop work, for she had hit the maximum hours-per-whatever that had been negotiated by her union. Of course, she lives in the DC area, and flew back on our plane with us. But we all had to wait in the plane for an hour and a half while they found another person who could staff the plane to meet FAA guidelines. The plane was one of those small things, with two seats on either side of the aisle and requires you to walk out onto what feels and sounds like the runway itself to board. Meanwhile, the reputation for baggage loss at Dulles had reached legendary proportions. (On one flight for the carrier I was on, 30 of the 49 people on the flight didn't get their baggage when they deplaned.)

Which is all nervous-making to say the least. Connections were being blown entirely. Everyone was asking if their connections in DC were delayed as well, since they understandably wanted to know if they would be able to get out again. The attendant didn't know. The pilot was trying to find an available crew member. And we were sufficiently far away from the terminal that no one could walk over to get an updated list of flights.

We were not, however, too far away for one guy and his bright idea. Airports like O'Hare have been gearing up WiFi like mad. So he powered up his laptop, turned on the wireless card, and got to the website for the air carrier. He patiently looked up everyone's connecting flight numbers to give them the new times of departure. Everyone was thoroughly grateful, and the mood of the plane eased considerably. Even the people who got bad news were resigned, and started making alternate plans calmly.

The airline couldn't do this on its own. But the ability to access the information was a major factor in keeping everyone pretty calm, and in preventing an already uncomfortable event into a shouting match (plenty of which I've seen over the years).

I taught in inner-city Chicago for a year or so, working with kids to develop technology skills. Access to the internet for research, entertainment, and basic communication skills was essential. But it was incredibly expensive for schools to get on their own. Had the issue been just the purchase of lots of wireless cards, it would have been simple. But wiring an old school isn't even a concern when the internet companies don't have local access terminals in the area. Being able to access information, to me, could be a massive shift in how schools perform, the motivation of students, and more. At this point, I have little but anecdotal evidence to support that, but buy me a beer, and I'll walk you through it all.

As the technology improves to expand distance and speed, a lot of money is going to be spent on protecting people from accessing a wireless network (since the wider the coverage, the more potential for free-riders). Sometimes I wonder if the money wouldn't be better spent on protecting individual computers, and making the wireless network something akin to the telephone in reach and ease of access.

But then, I'd never presume to tell the market how it ought to run.


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