January 2008 Archives

Stigler vs. Chamberlain

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Don't know why I hadn't read it before, but I just finished Monopolistic Competition in Retrospect (1949), the short essay in which Stigler martyred Chamberlain's theory of monopolistic competition. At its core, Stigler's paper is methodological: for practical problems, use the economic theory appropriate to answer the question -- just not Chamberlain's. Stigler insists that Chamberlain's economic theory is incoherent, except for the analytically proper situation where you have multiple firms, all producing the same product, and all facing decreasing demand curves. That was pretty good.

And it's good that Chamberlain's influence has refocused serious research interest on trademarks and advertising product structure and evolution.

That's what a martyr is for.

[Update 1]: Hammond and Hammond dug into the Early Stigler-Friedman Correspondence. There's much on point starting on page 13, but on page 17 we get Friedman's statement of Stigler's Laws:

Stigler's Law: The gorgeousness of a theory varies with the range of phenomena it embraces and inversely with the number of its constants.

Stigler II: If businessmen deliberately adopt and persistently retain a practice, that practice is explicable in terms of maximum profits.

Stigler's Razor: In dealing with economic theory, always use the most advanced branch of mathematics you can apply.

[Reformatted from original]

I must note that the paper is online, for free, but the authors have marked every page "Not to be quoted". I take it they actually mean "Not to be quoted by scholars in serious, respectable publications". Hence I feel perfectly fine linking and quoting from T&B.

Property Rights in Solar Panel Light

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Overlawyered links to an interesting case:

the Santa Clara County District Attorney's Office is pursuing a Sunnyvale couple under a little-known California law because redwood trees in their backyard cast a shadow over their neighbor's solar panels.

The law, as described in the article, prioritizes the rights of solar cell owners over the rights of tree owners. And it seems to do this in a remarkably fair, clear, and property-rights oriented manner: solar cell owners have the right to 90% of the 10am to 2pm sunlight that they had when installing the panels. That's it.

The law was written by former Assemblyman Chuck Imbrecht, a Ventura Republican, as a way to guarantee, amid the energy crises of the 1970s, that people who installed solar panels wouldn't see a drop in their investment from nearby trees.

It affects only trees planted after 1979, and bans trees or shrubs from shading more than 10 percent of a neighbor's solar panels between 10 a.m. and 2p.m.

In other words, you cannot install solar panels in shade, and then demand your neighbor cut down his trees. Nice.

This type of law is more robust than most, since it tries to respect the rights of long-term owners, while understanding that newcomers should be able to claim and hold their stakes in unused resources. Bravo.

"Tax Rebates" are Low-Cost Payday Loans

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Folks. Those $300+ "tax rebate" checks Uncle Sam will be sending you. They're loans. Forced loans. Not rebates. Not refunds.

Loans.

Granted, they're loans that won't be paid back in full for a very long time. But either you will repay them with taxes, or somebody else will repay them in taxes, or we'll all repay them with inflation. And whoever holds the debt will be collecting the interest.

But more important than noting that the rebates are loans, is noting the size of the loan is VERY close to the size of the average payday loan, but with a far lower interest rate.

I don't know the best national data to check, but according to this 2005 Washington State report, the average Payday loan there in 2005 was $385, and the average fee was $48. Since the average length of a payday loan was 18 days, this comes out to an APR of about 500%. The Federal Government borrows at considerably lower rates of interest.

Needless to say, I doubt stimulus advocates want to tell you that they're using the Federal Government's long term paper to bring you a low-cost payday loan, but that's precisely what they are doing.

[Later]: I'd be curious to see if people who cash their checks at Wal-Mart spend a quarter of them there, like they did in 2001.

[Even Later:] I'm not sure if I want to read this article, as the headline...


bipartisan%20payday.JPG

... leads me to believe the authors won't be applying occam's razor or his diligence in using it. Why isn't it plainly obvious to everyone that politicians LOVE pretending to save the economy while giving money directly to voters?

[Update]: I read the article; boy am I sorry.

I Want to Work for the Tribune Company!

That was my gut reaction to the new lay-person-written Tribune company employee handbook.

“Because it’s always been done that way” and “because it’s a rule” and “because I said so” aren’t reasons for doing anything unless you’ve thought about it and it makes sense. There are many old rules and regulations and handbooks and manuals that will no longer be relevant to those working at the Tribune Company of today and the future. As we replace those, we consider this a fresh start.

