Truck and Barter

The Variability of Organ Weights

Not about economics, but interesting nonetheless to those who think economic data are too variable to be of much use: Weights of Human Organs at Autopsy in Chandigarh Zone of North-West India. A selection from the table:

The abstract:

Mean organ weights in 2025 subjects who died and autopsied at Postgraduate Institute of Medical Education and Research, Chandigarh revealed that they in general were heavier than reported from otherparts of India. Various organs continued to attain their maximum weight up to 40-50 years of age.

For men over 20 years, the coefficient of variation seems to much lower for the brain than for the heart, lungs, etc. However, the size of the prostate is measured at more than 60 grams for adults, when Merck tells me it should be about 20 and other information tells me it should max out at a little over 30. There's a confounding element at work here, somewhere -- especially since the accuracy of these data points are supposed to be pretty solid:

After removing the extraneous tissues and draining of the blood, each organ was weighed on electronic weighing machine having the accuracy of ± 0.1gram.

What am I missing here?

Public Awareness of Simple Maths

Well, I know statistics combinatorics is a hard subject for many people -- odds and probabilities and all that -- but a reporter at The New York Times should not need to contact a mathematician to perform simple division.

In ESPN.com's 2006 Men's College Basketball Tournament Challenge, Pleasant had one of the four entries among three million with U.C.L.A., Louisiana State, Florida and George Mason in the Final Four.

Could you rephrase that, please?

Mike Breen, a mathematician ["public awareness officer"] at the American Mathematical Society in Providence, R.I., said the chances of correctly picking the Final Four in ESPN.com's contest this year were about 1 in 750,000.

Is there a rule at the Times that a reporter must have simple calculations performed by an outside authority? In defense of Mr. Breen, I gather that his full comments were far more substantive than what was quoted.

Latin American Economies- Destiny or Choice

“How many numerical indicators would have to be created in order to let us realize that we are getting closer to solve the poverty problem?”- question put to a World Bank economist discussing a report on Latin American poverty (Poverty Reduction and Growth: Virtuous and Vicious Circles).

The report points out that ‘Latin America needs to cut poverty to boost growth’;

Two of their main conclusions are a breakthrough for the bank: that private-sector growth is not a panacea for the poor and that inequality must be targeted directly. A third conclusion is almost heretical for the bank: that the state needs to take on more responsibility rather than less. "Converting the state into an agent that promotes equality of opportunities and practices efficient redistribution is, perhaps, the most critical challenge Latin America faces in implementing better policies that simultaneously stimulate growth and reduce inequality and poverty," the report says.

Some statistics from the report;

- On average, for every one percent of economic growth, poverty declines by 1.25 percent in Latin America.

- About 25 percent of Latin Americans live on less than $2 a day. While China experienced annual per capita growth rates of about 8.5 percent between 1981 and 2000, reducing poverty by 42 percentage points, Latin America's per capita GDP declined by 0.7 percent during the 1980s and increased by about 1.5 percent per year in the 1990s, with no significant changes in poverty levels.

- On average, a 10 percent increase in poverty reduces annual growth by 1 percentage point . A 10 percent increase in poverty is likely to be associated with a decline in investment of about 6-8 percentage points

- Latin America and the Caribbean is the most unequal region with the exception of Sub-Saharan Africa. If Latin America had the level of inequality of the developed world, its income poverty levels would be closer to 5 percent than to the actual rate of 25 percent

- In 2000, income per capita in the poorest municipality in Brazil was barely 10 percent of that in the richest; in Mexico, per capita income in Chiapas was only 18 percent of that in the capital

- Having a mother with only primary education increases the risk of school dropout by as much as 1.6 times in Chile and 60 percent in El Salvador compared to having a college-educated mother. A low educated father additionally increases school failure risks by up to 1.4 times in Chile and 40 percent in the Dominican Republic

Related Links:

- IMF F&D edition with a focus on Latin American economies

- Interview with Dr. John Edwards (Radioeconomics podcast- download now, available for only limited time)

- Latin America goes South (podcast from Hoover)

- The Future of Reforms in Latin America (webcast from World Bank)

- Podcasts from BBC on Brazil and Argentina

- Political and Economic Future of Latin America (podcast from Institute for Policy Studies)

- Latin America and the Caribbean: What Lies Ahead? The Search for Life After Debt- a webcast (real video, 300k) of a discussion at Princeton by David de Ferrenti

- Cato events; The Roots of Poverty in Latin America, A Modern Vision for Latin America, Dollarization for Latin America?, Liberty for Latin America: How to Undo Five Hundred Years of State Oppression

- The Latinobarómetro poll- Democracy’s ten year rut

- Chilie and the World

-After the Washington Consensus: Restarting Growth and Reform in Latin America

Immigration

Mickey Kaus has an excellent discussion of how the immigration issue may play out this year. Though it is only speculation, it seems to lay out the best course politically for Republicans to play. A big problem, of course, is that it still leaves unresolved the issue of 12 million people here in this country illegally. My guess would be that some sort of amnesty is included in any final bill.

The immigration issue seems to have come to a boiling point this year for whatever reason. I guess credit should be given to Tom Tancredo for raising the issue. I have my disagreements with the anti-immigration movement, mainly that I'm for immigration and I think large numbers of immigrants can be assimilated. However, I don't disagree that we should control the borders more forcefully. There is, of course, the issue of rewarding those who did come here illegally to stay. Many on the right would throw them out just for that reason, but I would say that just because somebody does break the law doesn't mean that the most extreme punishment should be used. It has been 20 years since the last amnesty and I don't see where this country has gone to hell. Quite the contrary, the last 25 years have been fairly extraordinary.

The issue is quite complex with many books written about the issue. To try and step into the economics of it is just as difficult. I'm not even going to try and debate the famous line "there are some jobs Americans won't do." If you disagree, you're more than welcome to try and debate my family members at the next reunion. But as I've said, immigration is consistent with free markets and free people.

New Industrial Relations Laws

What is to some people the apocalypse, Australia is implementing new industrial relations laws today. In contrast to the very minor change in France, these changes seem to roll back a fair amount of regulation. Of course, the unions are doing their best to scare the bejeezus out of everybody:

But Qantas engineer Surace worries the union's industrial arsenal will be limited come Monday. Surace, an Australian Workers Union delegate from West Preston, is engaged to be married but now he does not know if he can afford a home. "Now I'm in another situation where I don't know if six months down the track I'm going to have a job or not. I can't plan my future. I have to wait six months before I can take a loan. How can I go out and buy a house today?"

My favorite excerpt is this one from the SMH:

Mr Blake says nurses are generally reluctant to strike, in any event.

"What they will do is leave. They'll go down the road and find someone who'll offer them more money," he says.

The Government has not only put a powerful new weapon in the hands of employers, but provided a commercial incentive for them to use it. If any employer wins a commercial advantage over its competition by cutting labour costs using the new laws, the competition will have to follow suit.

Interesting concept. Even more surprising is that Mr. Blake is the federal industrial officer with the Australian Nursing Federation.

Darwin’s Nightmare

Evolutionary biology works in mysterious ways in affecting economic outcomes. Look at the following paper on the effect of orphanhood in a poor region of Tanzania ;

“This paper provides unique evidence on the long-term impact of orphanhood in a region of Tanzania, near Lake Victoria in an area ravaged by HIVAIDS….

We find significant permanent effects. Children who become maternal orphans before the age of 15 are 2 cm shorter in adulthood than similar children whose mother did not die during this age interval, representing 22 percent of one standard deviation of height in the sample. We also find that maternal and paternal orphanhood results in substantially lower educational attainment, each lowering years of education by adulthood by about a quarter of one standard deviation of educational attainment in the sample…”

In another study Estho Duflo finds peculiar evidence related to health outcomes of children living with grandmothers;

“In the early 1990's, the benefits and coverage of the South African social pension program were expanded for the black population. In 1993, the benefits were about twice the median income per capita in rural areas. Over a quarter of black South African children under age five live with a pension recipient. My estimates suggest that pensions received by women had a large impact on the anthropometric status of girls (it improved their weight given height by 1.19 standard deviations, and their height given age by 1.16 standard deviations), but little effect on that of boys. In contrast, I found no similar effect for pensions received by men. This suggests that the household does not function as a unitary entity, and that they efficiency of public transfer programs may depend on the gender of the recipient.”

In Europe the Dutch are considered the giants, men being on average 6 feet tall; they used to be only about 5 foot 4 in the mid 19th century.

So what does this all mean for economics; biology and neuroscience needs to be seriously studied by economists. As Hayek had once said, ‘an economist who is only an economist cannot be a good economist.’

Related Links:

- Foreign Exchange TV, hosted by Fareed Zaakaria, reviews the recent documentary Darwin’s Nightmare. All the programs are available on the web and are highly recommended focusing mainly on current affairs and development.

- The latest Science Show from Radio National discusses economics and brain science and the relations between spoons and human nature. The podcast is available for a few weeks, so download now.

- Can studying the human brain revolutionise economics?

- Two related blogs posts that I wrote earlier; Phantoms in the Mind and Why Do Magicians Hate Children.

Don't Browse Harder, Browse Smarter

As if you couldn't tell, I'm spending a good portion of my morning on literature searches on a couple of topics, so I keep running across papers that I wish I had more time to read.

For instance, here's a paper from Russel Beale at the University of Birmingham on "Improving Internet Interaction" (PDF). In essence, the paper describes a project to help improve the act of browsing the internet by enriching what I would call the "information content" of links to other pages. Based on an analysis of the pages you've browsed in the past (recent history files), an agent searches ahead through the links on the currently viewed page and determines which are of potentially greater or lesser interest (to oversimplify, it does so through matching keywords culled from your history with those on the linked pages). The level of potential interest is then communicated to the user through link coloring and DHTML interfaces (alt-tag like boxes that appear when hovering on a link).

Beale breaks up internet use into three broad categories -- search, browse, monitor (like refreshing, say, Fark) -- and then focuses on browsing. The results are interesting, and make me want to get my hands on the program to try it out. Though, despite Beale's comments that better and more sophisticated search tools are being addressed "elsewhere" (I think that's "academic speak" for "someone else has a really good paper right now"), the usefulness of the tool for search seems obvious. Incorporating a ranking function as well as context-sensitive procedures --ranking as more important words found in a downloaded PDF vs. those that I skipped; increasing the importance of words on pages I spend more time on, or from domains I viewed a lot of pages in; and so on -- would almost guarantee that I'd fire the program up frequently. Of course, there's a good chance Beale's way ahead of me on that. I tend to be far behind the curve on these things.

In the meantime, it's back to guessing keywords and plowing through the rather haphazard Google Scholar.

New Evolution Model For Resolving Tragedy of the Commons

Just a quick pointer to an article that's going to be near the top of my to-read pile once I get my hands on it.

Evolution in group-structured populations can resolve the tragedy of the commons

Abstract:

Public goods are the key features of all human societies and are also important in many animal societies. Collaborative hunting and collective defence are but two examples of public goods that have played a crucial role in the development of human societies and still play an important role in many animal societies. Public goods allow societies composed largely of cooperators to outperform societies composed mainly of non-cooperators. However, public goods also provide an incentive for individuals to be selfish by benefiting from the public good without contributing to it. This is the essential paradox of cooperation—known variously as the Tragedy of the Commons, Multi-person Prisoner's Dilemma or Social Dilemma. Here, we show that a new model for evolution in group-structured populations provides a simple and effective mechanism for the emergence and maintenance of cooperation in such a social dilemma. This model does not depend on kin selection, direct or indirect reciprocity, punishment, optional participation or trait-group selection. Since this mechanism depends only on population dynamics and requires no cognitive abilities on the part of the agents concerned, it potentially applies to organisms at all levels of complexity.

And for those of you with some programming interests, they also include a link to the source code for their evolutionary model (PDF).

Lockboxes as Anecdotal Indicators

What's a leading indicator? It's a data series that can be used to reliably predict the future movement of another. But informal data and anecdotes can be just as sensible and accurate as formal leading indicators.

For example, to measure the strength of current housing markets, people are noting the year-to-year increase in inventory, the relative decrease in price growth or a decrese in prices, etc.

But the most powerful indicator might very well be the return of highly visible clusters of lockboxes outside of condominium buildings. (w/ pic goodness).

Back from the dead, and back from paradise.

I know I know... it's very difficult to come up with a good answer when someone asks you why you've been absent a whole YEAR! Oh well, I'll just skip that one, and say hello all over again!

I just got back from a week long teaching session in Syria for the Central Bank of Syria and LSE. I got to teach 30 up and coming stars at the bank introductory monetary policy and tried to bring them up to speed with things that are going on in central banks around the world. While that itself was a mundane chore, visiting Syria was incredibly amazing, paradise almost. I will save that for my next post, but hopefully you won't have to wait a year for that... perhaps just under a week!

Wisdom of Crowds, Rodent Edition

Hey, three's a crowd, right?

Female mice apparantly prefer male mice that have the scent of another female mouse when undertaking mate selection. The scientists conjecture that the scent of another female mouse on a male mouse works as a form of information delivery on the fitness of the mate. That is, if another female found the male suitable, the new female increases her belief that the male will be a fit mate for her. Peer approval is important in assessing fitness.

That one female's choice of mate could influence the choices of other females is well documented in birds and fish, but had not been documented for any mammalian species. Pfaff says that the female mice's mate preference was so strong that they even preferred the combined male/female scent when it was tainted with the scent of infectious parasites, opting for that over the scent of a healthy lone male.

"Male odors can provide female mice with information on their quality, condition, health and suitability as a potential mate," says Pfaff. "This type of 'public information' uses cues inadvertently provided by an individual, such as odor, which others observe use to make decisions such as mate choice, food location, or presence of danger. Specifically in birds and fish, 'public information' has been shown play a role in when and what to eat and with whom to mate with, but its use in mate choice has not been seen in mammals."

Ever notice that some people have significant others fairly routinely, while others go for long spells without? Could it be that the social habits of those with dry spells provide for less chances to have third parties see them in the presence of a potential next-signifcant other? Does the smell wear off over time?

Via ScienceBlog

Excessive Anti-Corruption Drive Hurting the Economy?

Sebastian Mallaby in his book, The World’s Banker, narrates an anecdote about a discussion with Wolfensohn, Indonesia’s former dictator Suharto and Zhu Rongji, Chinese vice premier (emphasis mine);

Suharto was talking to Zhu, and he summoned Wolfensohn over; and then he broached the subject of corruption. The latest corruption rankings produced by a watchdog group called Transparency International were most upsetting, Suharto declared, for they rated Indonesia as less corrupt than China; he had been happier with the previous year’s results, which had recognized his own country as the more energetic embezzler. Zhu looked visibly annoyed, but Suharto carried on. “Don’t you think we should tell the president of the World Bank about corruption in this part of the world?” he asked Zhu, who maintained a stony reticence. The Suharto looked at Wolfensohn. “You know, what you regard as corruption in your part of the world, we regard as family values.”

Suharto’s family values resulted in the embezzling of 15-35 billion dollars from state coffers. The country has come a long way and the government appears a little bit over-zealous nowadays in dealing with corruption. When tsunami struck in Aceh the governor of that province was in jail and was sentenced later to 10 years for the corrupt purchase of a helicopter in 2001.

Recently the country’s finance minister expressed concern that the current anticorruption drive was seen as rather excessive, discouraging government officials from making decisions, thus jeopardizing the economy;

In an effort to eradicate corruption the government has tightened bidding and procurement procedures, as stipulated in a 2003 presidential decree, resulting in much lengthier tenders. Many government contractors have complained about the lengthy process of bidding…

…A reluctance of PLN [state power firm] directors, for instance, to take prompt action in replacing old generators could disrupt the electricity supply. The public would face a situation whereby SOE directors would rather sacrifice public interests than sacrifice their personal safety. It would be ironic if a deterioration in public services occurred, not because of a lack of funds, but because of the war against corruption.

For Comment: Is the Indonesian Finance Minister right? Should the country be complacent in its fight against corruption?

Related Links;

- Stealing from People, an interesting publication from Governance Reform in Indonesia. Papers include Corruption Through The Perspective Of Culture and Islamic Law and Anti-Corruption and NGOs in Indonesia.

- Reflections on Corruption in Indonesia by Gary Goodpaster
“Suharto was a stationary bandit running a stationary bandit regime. Under Suharto, businesses that bribed or shared wealth to obtain economic opportunities, advantages, or protection did get services in return. They obtained licenses, land and environmental concessions, security of investment, contract enforcement, and assistance in managing labor disputes.”

- TI Indonesia Chapter

- An Indonesia Anti Corruption NGO

- I couldn’t find any Indonesian economics related blogs; there is one by a Phillipine economist (Go Figure) and another by a Mauritian economist. Asia Finance and Asia pundit ( warning: not always work safe) are closest I could find. Another thing I learned; Jakarta ( Indonesia capital) in Korean means ‘The Perfect Crime’.

- Money and Politics in Indonesia

- How Multinational Investors Evade Developed Country Laws – give Indonesian examples

Weekend Economics Puzzle 3, Are Teachers Underpaid?

“With the possible exception of prostitution, teaching is the only profession that has had absolutely no advance in productivity, in the 2400 years since Socrates taught the youth of Athens.”
- Richard Vedder, in a lecture discussing the performance of the US economy.

I was astonished after watching the ABC documentary, ‘Stupid in America: How Lack of Choice Cheats Our Kids Out of Good Education’- especially the flow chart showing the processes needed to fire a union teacher (hat tip: Thinking on the Margin). That being said we come to the third paradox of our series;

Entertainers and sports stars earn million dollar annual incomes while the very best teachers earn considerably less. Were a survey to be taken almost all people will agree that ‘education is more important than entertainment’. Are then teachers underpaid?