Well, one of the old rules was, "Lawyers write employee handbooks." Breaking that one permitted breaking the rest. But "because it's a rule" is a reason for doing one thing: discovering why the rule exists, and how it fits into the complex culture built out of manners, morals, and laws.

I've long believed that Hayekians should scrutinize the processes by which social rules are formed and reformed. This is one of those signal events that subtly shift social rules, though we'll see if lawyers force a hasty retreat.

Well, that was quick. David Leonhardt steadies his cannon, aims at optimists, and fires:


The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage.

No, no, no -- not a mirage because (we've been told) the successes were built upon overpriced assets, used as collateral for low-interest loans which people had little ability to repay. Instead, Leonhardt seems to say that the problem is that we've apparently learned our lesson, and that moderation -- tight money and higher rates -- will doom us to a long, long period of decline.

While I would love to use "a basic fear" that we've been deceiving ourselves as a macroeconomic variable, I would first surely want to know what social experience and historical data we used to convince ourselves that economic swings have dampened, and second, why I should overturn that settled judgment on the basis of a (pretty) large number of folks who gamed credit markets from both the supply and demand sides, while ignoring the FAR larger number of people who honestly and sensibly used those same markets.

Leonhardt next climbs on top of his cannon, and surveys the battlefield.

Martin Feldstein and Barack Obama worry that we'll be plunged into a deep recession, or that we're already face to face with the abyss. He notes that many financial firms haven't tallied up their losses yet, plus

The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms.

Will somebody remind me to assemble on the same time-series chart the monthly averages of S&P500, median housing prices, and avg. mortgage interest rates, so we can get a crude look at actual affordablity? Anyway, as I wrote above, consumer spending is propping the whole thing up?:

Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income.... So just as rising asset values cushioned the last two downturns, falling values could aggravate the next one.

Yes, this includes me. I remortgaged my home to take advantage of lower rates, while extracting a modest amount of equity. Why would I do this believing that housing prices might decline? Because my wife doesn't work now, but when she starts sometime next (or pray, this) year, our family income will likely rise by 60%. As an economist would put it, I used the mortgage as an instrument to get and spend tomorrow's income today -- validating the permanent income hypothesis. I took on more debt because I expect to easily repay it, not because I'm shortsighted or dishonest or stupid.

Anyway, the moral is, shouldn't the ability to repay debt be the criterion in our macroeconomic judgment, not just the size of that debt?

And if we can repay that debt, I'm damn sure the next generation will be just as immoderate as the last.

[Post edited for clarity.]

Wiping off the Dust

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I'm going to start this blog over; just me alone with just one rule: I cannot get myself fired.

Even with that severe restriction, I hope to get to show you all new tricks I can do.

Thanks to Ian, Paul, Bob, and everyone who joined T&B up at some point. Your posts are archived, and I'll make sure that readers can find out more about who you are, if you want.

More Vice Squad

Two Sentenced For Adultery

Two people who committed illegal sexual intercourse were sentenced at the criminal Court yesterday to lashings, house arrest and banishment.

Sheeza Ismail of Kaafu Atoll Gaafaru Rai Villa was lashed 100 times and sentenced to house arrest for one year while Hassan Hameed of Shaviyani atoll Feydhoo Roazmeed was lashed 100 times and sentenced to be banished for one year.

Mr. President, how do you sleep at night!

A blogger's You-Tube letter to Mr. Gayoom

Another star in Maldives

Vice Squad and other recent headlines

Five Arrested for Alleged Prostitution
Three men and two women were arrested in Male’ Henveiru, with “articles that may be used during sex.”

Gender Bar Removal: Adhaalath Say Against Shari'ah
The religious conservative Adhaalath party has said it condemns the move to allow women to be elected as Maldives' President.

Can Gayoom stand for President again?

Even before and after the Chapter on the President of the Republic was amended, opposition MPs had requested Speaker Qasim Ibrahim to clear any confusion whether the work that was being carried out was amending the current Constitution or coming up with a new Constitution.

Qasim replied that from the letters sent by President Gayoom to the Majlis, and from the regulations regulating the Majlis, it was evident that the Constitution was being amended, not that a new Constitution was being established. When he said that, he received applause from opposition MPs and some members of the public who attended the sitting.