If one were to look at the data, teachers does not appear to be underpaid;

"Consider data from the National Compensation Survey of the Bureau of Labor Statistics, which computes hourly earnings per worker. The average hourly wage for all workers in the category “professional specialty” was $27.49 in 2000. Meanwhile, elementary-school teachers earned $28.79 per hour; secondary-school teachers earned $29.14 per hour; and special-education teachers earned $29.97 per hour. The average earnings for all three categories of teachers exceeded the average for all professional workers. Indeed, the average hourly wage for teachers even topped that of the highest-paid major category of workers, those whose jobs are described as “executive, administrative, and managerial.” Teachers earned more per hour than architects, civil engineers, mechanical engineers, statisticians, biological and life scientists, atmospheric and space scientists, registered nurses, physical therapists, university-level foreign-language teachers, librarians, technical writers, musicians, artists, and editors and reporters. Note that a majority of these occupations requires as much or even more educational training as does K–12 teaching"

I don’t know anything about the American high school education. I think the US had come a long way (as of 1900 only 3 percent of Americans had graduated from high school) and in higher education the US has no match in the world; seventeen of the top 20 universities are American indeed, so are 35 of the top 50. American universities currently employ 70% of the world's Nobel prize-winners. They produce about 30% of the world's output of articles on science and engineering, according to a survey conducted in 2001, and 44% of the most frequently cited articles.

The point about the ‘underpaid teacher’ is that are teachers being paid what they are worth to the society? Everybody have met great teachers and lousy ones and I’ve often wondered whether there would be any way that great teachers could be better compensated and not in effect be subsidizing the stupid ones.

Related Links:

- They're Not Stupid—They're Lazy

- Testing Student Learning- Evaluating Teaching Effectiveness (an online book on the issue at Hoover)

- Why Quality Matters in Education, Eric A. Hanushek (this edition of F&D is focused on the role of education in economic development)

- Other interesting articles from Hanushek; The Economics of Education Quality, Measuring Investment in Education, The Market for Teacher Quality, Interpreting Recent Research on Schooling in Developing Countries

- US Education Statistics- A summary

- The Education Podcast Network

- The Racial Gap in Education and Making the Grade (podcasts from Hoover Institute)

- Educating by the Numbers (webcasts)

- The Education Myth, Alison Wolf

- The Economics of Knowledge: Why Education is Key to Europe’s Success

- Attracting, Developing and Retaining Effective Teachers

- Measuring Student Knowledge and Skills: The PISA 2000 Experience (a statistical brief from OECD)

- Low Pay, Low Quality

- To Catch a Cheat, Steven Levitt and Brian Jacob (Education Next is interesting journal on education from Hoover)

- My favoruite blogs on education; Joannejacobs, Crankyprofessor, Number 2 Pencil and Eduwonk

IMF worried about the US Fiscal Policy

The Japanese Deputy Managing Director of IMF is worried about global imbalances;

"Regarding risks and vulnerabilities, the IMF sees the widening global imbalances as a substantial risk to global growth. The current equilibrium is unstable, as it rests on the capacity of the United States to continue to attract foreign savings. Foreign investors may become unwilling to hold increasing amounts of U.S. financial assets and demand higher interest rates, especially if Asian countries recover from the investment drought that they have experienced since the Asian crisis. A depreciation of the U.S. dollar may be necessary to induce U.S. domestic demand to contract. However, if this or other adjustments occur abruptly, it could cause a slowdown in demand and output, as well as financial market disruptions, at the global level.

Therefore, the IMF has underscored the urgent need to use the current favorable environment to address vulnerabilities arising from growing imbalances. It has repeatedly called for coordinated multilateral policy actions to help bring about a gradual and orderly unwinding of those imbalances—unfortunately, there has been at best a limited progress to date. Action is needed in all the main blocs, including (i) tighter fiscal policy in the U.S.; (ii) greater exchange rate flexibility in Asia; and (iii) structural reforms to improve productivity and medium-term fiscal sustainability in Europe and Japan. High and volatile oil prices are likely to complicate the adjustment, so IMF advice has focused on the appropriate policy response."

Mankiw, author of most popular economics principles textbook, in his resignation letter from the Chairman of the Council of Economic Advisors praises the fiscal policy of the administration he served;

“Your leadership has preserved and strengthened the American dream by guiding the economy through difficult times and by laying the foundation for a growing and expanding prosperity. You appreciate the power of economic liberty and have worked to create an environment where all Americans can realize the potential with which their creator has endowed them. You understand that free enterprise system works best under a policy of low taxes, fiscal discipline, and open markets…”

Related Links:

- Examining Global Imbalances
- Perspectives on Global Imbalances
- Global Imbalances: A Saving and Investment Perspective
- Latest US Article IV consultation report and Selected Issues
- The Global Saving Glut and the U.S. Current Account Deficit, Ben Bernanke speech
- The Unsustainability of U.S. Trade Deficits, John Quiggin
- Divergent Views on the Coming Dollar Crisis, Bradford DeLong
- Outlook for the Global Economy, Robert Rubin (podcast)

Working at Playing

Nick Yee is a PhD student at Stanford's Communication Department. One of his articles has just appeared in the new issue of Games and Culture magazine, titled "The Labor Of Fun" (PDF - from Yee's own site). In it he addresses the apparent "blurring" of the lines between what we traditionally consider labor and entertainment.

Does this sound like your idea of fun?

Pharmaceutical manufacturing is one of many possible career choices in the game Star Wars Galaxies. Some other career choices include: bio-engineering, architecture, fashion design and cooking. Third-party career planning tools are available for the undecided1. Pharmaceutical manufacturers create their products by combining raw resources. These raw resources, such as chemicals or minerals, must be located using geological surveying tools and harvested using installations bought from other players skilled in industrial architecture. Resource gathering is a time-consuming process that involves traveling and constant maintenance. Typically, pharmaceutical manufacturers rely on dedicated resource brokers instead. The attributes of the final product (i.e., duration vs. potency) depend on the attributes of the resources used, however, resources vary in quality, accessibility and availability. Thus, manufacturers must decide which products take the most advantage of the resources available to them and must also take into account the demands of the market.

Raw resources are converted into subcomponents and final products using factories2 (also provided by player architects). Mass production introduces a constant supply-chain management problem and manufacturers must ensure a steady supply of needed resources in the correct proportions. With final products in hand, manufacturers now face the most difficult problem - each other. In Star Wars Galaxies, everything that is bought or sold has to be bought or sold by another player. The game economy is entirely player-driven. Manufacturers must decide how broad or narrow their product line should be, how to price and brand their products, where and how much to spend on advertising, whether to start a price war with competitors or form a cartel with them. Thus, manufacturing pharmaceuticals is not an easy task. It takes about 3-6 weeks of normal game-play to acquire the abilities and schematics to be competitive in the market, and the business operation thereafter requires daily time commitment.

Ok, so it does to me. But then, I have problems.

The ability to capitalize on these efforts by selling virtual items for real money seems like a new expression of an old desire to find new and more enjoyable ways of simply making more money. That the effort is now an online game instead of, say, bartending a couple nights a week for spending cash, is really only a detail in that case.

Yee also addresses the central problem facing game providers: how to keep people hooked without having them burn out. The reward schedule probably has a diminishing marginal return (it takes forever to advance at higher levels and thus requires a large amount of repetitive activity), so how do you get people to not just walk away? There are, of course, the social aspects of game playing. Eventually, however, I think companies will have to deal with the intellectual property rights issues that arise with virtual work product. I'd expect to see some sort of licensed sales arrangement, or even a sponsored marketplace; a PayPal ATM at the back of the virtual Creature Cantina?

Look! On the ground! Under the water! It's....SUPERGRID!!!

IFTF's Future Now blog directs us to an interesting article at Technology Review: "A Supergrid For Europe".

Excerpt:

Last month a Dublin-based wind-farm developer, Airtricity, and Swiss engineering giant ABB began promoting a bold solution to the continent's power grid bottlenecks: a European subsea supergrid running from Spain to the Baltic Sea, in which high-voltage DC power lines link national grids and deliver power from offshore wind farms. When the wind is blowing over a wind farm on the supergrid, the neighboring cables would carry its power where most needed. When the farms are still, the cables will serve a second role: opening up Europe's power markets to efficient energy trading.

As Homer Simpson might say, "Your ideas are intriguing to me, and I wish to subscribe to your newsletter."

The result would be a more integrated and thus more competitive European market, delivering power at lower prices. And it would enable Europe's grid to safely accommodate even more clean, but highly variable wind power. That accommodation will be needed because the European Union has set a target of 21 percent of electricity from renewable sources by 2010, and much of this will come from wind farms. "The primary benefit of the supergrid is that it aggregates wind power across geographically dispersed areas, and, by doing so, it smoothes the output of those wind farms," says Chris Veal, the Airtricity director promoting the supergrid. "If the wind isn't blowing in the Irish seas, it's likely to be blowing in the North Sea or the Baltic. The wind is always blowing somewhere."

I'm always suspect of sentences like the first in this paragraph. Integration in a loose sense, like the building of a firm, might help defray various costs, but in the case of countries means more "integration" often results in larger opportunity for rent-seeking and political mismanagement. This is especially true in the case of the EU where the penchant is to make political leaders (elected and not) in charge of anything that happens to cross boundaries, resulting in bad policies that major players can ignore with impunity. To wit, the Stability Pact.

The project does sound fascinating. One of the issues I'd always heard raised against wind power is the variability which would get coupled with the stresses placed on the infrastructure from periods of peak demand (highly variable supply with spikes in demand doesn't seem like the best mix for an overall base of energy). And the general tone of the piece implies that it is heavily driven by commercial interest. Right up to the end, that is:

The challenge is to get the supergrid onto the policy agenda. Because it's a big-energy concept, Czisch says, it runs counter to the thinking of many renewable energy advocates, who he believes prefer to see renewable energy as local energy sources, such as solar panels on rooftops. "You would have to build huge high-voltage DC lines, huge wind-power plants in Morocco, and so on. This is something that could easily be done by the big utilities -- but the utilities are the enemy of the renewables people," he says.

Airtricity's Veal is hoping to get some help from the European Commission, which just released a proposal for an integrated European energy policy. "We're not going to solve all of the EC's problems," Veal says, "but we can be a major contributor."

Allow me to rephrase: "Sure, it's a great idea that companies may like, but since the profit motive is the world's greatest sin, what we really need are government mandates and the public's money."

Sigh.

Carnival of Podcasts and Webcasts- Economics and Globalisation

This is the second series of the carnival of podcasts. In this edition we focus on economics and globalisation.

- Martin Feldstein on the performance of the US dollar and tax policy.

- IMF’s chief economist Raghuram Rajan on the outlook for global economic growth.

- Ben Benarke at Princeton –talking about the benefits of price stability.

- Bernanke in 2003 talking about the challenges of monetary policy (webcast).

- Robert Schiller- economics roundtable (webcast)

- Professor B.B. Bhattacharya, Vice-Chancellor of Jawaharlal Nehru University, New Delhi talking about India’s economic potential and constraints

- Selling China: The Wal-Mart Effect

- The World Is Flat: A Brief History of the Twenty-first Century, Thomas Friedman (webcast)

- More Thomas Friedman

- Globalisation and the World’s Poor - Jagdish Bhagwati ("In Defense of Globalization"), Allan Meltzer (Carnegie Mellon U.), William Easterly (formerly of the World Bank) and John Ambler (Oxfam America).

- The Cost of Corruption

- A series of short podcasts from The Economist; include Amartya Sen, Wolfowtiz, Daniel Yergin and more.

- Why Inequality Matters in a Globalizing World, Nancy Birdsall (webcast)

- Rethinking Growth Strategies, Dani Rodrik (webcast)

- A Fairer Globalisation- A discussion of the ILO report on the issue (webcast)

- Globalisation and the Rise of Religion

- Ernesto Zedillo and Stiglitz on Globalisation

- Innovative Ways for Financing Global Public Goods, Stiglitz

- Recent speech of Al Gore at TED conference

- Interview with the Economic Hit Man

- A three part series on globalization from BBC; Working together, the illicit side and the new rules

- Hernando de Soto interview (webcast)

- The Market Approach to Understanding Religion

- Daren Acemoglu and Jared Diamond

- Debate between Stiglitz and Rogoff

- The Roots of Poverty in Latin America

Quote of the Day

“Which is the higher value: to have an instant choice of fifty bad movies on your super cable system or to have a choice of only three good movies? Technology enables and that is a value but it is an incomplete value. A state-of-the-art stove in the kitchen and the latest ceramic cooking vessels do not provide a good meal. Could technology deliver a good meal? Possibly; when you put a frozen gourment dinner in your microwave you might do better than with your own cooking. Improving your own cooking, however, would be even better, with more flexibility and room for invention. The ability to send hundreds of e-mails does not ensure the ability to write something intelligent or amusing. None of this is the fault of technology, which does a wonderful job. It is the fault of those who believe that the momentum of technology will be sufficient. Having a fast car is not the same as having somewhere to go.”
-p.109, New Thinking for New Millennium, by Edward De Bono

I think it applies to blogs as well; the ability to post something does not ensure the ability to write something intelligent or useful. Just look at some blogs like Marginal Revolution (just kidding).

De Bono’s latest project includes creating a New Religion;

Next year I am launching a design for a 'new religion'. The emphasis is on positive action. No existing religion emphasises humour and yet humour is a key part of life. Humour is also the ability to change perceptions and see things differently. Most religions are about beliefs and the avoidance of sin.

In the 'new religion' there is belief in yourself and positive things to be done. This 'new religion' can be used in conjunction with any existing belief system. It simply adds the constructive element.

Humour certainly is something religious scholars need to get to grips with.

Related Multimedia Links:

- Is There a Funny Side to God? (Radio National podcast, download now- they take it off in a weeks time)
- Economics of Religion (Radioeconomics podcast, this is also not permanent so download now)
- Intelligent discussion on the Cartoon Controversy, a discussion at Harvard (webcast)

If I Made A Mulder and Scully Reference Here, Would Anyone Get It?

Global warming has nothing to do with human use of fossil fuels. Turns out, we can blame rocks from outer space. At least, according to Vladimir Shaidurov we can.

The Tunguska Event, sometimes known as the Tungus Meteorite is thought to have resulted from an asteroid or comet entering the earth's atmosphere and exploding. The event released as much energy as fifteen one-megaton atomic bombs. As well as blasting an enormous amount of dust into the atmosphere, felling 60 million trees over an area of more than 2000 square kilometres. Shaidurov suggests that this explosion would have caused "considerable stirring of the high layers of atmosphere and change its structure." Such meteoric disruption was the trigger for the subsequent rise in global temperatures.

Note that this comes during a time when the canonical "hockey stick" graph is coming under some serious scrutiny from The National Academies. (For completeness: Mann et. al.'s original article, the McIntyre/McKitrick page rebutting the analysis, and another paper that sort of straddles the line saying that Mann and company underestimated variation in historical temperatures, but current warming is beyond past records.)

(Note: X-Files fans should remember this.)

Good Economic News for Bin Laden

The latest Finance & Development, a quarterly magazine from the IMF is out. The latest issue focuses on Growth. My favorite regulars are People in Economics, Back to Basics, Picture This and Country Focus sections. It struck me that Arab countries have the highest unemployment rates in the world;

Although unemployment fell markedly in developed economies in 2005 to an average of 6.7 percent from 7.1 percent a year earlier, it continued to rise in the former Soviet bloc countries. The Middle East and North Africa have the highest regional rate (13.2 percent), while East Asia has the lowest (3.8 percent).

Let us hear from a well known Arab economist;

"The greatest challenges in the Arab world today are the rate of population growth and the need for increasing financial resources, both for capital investment and social development, to meet the current needs and rising expectations. At an average rate of 2.5 percent a year, population growth is hindering progress in most Arab countries. The demographic challenge is not only about numbers, but more critical is the shortfall in certain required skills and capabilities in all countries. The failure to reform the educational system and adjust to the needs of the marketplace is a real obstacle to the modernization that is necessary for global competition. Growth is hampered, and unemployment and poverty are rising. This is the situation today in most countries, including such oil-rich Gulf countries as Kuwait and Saudi Arabia, where the unemployment rate is rising rapidly….The region must create some 50 million new jobs in order to keep unemployment at its present level, and close to 70 million jobs to reach full employment in the next 20 years. ..the Arab Human Development Report 2002 highlighted three deficits that are slowing development in the region: deficits in freedom, in knowledge, and in women’s empowerment. All Arabs would agree that they need to make up these deficits and to overcome other major difficulties that are hampering their development."

Even in areas like internet use they lag far behind; the 22 Arab League members had only 11.7 million Internet users out of a total population of 316 million in 2004. Unless the Arab ruling autocrats can get their act together angry young Arabs will remain fertile ground to gain converts for the cause of fanatics like Bin Laden. With lavish oil money around we cannot know for sure whether another would be Bin Laden is buying up a failed state. May be Arabs need to think hard about the following saying of Prophet Mohammed’s nephew Ali, ‘If God were to humiliate a human being, He would deny him knowledge’.

Abortion, "Broken Windows", Or Epidemiology

There's a bit of a back-and-forth going on between Malcom Gladwell and Steves Levitt/Dubner on the causes behind the drop in crime rates during the 1990s.

Gladwell serves. Dubner on the return. Gladwell's rally.

Read it all; it's time well spent. In sum, though, it can be said that both sides seem to be sticking to their guns. Gladwell puts a lot of emphasis on the "broken windows" notion (not the broken windows fallacy), while Dubner reaffirms belief that legalized abortion and the fall-off in violent crack trade played large roles.

To add to the debate (though unnoticed by the debaters, but hey, whatcanyado?), I'd offer up another perspective, this time from Paul Ormerod and Michael Cambell (PDF). The authors focus on the decline in crime rates by using methods from mathematical biology, and considering crime as something akin to an epidemic. (Note: the paper is from 1996, though this is newer than the original Broken Windows article.) The point of the article isn't to point to one or two causal elements, but rather propose a new model for examining the phenomenon:

We have proposed in this paper an approach towards understanding the dynamics of crime which is similar to that used in mathematical biology to model the spread or containment of epidemics. A population, however defined, can be split conceptually at any point in time into three groups, those who are not interested at all in committing crime, those who are susceptible to become criminals, and those who are criminals. A system of differential equations is set up to model the flows between these groups over time.

The strengths of the flows can be interpreted as corresponding to the main factors identified in the empirical literature as the causes of crime, such as demographic movements, general social and economic conditions, and the positive and negative deterrence effects of the criminal justice system. Despite a voluminous literature, no firm quantitative conclusions have emerged, and the model can be used to explore the consequences for crime of variations in the respective strengths of such factors. In principle, the model could be calibrated on a data set of particular crime rates.

Of course, this leaves the agent-based method open to problems stemming from the data set chosen, but the same can be said of the Dubner/Levitt and Gladwell arguments. Given that neither of those explanations is wholly compelling to me, I'd be interested to see a rigorous implementation of this third method. Here's one paper (PDF) from the Society for Computational Economics that gets close, though it models the effects of shocks in mortality rates (the drop in violent crack trade?) on crime rates. I'm sure there are plenty of others that I simply haven't seen.