40 MPs against removal of gender bar to Presidential office

Civil Court evicts tenants who had overpowered landlady

The court passed a verdict to evict Ibrahim Shareef and Ibrahim Afeef (from Male) and Maryam Ali (from Thaa atoll Thimarafushi) and Yoosuf Hussain (from Laamu atoll Kunahandhoo).

Afeef works at Maldives Customs Service and is a lawyer who tends to civil cases. He is also an MP for Baa atoll at the People's Special Majlis, the interim constitutional assembly tasked with amending the Constitution....

The case filed by Aishath stated that Shareef and Afeef had taken over her home and refused access to the house to Aishath's representatives.

A new constitution or amended constitution?

President Gayoom will be constitutionally barred from running again as a presidential candidate, according to the Chairman of opposition Maldivian Democratic Party (MDP).

Mohamed Nasheed (Anni) was speaking after the Special Majlis (constitutional assembly) voted yesterday to limit the presidential term to two terms. President Gayoom has served six terms already...

Dhivehi Raiyyithunge Party (DRP) members say the document they are in the process of drafting is a "new" constitution rather than an "amended" one.

Therefore Gayoom, who has served six terms, is still entitled to stand for President in this year's multi-party elections, because terms served under previous constitutions are deemed irrelevant.

But MDP and others say the future constitution will be an amended version, not totally new, so Gayoom would be barred from standing for re-election.

Anni said today: "No country has a new constitution, unless there is a revolution. That's a constitutional principle. Constitutions are only ever amended."


-Gayoom Ruled out as Presidential Candidate, Say MDP

Jihad on a Tiny Scale

A Sri Lankan blogger writes;

Coming from a country with a raging internal conflict, personally, I am used to slightly more specialized weaponry. Like a suicide bombing. Or a Claymore mine. Or an AK-47. I find it difficult to comprehend a political assassination with a sharp pointed object first invented in the paleolithic era. It was not even a sword, a machete, or a rambo knife that was used; it was a kitchen knife, presumably stolen from a mother or a wife in the middle of cooking a tuna curry. How quaint, how homegrown…

via Foreign Policy blog ( I don''t know why the FP has classified it under Pacific- don't they know Maldives is in the Indian Ocean?)

Recent Headlines

Foreign Wives Amendment Thrown Out Again

Total of Seven Arrested For Gayoom Assassination Attempt

MPs begin submitting amendments to Constitution's Chapter on President

A free and fair vote in the Maldives


The assassination attempt on the life of President Gayoom is to be utterly condemned, but it illustrates the real desperation that the people of the Maldives now feel after nearly 30 years of his autocratic rule (I was just living up to Scout motto, says boy who saved president's life, January 11).

Last year I resigned from his government as attorney general, together with the justice minister, Mohamed Jameel, and the foreign minister, Dr Ahmed Shaheed, over his failure to implement democratic reforms in the islands, despite huge international pressure and his human rights abuses.

This has resulted in nearly half of Maldivians living in absolute poverty on just over a dollar a day in a country which is widely regarded as a paradise in the west. It has also resulted in a widespread campaign of intimidation and sometimes violence against his political opponents, which has included accusing us of being terrorists without any justification.

However, after years of struggle he has now finally agreed to hold elections in November which will give the people of the Maldives a chance to pass their verdict on his time in office.

We have formed the New Maldives Movement to give the people a real alternative to his rule and will be working with the United Nations, the European Union, the Commonwealth and the international community to ensure that the elections are free and fair.

At stake is a truly democratic Muslim state which could act as a model for other Muslim countries around the world.
Dr Hassan Saeed
Presidential candidate, New Maldives Movement, Male, Maldives

Male' Fact of the Day

Many residents of Malé say the idea of Hulhumalé is a good one given the atrocious conditions in the capital.

It has more than 100,000 people in a space that can be crossed on foot in 25 minutes. Rents for two-bedroom apartments top $9,000 a year, despite annual per capita incomes of $4,000. Imported sports cars jam the narrow streets, even though it's rarely possible to drive faster than 20 miles per hour. Global warming, meanwhile, has many people fearful that the low-lying city will be swamped by rising tides in a matter of years.

-Male has more than 100,000 people in a space that can be crossed on foot in 25 minutes, roughly 54,000 people per square kilometer, compared to less than 3,500 in New York.


-What If You Built An Island Paradise And No One Came? (Wall Street Journal)

World Travel Awards 2007

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Winners 2007

Guess the World's Most Romantic Destination?

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This page is an archive of entries from January 2008 listed from newest to oldest.

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