What Does Gold Farming Look Like?

It's a subject I've mentioned a few times before: gold farming and real money trading. Chinese people play online video games to win items, build characters, or simply amass gold in order to sell it via eBay to customers hoping to buy modifcations or advancement on games like World of Warcraft, Lineage II, Second Life, and others. Now, a student at UCSD is putting together a documentary on the phenomenon.

See a preview here. The interviews are captivating, and it gives a great overall sense as to the real-life mechanics behind the market for online goods. (Via TerraNova.)

The Entrepreneurial Economist and the Red Queen Game

This week’s Economist magazine has a summary of a session on entrepreneurship that took place at the annual AEA conference;

Most innovations are merely incremental improvements on something that already exists: a slightly better mousetrap, as Mr Baumol puts it. A rare few represent discontinuous breakthroughs, such as the incandescent lamp, alternating electric current or the jet engine. All of the above, according to Frederic Scherer, professor emeritus at Harvard, were introduced not by the regimented R&D of established corporations, but by scrappy new firms, twin-born with the invention itself. Mr Baumol ventures that most breakthroughs arise this way—the offspring of independent minds not incumbent companies. He has two explanations for this. First, radical innovation is the only kind lone entrepreneurs can do; and, second, they are the only ones who want to do it.

Chris at Austrian Economists thinks that Economist should have focused more on Kirzner’s work. It needs to be noted that Baumol uses the term ‘entrepreneur’ in the Schumpeterian sense to mean bold and imaginative deviator from established business patterns and practices, who constantly seeks the opportunity to introduce new products and to create new organizational forms. It doesn’t refer to anyone who creates a new firm ( The Free Market Innovation Machine, p. 57). Firms in this competitive milieu are forced into a sort of (after Lewis Carroll) ‘Red Queen’ game in which it is necessary to run as fast as one can in order to just stand still.

What does this all mean for policy makers who are always on the look out for ways to dole out money? There are those who say entrepreneurship is the true engine of growth. But a lot of focus on entrepreneurship like the World Bank’s Doing Business tends to focus on countries as a whole whereas everyone knows that there are many differences within the countries itself. Robert Schiller brings that issue to notice;

Economists and others often tend to look at countries as a whole and emphasize national attitudes and national policies as the main factors in encouraging or discouraging entrepreneurship. But, in fact, the national success in entrepreneurship depends on the evolution of local cultures and their interaction with national policies. Entrepreneurship can take root in culturally congenial regions of any country after economic barriers against it are lifted, and then feed on itself to grow to national significance.

Mr Baumol thinks a “touch of madness” is probably one of the chief qualifications for the job. He himself is a sculptor and artist and as he jokes in his lecture at AEI-Brookings Joint Centre there are several books written by other people with his paintings on the books’ cover. I was surprised by the similarity of his paintings with Outsider Art. The picture above is one by Sylvia Convey – an Australian outsider. May be economists would be more creative if they learned to paint.

Relate Links

- Reviews of the ‘The Free-Market Innovation Machine’, by Alexander Field, Joel Mokyr, Wolfgang Kasper, John Quiggin (Quiggin is very disappointed by the book)
- The Entrepreneur as Hero, Federal Reserve
- Lessons from telephone privatization in Argentina and the United Kingdom, William Baumol
- Some of Baumol’s contributions to Economics
- The Role of the Entrepreneur in the Economic System, Kirzner
- The Red Queen Paradox: A Proper Name for a Popular Game – Note
- Carnival of Entrepreneurship

Multimedia:
- Lecture by Baumol at AEI-Brookings; talks mostly about new approaches price discrimination – ‘price discriminatory price takers’ and shortcomings of the current approaches to dealing with monopolies, Q&A was interesting with lot of questions from FTC staff.
- The Role of Self-Interest in Economic Theory, Israel Kirzner (his lectures are never boring)
- Doing Business 2006: Creating Jobs (podcast)
- Outsider Art, Radio National Australia (download the podcast now, in a week it won’t be there)

Weekend Economics Puzzle 2, The Feckless Forecast

British economist John Kay reminds us that half and hour before Bureau of Economic Analysis issued its official estimate of US GDP growth in the third quarter of last year, the Bloomberg financial information service carried 67 different predictions of US gross domestic product.

Though such forecasts are frequently wrong, they are regularly made in the media by economists. They tend to overstate the extent of knowledge we have about the economy which leads to undermining the credibility of economists. Why does it persist?

John Kay thinks it’s useless form of economic research;

“Correctly predicting the official estimate 30 minutes before its release may be profitable but contributes nothing to our understanding of the economy. The private value of such information is large but its social utility is zero, which is why procuring it is at once the best-paid and most futile form of economic research.

Keynes likened professional investment to a beauty contest, in which “it is not a case of choosing those which are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligence to anticipating what average opinion expects the average opinion to be”.

Business of estimation could even be a very dangerous business if you happen to be in wrong place. Stalin had the organizers of first post-war Soviet census shot for ‘violation of elementary statistical principles’. Their figures revealed the full extent of the Soviet war dead plus the famines and terror of the 1930s.

Now economists are venturing into predicting other areas as well; an economist at Dartmouth predicted Olympic medals and Oscar nominees.

Relate Links:

- Welcome to the World of Bloomberg TV, by John Kay (video)
- Misuse of Economic Data by Government Officials
- When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein
-The Death of Economics, Paul Ormerod
- Irrational Exuberance, Robert Schiller
- The Economics of Fickleness and How We Guess What Others Will Do by John Allen Paulos
- Morgan Stanley economics commentary and Bloomberg Podcasts
- Regressions: Why Are Economists Obsessed with Them?

Iraqi Date Merchant and Mobile Phones

“I buy and sell dates and my whole business is now dependent on the mobile phone. Trading in dates (like any other commodity) is a risky business characterized by significant price fluctuations, especially during the harvest season. Prior to having access to a mobile phone, I faced great difficulty in obtaining timely information about price variations. This delay in obtaining up-to-date prices sometimes resulted in significant losses, whereby I would sell a lot of dates at a low price. Since I bought my mobile phone, I am in continuous contact with the date trade exchange center which helps me strike deals at the right price”.

That’s an Iraqi date merchant taking about the importance of mobile phone in his business. Other highlights from a report on the socio-economic role of mobile phones in the Arab middle-east;

- Mobile revenues accounted for 5% of the increase in GDP in Bahrain between 2002-04
- In Jordan, the number of employees in the mobile sector increased by 42% over the 4yr period of liberalization
- Many mobile operators represent more than 30% percent of a total stock market – such as Egypt’s Cairo and Alexandria Stock Exchange
- 95% of Iraqis use their phone to ensure the safety of their loved ones, 83% of Iraqis see it as a necessity in life, and 77% said it made life easier

According to some estimates a developing country with an extra 10 phones per 100 people between 1996 and 2003 would have had GDP growth 0.59% higher than an otherwise identical country ( often these studies are financed by telephone companies);

To illustrate these findings, Mr Waverman considers Indonesia (nine mobile phones per 100 people) and the Philippines (27 phones per 100 people). Long-run growth in the Philippines, he suggests, could be a percentage point higher than in Indonesia if this gap is maintained. But if Indonesia closed the gap, its growth rate would match that of the Philippines. Mr Waverman also notes, however, that there is a large education gap between the two countries. His model predicts that bridging this divide would boost Indonesia's growth rate even more than closing the mobile gap. “Mobile phones are important, but so is education and health care,” he says. “A lot of things are required for growth.” He concludes by calling for regulatory policies that favour competition and encourage the speediest possible spread of mobile telephony. For policymakers interested in closing the “digital divide” to boost growth, the message is clear: mobile phones are the most effective means of doing so.

And liberalization and new technology helps. Look at India.

According to the stats available for January, the telecom sector in India added 5 million new subscribers, of which 4.75 were mobile connections. That's about 167,000 new subscribers (of which 158,000 are mobile users) being added *every day*. By comparison, in the pre-reform period (I am using 1974-1989 data here, though it's even lower pre-1974), India added about 175,000 new connections *every year*.

Now the World Bank has released a brand new report Information and Communications for Development 2006: Global Trends and Policies which takes stock of the progress that has been achieved worldwide in rolling out access to affordable ICT and provides evidence on what makes for success in adopting ICT to meet development challenges. The report also highlights some stark differences as well;

While the developing world has seen huge progress in rollout of basic ICT infrastructure, the picture is more mixed for advanced use of ICT. Worldwide, Internet use more than quadrupled between 2000 and 2005, but differences in the number of secure Internet servers, a proxy for the availability of e-commerce, remain stark. While developed nations have more than 300 such servers per 1 million people, developing nations have fewer than 2.

Are there any people who hate mobile phones? Once a taxi driver (in Male’, Maldives) complained to me that since mobile phones have become so popular, people have reduced taxi trips- Maldives used to have the highest mobile tariffs in the South Asia. In terms of mobile phone subscribers there were over 113,000 subscribers (out of a total population of 280,000). In the US mobile subscribers stood at 615 per 1000 at end 2004. In very small countries like Maldives foreign parties like the Wataniya are interested mostly because they can use the place as a test bed for new technologies.

Related Links:

- Impact of Mobile Phones in Africa, Vodafone
- Socio-Economic Impact of Mobile Phones in Arab World
- Financing ICT Investment in the Developing World
- Telephone is a weapon against poverty
- At A Glace Tables from the World Bank Report; 30 ICT Indicators for 144 Countries; it’s best such of indicators I have seen.

Means-Tested Wireless?

Tom Palmer notes that DC is looking to establish municipal wi-fi -- with the kicker that the company that best serves the poor will win the contract.

We've been somewhat ambivalent about the municipal wi-fi trend here at T&B. Current telecom markets and companies are creatures of layered regulation, and it's likely that strong-armed and cunning local government intervention could produce short-run price and product enhancements in such an environment. Yet I'm unconvinced that DC has the skills to get such a bargain. And I'm even more unconvinced that universal wi-fi will change the economic character of any city: businesses will not move, jobs will not be created, wages will not be raised, the bulk of the truly poor will not be substantially better off. After all, as Ian has noted, "a phone line is all that's needed to take credit card transactions". And even more on point:

Of course, it might have helped to ask if the digital divide is, indeed, due to a lack of connectivity. The image this raises is one of home-after-home in poor neighborhoods staring blankly at a computer screen, letting life slip by for the want of a faster download speed. It may be anecdotal in scope, but after having been part of the founding of a tech-education program in Chicago, I can assure you that the needs go much deeper than finding a decent hot-spot.

I am leaning towards the idea that "serve the poor" contract request made by DC, by letting companies potentially bundle hardware offers with wi-fi service, will lead to a higher rate-of-return business for the contractor, and lower-than-desirable bandwidth for end users. I think many, if not most, private wireless hotspot owners will not switch once the new network is in place (though I can't wait to see what happens elsewhere). In short, the public economics of the Mayor's plan are questionable.

But the justification given in this particular case, free provision to the poor, sounds both compelling and unlikely-to-really be useful, so I decided to look into the latter.

The first thing I concluded is that I simply do not believe Mayor Williams:

"Access to technology is like access to books: it's an important medium of communication and learning and opportunity," Mayor Anthony A. Williams (D) said yesterday in an interview. "Other cities are doing it and I want our city doing it too."

Yes, other cities are doing it. But if access to technology is truly like access to books, why not put free wi-fi -- and even hardware to use it -- in just the public libraries -- you know, where the poor people who want to learn are likely to be found? Where are cost-effectiveness tradeoffs? Where are the studies demonstrating that such wireless systems actually do close the real digital divide?

The second thing I concluded is that -- since this is DC -- there MUST be a duplication of service with at least one other public agency. On a hunch, I looked at the DC library website. And lo and behold, DC is already planning separate wireless networks for the library system!

“The interim libraries we are setting up in storefronts will be a window into the future of libraries,” said Francis J. Buckley, Jr., interim director of the D.C. Public Library. “We want to demonstrate in these interim branches the state-of-the-art library services residents will have available once their new facilities are open.”

The interim storefronts will house high-tech libraries that will host up to three times as many public access computers as were available in the old branches. They will provide wireless computing capability...

This library-centric method seems like the right approach to me if one is addressing educational inequalities. But that's not why many people use (or, I gather, would like to use) the internet. They want to be a part of a wider social community -- to hang out, to have fun. If you want to address inequalities of email savvy, blogging, music downloading, myspace sharing, or pr0n access -- things either easier to do or best done at home on private computers -- then municipal wi-fi seems like a solid starting point.

Some Thoughts on Probability

Mark Miller is trying to make probability sensible:

What does it mean to say there is a 10% chance of rain tomorrow? Or that there is a 7% chance Iraq will be a peaceful democracy in two years? These numbers appear silly: these are things that either will happen or won't....

To me, the traditional definition simply does not make sense. Instead, I think of probability just as a way of being systematic about our ignorance of the world....

In the end, I think probability is not something that can be concretely defined. It is a useful concept simply because it allows us to make sense of and systematize a complex world.

Well, I wouldn't go that far. Probability is an operational concept: a guess, constrained by several simple rules, about what will happen in a very specific context.

Those rules are the axioms of probability: namely, there is no such thing as negative probability, either something or nothing (an "event") will happen with probability 1, and if two things can't occur together, the probability of one thing or another thing happening is the sum of both.

Of course, all this is done very formally -- with logic and hard thought and, if you're like me, luck. But note what the rules leave out: they don't tell you which events in reality can happen in any given situation, they don't tell you how events relate to one another in sequence, and they certainly don't tell you how to determine what the probability of any event is.

For your regular Joe, a probability is a way to describe the evidence supporting the conclusion that an event will occur. These numbers do not fall off of trees (though they often are plucked out of thin air with Blink-thought). To be truly useful, they must be created with effort; somebody must 1) decide what's important to measure, 2) pull out of the historical record (and personal bias) all that is relevant, 3) make predictions about the environment up until the event is supposed to occur, and 4) figure out how to put it all together.

Here's one way: somebody can say, hey, event X1 looks like it belongs a class {X} with a known historical distribution of occurence. That is, somebody makes a personal judgement that X1 looks like it comes from {X}. When he does that, he says that there is a ten percent chance of rain tomorrow (X1). Why? Because in reasonably similar cloud-cover/pressure/storm-front situations at similar time periods in the past ({X}), it has rained 150 out of 1500 days. In other words, given what we know today about conditions tomorrow AND looking at how all this worked out in some situation we think similar, we come to probability figure.

That's useful when it works, but often the evidence does not present itself in such simple ways, and cannot be coralled, into a suitable form for this type of model. And to me, that's all probability is, a model converting what we know and what we're uncertain about into what we think will happen.

For instance, it is not possible to say that 7 out of 100 times the U.S. has invaded countries similar to Iraq, they've become stable democracies within five years. So what can it possibly mean to assign a probability to Iraq becoming stable even with no historical evidence to construct a class of which it is a hypothetical member?

Well, it can mean anything -- some people call this "degree of belief", but I don't think model outputs are beliefs. Anyway, as long as you have a way of transforming the convoluted mass of prior belief, uncertainty, and measured evidence into something that meets the laws of probability, then you've got a probability. Whether that metric is useful for decisionmaking is another matter.

Meanwhile, Naveen Mandava is "still looking for a powerful and simple way that the idea of distributions can make sense to a Philosophy undergrad or my mommy. Do you know of any?"

Why Do Magicians Hate Children?

“..in some of my work I went around and talked to magicians and asked them about things – they actually hate doing magic shows with children under the age of three. And one of the reasons for that is that the children haven’t had as many experiences in the world and they are not quite so amazed by some of the things the magicians do…it’s the idea that children have to learn something about the world before they can see that there’s a violation. Though in a sense magic can exist because children see a violation of the natural world and adults and the culture label these events as either fantastic or magical. According to Piaget there was all this blurring of magic into the real world and actually a lot of my own research suggests that children – their default is kind of a natural physical mechanical causality. And it’s only in a certain kind of context, like talking about Santa Claus or being around the holiday season, that they begin to bring in this kind of magical thinking in a particular kind of situation. And that’s one of the things I find very fascinating; it’s that the default is not magic, the default is kind of a rational, natural causality.”

That’s psychologist Karl Rosengren talking about the role of imagination in a child’s cognitive development. ( Radio Nationals All in the Mind programme, The Imaginative Child – it was podcast sometime back but they only keep a couple of the most recent podcasts). It also talks about how children think about things like death and the role of parents.

But does parents matter. If you ask Judith Harris;

"….Harris argues that we have been in the grip of what she calls the "nurture assumption," a parent-centered bias that has blinded us to what really matters in human development. Consider, she says, the seemingly common-sense statements "Children who are hugged are more likely to be nice" and "Children who are beaten are more likely to be unpleasant." Sure enough, if you study nice, well-adjusted children, it turns out that they generally have well-adjusted and nice parents. But what does this really mean? Since genes account for about half of personality variations among people, it's quite possible that nice children are nice simply because they received nice genes from their parents--and nice parents are going to be nice to their children. Hugging may have made the children happy, and it may have taught them a good way of expressing their affection, but it may not have been what made them nice. Or take the example of smoking. The children of smokers are more than twice as likely to smoke as the children of nonsmokers, so it's natural to conclude that parents who smoke around their children set an example that their kids follow. In fact, a lot of parents who smoke feel guilty about it for that very reason. But if parents really cause smoking there ought to be elevated rates of smoking among the adopted children of smokers, and there aren't. It turns out that nicotine addiction is heavily influenced by genes, and the reason that so many children of smokers smoke is that they have inherited a genetic susceptibility to tobacco from their parents. David C. Rowe, a professor of family studies at the University of Arizona (whose academic work on the limits of family influence Harris says was critical to her own thinking), has analyzed research into this genetic contribution, and he concludes that it accounts entirely for the elevated levels of cigarette use among the children of smokers. With smoking, as with niceness, what parents do seems to be nearly irrelevant.”

The point she was trying to make was that peer influence are more important than family influence in determining how children turn out. David Friedman, son of Milton Friedman, has been giving Judith’s book The Nurture Assumption to friends as Christmas presents;

"The origin of Harris's book makes an interesting story. It started as an article published in The Psychological Review. The article provoked a lot of mail–partly about the controversial argument, partly asking who the author was, since nobody in the field had ever heard of her.

Judith Harris had gotten a masters in psychology from Harvard and been discouraged from going further by a professor who assured her that she did not have the makings of a successful scholar. She left academia, married, and helped support her family by coauthoring child development textbooks. Eventually she concluded that a good deal of what those textbooks said was not supported by the evidence. The result was the article–which received the journal's prize for the year's best.

The prize is named after the Harvard professor who told her that she had no future as an academic. God, Judith Harris concluded, has a sense of humor."

Now she has written a new book; No Two Alike.

Other related links:

-Ten questions for Judith Harris
- Nature via Nurture, Matt Ridley
- Chimpanzee Politics by Frans de Waal
-The Work of Imagination by Paul Harris
- What does all this mean for economists. Listen to ‘role of biology in economics’

Sudoku solved. Entirely.

I never really got into those puzzle things, but I'm the only one I know.

Fortunately, I don't have to worry about it. In the process of finding new methods for biological imaging, a Cornell physicist managed to develop an algorithm that solves Sudoku puzzles. All Sudoku puzzles.

The so-called difference-map algorithm, which Elser says could have applications from productivity optimization to nanofabrication, tackles problems for which the solution must meet two independent constraints. In the case of Sudoku, the constraints are simple: Each of nine numbers, considered alone, appears nine times in the grid so that there is only one per row and column. And all nine numbers appear within each of the nine blocks.

In X-ray diffraction microscopy, the constraints are more complex. But the beauty of the algorithm, as Elser demonstrates, is that complexity doesn't matter. By applying the algorithm to the jumble of raw data from such an experiment, researchers can now reconstruct from it a clear, detailed image.

I guess now millions of mass-transit riders will have to go back to pretending not to stare at each other.

March Madness Closes In

For the statistically minded among you who also enjoy this month of roundball, here's a comparison of nearly all the ranking systems.

Fighting the Good Fight

Just wanted to point out a very new blog I stumbled across. Good Math, Bad Math aims to confront the misuse of math and statistics in the sciences. One nice early post takes on the manipulation of data in this dubious medical journal article purporting to find a link between mercury and autism.

Going to Harvard Can Lead to Rising Inequality

There is a great webcast of a discussion on the Challenges to the American Prosperity at Harvard; Lawrence Summers moderated the discussion between Gregory Mankiw and Gene Sperling. I have tried to give an ‘index’ for the issues discussed below.

Just a couple of observations;
- Sperling was very emotional on the issues discussed where as Mankiw appeared a little bit of ‘don’t worry be happy’ type.
- Mankiw’s point of assistance to be focused on the person rather than place is a very important issue often politicians fail to accept, most of the time willingly
- Sperling urged for the need for political compromise in the light of the value choices we need to face and accept the fact that money is fungible.
- As usual Summers was at his best, posing difficult questions for the both of them
- On global poverty issues, Sterling's point about resources do matter (for eg. in education) was important and we tend to forget too often while getting carried away with Easterly type discussion on incentives, institutions and corruption.

I would have liked them to have discussed the thesis put forward by Benjamin Friedman in his recent book, Moral Consequences of Economic Growth;

..the idea that I advance is that when the broad bulk of a society's citizens are enjoying an improvement in their material standard of living, that is the circumstance under which the society is also able and likely to make progress in other dimensions of its life, and dimensions that Western thinking, at least since the Enlightenment, has regarded not only positively, but positively in explicitly moral terms…

If what matters for these purposes is not just how rich a society is but the sense of forward progress, or lack thereof, of the broad bulk of the citizenry, then no society, no matter how rich, is ever immune from seeing its basic democratic values at risk.

Now this is a very sobering thought today, especially for Americans. As I hope people are aware, we have just finished what I think will turn out to have been the sixth year in a row in which the median income in the United States failed to keep pace with inflation. The total GDP of course is expanding very nicely. But the fruits of the gains from that increased production have been sufficiently skewed over this period that the average American's living standard is not even keeping pace with inflation. We know that that was true through 2004….

Now this is a very daunting and, as I say, sobering thought, because not just in the United States but in many of the advanced democracies in the past, periods when people have lost the sense of forward progress have translated into either no progress or real retreat, often with disastrous consequences, in many of the dimensions of moral character that I have just described

An Incomplete Index to the Forum;

The Crimson / 'The Fearful Pig' / The Pro-Growth Progressive or 'Growing Together’ / discounting pain game / trade overblame game / sky is falling party / don't worry be happy party / humility Party / Graduates vs. Oligarchs / Dividing the Pie / Social Security / Mankiw / Ricardo's Difficult Idea / assotative mating / Pigovian tax / Edward L. Glaeser / Global Poverty/ White Man's Burden/ Global Campaign for Education/ Centre for Universal Education /
World is Flat/ EITC and Sperling

By the way the title refers to the issue of assotative mating that Mankiw highlighted in the discussion; people come to Harvard and get married to someone who studied at Harvard (both Mankiw and Summers are married to Harvard graduates) and both get very high wages, thereby rising the income inequality as a whole.

Multi-media Links;

-A discussion with Sperling and Friedman at Centre for American Progress.
- Book forum web cast on the book Moral Consequences of Growth at IMF
- The recent Harvard discussion

Another "Wal-Mart Effect" UPDATED

Here's a surprise: Wal-Mart is all over the blogosphere.

Instapundit has links to the NYT story of Wal-Mart and the Merry PR Hacks. Meanwhile, Fast Company's blog is being guest-edited by Charles Fishman, author of The Wal-Mart Effect. Here's a story at the Economist about the book.

And, finally, the real reason I bring this up: a new working paper at NBER titled "Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart." (Here's an older - PDF! - version of the paper from the MIT faculty site.)

An interesting excerpt:

In this paper we estimate consumer benefits from supercenter entry and expansion into markets for food. We estimate a discrete choice model for household shopping choice of supercenters and traditional outlets for food. We have panel data for households so we can follow their shopping patterns over time and allow for a fixed effect in their shopping behavior. Most households shop at both supercenters and traditional outlets during the period. Given a model of shopping behavior we estimate the compensating variation of household from the presence of supercenters. We find the benefits to be substantial. Thus, while we do not estimate the costs to workers who may receive lower wages and benefits, we find the effects of supercenter entry and expansion to be sufficiently large so that overall we find it to be extremely unlikely that the expansion of supercenters does not confer a significant overall benefit to consumers.

UPDATE: Here are a couple more links of interest. Hausman's work is discussed by the MIT news service. (This article also links to the wonderfully titled "CPI Bias From Supercenters: Does the BLS Know that Wal-Mart Exists?") There are PDF versions of slides available that detail the work done in the working paper linked to above.

Bananas and Potatoes: A Solution to the Weekend Puzzle

Paul's weekend puzzle below requested answers to the question "What would happen if a community that only produces bananas decides to save more?" It's no longer the weekend, so I figured I'd answer separately:

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Forgive my ignorance, but exactly how does one "save" a banana?

It's not durable; once picked, it must be consumed within seven days. Now potatoes kept in premium conditions can last about six months. So, in order to save for the future, banana growers have to buy more potatoes; to finance their purchases, they try to sell more of their fruit to potato-growing communities. They've been selling fruit for some time, I gather, and market prices have been at an equilbrium for ages, say at 2 bananas for 1 potato.

Let's use the elementary economics of a barter economy -- that way relative prices incorporate interest rates: What happens first? Banana growers preferences change, though potato growers preferences remain the same. Let's assume that B-growers' discount rates decrease -- that is they value utility in the future more than before. Yet quantity currently available of B and P are fixed. Banana growers, wanting potatoes, reduce their own banana consumption, and increase the supply of bananas on the market. That is, banana growers begin to offer more bananas for every additional potato to entice potato growers to exchange further, and finding it worthwhile, the potato growers agree to these exchanges.

The equilibrium market price (of potatoes per banana) falls; to get one potato, B-growers must give up now, say 3 bananas for one potato. Quantity exchanged increases. For banana growers, present consumption of B decreases, consumption of P decreases (they've become more expensive relative to B), and saving of P increases. Potato growers consume more B, decrease consumption of P (again, substitution-price effects), and we don't know about the net effect on saving of P (they can get more B for them, but they're decreasing consumption of P).

Now, we know potato growers are better off, or they wouldn't trade for more bananas. But banana-growers had a change in preferences, so it's unclear if they are better off or worse off; while the new market order has made them better off than immediately after their preferences changed, it is impossible to say (without examinining specific forms of the before and after utility functions) whether they have higher utility after the change in preferences than before. Do they really do valuing saving that much???

This is a four-part model:

1) Evenly-rotating old market order: 2 B for 1 P
2) Change in B-prefs
3) Short-Term New Market Order: 3 B for 1 P *P growers better off
4) Long-Term New Market Order

How do B and P growers respond to the short-term new market order? That all depends on the marginal cost of producing additional potatoes. The greater number of bananas per potato available in the market means some P growers see an opportunity to profitably produce more; they set higher future yeilds so that their own marginal cost is lower than the expected future market price of potatoes to bananas. However, the lower number of potatoes per banana hits the high-cost marginal banana producer hard; he leaves the farm and works as a middle-man facilitating the burgeoning banana-potato trade.

And "interest rates"? They're the differential you have to pay in order to acquire command of resources now instead of later. Hence they're directly related to consumption preferences.

[Present Value] = [Future Value]/(1+r)^n

In our model, both bananas and potatoes can be consumed, but only potatoes can be saved. B growers decide to consume more later and less now. They want more potatoes, less bananas. The change in preferences increases the present value of future consumption, decreasing the cost of current consumption (bananas). Interest rates decline.

Extra: Let's say banana-growers want to save LESS. They decrease banana supply. Quantity exchange decreases, and prices for bananas rise (number of potatoes per banana). Potato growers are made worse off because the cost of eating bananas has risen, but again, we can't see what happened to banana-growers.

For Hedonists it is without Parallel

Forbes last year had a list of the world’s most expensive resorts, one of which is in the Maldives;

And certainly, if any unlucky seaman found marooned in the Maldives in the 18th century was told that in the 21st century people would be willing to pay $10,000 to spend the night there, not to mention thousands more to travel there, he would have thought you had been spending too much time at the grog barrel.

But that's the nightly high-season rate at Rania, a new luxury resort that launched this September in the Maldives. The five-figure rate entitles guests to several hours of travel daily in the resort's yacht, unlimited treatments at the on-site spa, and all the meals and drinks they care to consume at the two gourmet restaurants. Oh yeah--and for another $750 (each), they can bring their friends along. Planning a visit in April? Great--it's not high season, but you'll still pay $8,000 a night.

Or take the newest property from One&Only Resorts, the One&Only Maldives at Reethi Rah, which was developed in conjunction with Kerzner International, a five-star hotel and resort operator. Here, guests enjoy the 109-acre island resort and its 12 private, white-sand beaches, and take their pick of the 130 guest villas. Some are on the beach, some over the water and some have their own pools--but each one comes with a "villa host" available around the clock to make sure the Champagne is properly cooled, or to test the pool water before anyone takes the plunge. Nightly room rates here start at a comparatively reasonable $930 during the holidays. But to avoid the riff-raff entirely, plunk down $1 million, which buys five days of room, board, Champagne, wine, tennis, diving and one spa treatment each for you and your 200 nearest and dearest.

It is said that Sol Kirzner invested some 150 million dollars at Reethi Rah which probably set a new standard in the Maldives. Sol Kirzner was named Hotelier of the World last year. The title is from an advertisement for a resort.

Weekend Economics Puzzle- Keynes Banana Plantation

This is a new series we’ll be featuring at T&B; short series of puzzles and questions on economics for readers to comment and think about on the weekends. Feel free to comment on it. Most of it will be based on Mark Skousen’s book Puzzles and Paradoxes in Economics.

What would happen if a community that only produces bananas decides to save more? The same number of bananas is produced, but people spend less money on bananas. Prices fall, profits turn to losses, workers are laid off, income drops, and even fewer bananas are sold. Eventually, the community starves to death. How can you resolve Keynes’s dilemma?

Related Links:
- A recent discussion at Brad de Long’s blog, ‘We Leave Savings to the Private Investor’
- Keynes, The General Theory of Employment, Interest and Money
- Keynes, A Treatise on Money
- Vulgar Keynesians

The Right Way and the Wolfowitz’s Way to Deal with Corruption

In a previous post I commented about Wolfowitz finding his top priority at the World Bank; battling graft. Finally the Economist magazine has catch up with the story and talks about it in the latest edition.

“CORRUPTION” was once a word that the World Bank did not use. Its staff spoke instead of “implicit taxes” or “rent-seeking behaviour” lest they be accused of meddling in politics. A decade ago James Wolfensohn, then the Bank's president, broke the taboo with a speech about the “cancer of corruption” and began a campaign to improve poor countries' governance…

To lead the anti-corruption drive, Mr Wolfowitz has beefed up the Bank's Department of Institutional Integrity, an internal watchdog set up by his predecessor. The unit now has 22 investigators and will get 12 more. Staff have been told to get involved in the preparation of projects rather than simply react to concerns about graft….

Mr Wolfowitz's management style has added to the concern. He relies heavily on a small group of advisers he brought with him, none of whom are development experts. Bank insiders complain that the newcomers have no idea how to run the organisation and that their corruption drive is aimed more at impressing America's Congress than at helping the world's poor. Several top veterans have left….

Dennis de Tray who recently left the Bank to join Centre for Global Development argues, “more practical advice and less rhetoric would be a good way to increase our effectiveness in the fight against corruption,” and “Dealing with corruption and poor governance is tantamount to dealing with development. This is a long-term agenda, not a go or no-go variable except in extreme cases,”…. “If we are not careful in the way we deal with corruption, we will set up even sincere and committed leaders for failure and could end up creating just the failed states we are trying to prevent.”

He may have a point; recently the Bank held up more than $800 of money for Indian health care and a recent Bank report suggests that India has levels of child under-nutrition double those of Sub-Saharan Africa and the country has almost 40 percent of the world’s malnourished children. It is alleged by the Economist that concerns about debt relief to Congo was raised in the last minute after revelations of a newspaper report that the country’s president spend over $ 81,000 on hotel bills in a trip to New York. Without a clear criteria, there will always be charges of arbitrariness; there are plenty of leaders of poor countries who doesn’t worry much about their spending habits.

The Economist has got good advice for Mr. Wolfowitz;

- Bank's experts need to create more objective and nuanced gauges of graft.
- needs to lay out guidelines governing the Bank's lending. Just how much graft is tolerable in a country before the Bank pulls the plug?
- to concentrate on the vulnerable parts of the economy. The Bank already seeks transparency in oil and other extractive industries. It should demand equal scrutiny in public infrastructure, such as road building. And where countries score badly, it should not lend money.

Microfinance for the rest of us! or, "Either a borrower or a lender be..."

I don't keep up with the literature and developments, but it sounds like someone might have to edit the opening bits of the Wikipedia definition of Microfinance.

Peer-to-peer loans are now possible through Prosper. You can borrow, lend, and even set the interest rate. Lenders bid on listings with an amount and a rate. The listing can be re-submitted if the person didn't get enough money or accept the offers the first time around. I'd be interested to see if and possibly where offered interest rates and credit ratings start to converge.

Notably, the repayment period is fixed at 3 years, and direct withdrawal of funds from a bank account seems to be required (though I've not read the entire site). If that's the case, this won't be entirely useful to the poor, who tend not to have bank accounts for withdrawal, or who close them more regularly in order to withdraw the very last funds (many banks require minimum levels of money; even levels as low as five dollars are frequently broken and accounts closed). Though, perhaps the fact that this is an online tool means already eliminates that demographic.

Deciding the prudence of lending to or borrowing from people named "loanchimp", "janeybooboo", "Caravaggiosnose", or "MC Arbitrage" is an exercise left up to the reader.

Better Living Through Better Design

In a highly cluttered visual field, people have a harder time picking out a target of interest, and often choose wrongly. Not a surprise, that. More interestingly, however, is that people tend to have high confidence that they are correct.

One might intuitively expect that as background noise created by distracters and errors increase, confidence in one’s decision plummets. But in a new study published in PLoS Biology, Stefano Baldassi, Nicola Megna, and David Burr show that just the opposite happens. When they asked observers to search for a tilted target embedded in vertical distracters and estimate the target’s tilt, the observers often overestimated the magnitude of the tilt--and did so with a high degree of confidence in their decision.

The authors used signal detection theory to make quantitative predictions about the probability that an observer will detect a target under cluttered conditions. SDT assumes the brain represents each element in a visual search display as an independent variable with its own noise. It also assumes that when the observer isn’t sure which stimulus is the target, she monitors all stimuli, and performance suffers. Thus, increasing the number of distracters (trying to find your friend on a busy street or a document on a messy desk) increases the background noise of the visual system’s representation while reducing the accuracy and reaction time of performing the task.

As a general condition, I wonder what role this might play in individual decision-making over a vast range of choices. Specifically, I got to thinking about the contentions some make about having "too much choice." (See the Barry Schwartz quote in Postrel's post.) The claim that too much choice makes people worse off, ably dealt with in Postrel's full article, leads to the conclusion that choice ought to be limited. But what if the claims of dissatisfaction with abundance are simply picking up on a different problem?

From the Innovations Report article:

The authors explain that while their study focused on "simple perceptual decisions about a single stimulus attribute," the same type of processes may also apply to complex cognitive tasks involving problem solving and memory. If people find themselves confronted with multiple events in a chaotic, confusing environment, they may decide about some aspect of the situation and be totally wrong even though they have full confidence in their decision. The consequences of such a phenomenon could be relatively trivial, explaining why professional athletes often end up wasting their time arguing questionable calls with an official.

Sounds to me like being presented with complex visual fields is a bit disrupting to a lot of people. So much so that it results in frustration. While it might not be described as "chaotic" in terms of movement, the whole aisle of toothpaste options noted by Karrie Jacobs observes in Postrel's article, as well as the vast array of items in shopping malls, car dealerships, convenience stores, the newspaper ad pages...all certainly presents a cluttered visual pattern, what with all of the conflicting colors, shapes, lettering, and advertising thrown in by the store itself. Perhaps those negatives that Shwartz says pile up are a result of the displeasing sensation from the visual information overload, and not necessarily a dislike for the amount of choice.

Maybe the problem is just that we have really bad graphic design.