Truck and Barter

India and Krugman

An amusing contrast at the end of Tom Friedman's latest:

The dirty little secret is that India is taking work from Europe or America not simply because of low wages. It is also because Indians are ready to work harder and can do anything from answering your phone to designing your next airplane or car. They are not racing us to the bottom. They are racing us to the top....

Yes, this is a bad time for France and friends to lose their appetite for hard work - just when India, China and Poland are rediscovering theirs.

Paul Krugman is on vacation.

The Secret of Gary Becker

Steven Levitt writes an ode to Gary Becker calling him the "not only the Michael Jordan of economics, he is the Gordie Howe of economics as well."

What is Becker's secret? It doesn't hurt to be incredibly smart. That isn't really what sets him apart, though, I don't think. He has four other traits that are just as important: he works harder than anyone else, he loves what he does, he is not afraid of criticism, and he has never stopped learning new things.

I think we should also add that Becker had excellent advisors like Milton Friedman. Friedman writes in his biography,

"People often excuse bad writing by saying that they know what they mean, and simply have difficulty expressing it. That is nonsense. If you cannot state a preposition clearly and unambiguously, you do not understand it.” I took that lesson to heart. I learned that trying to write something clearly and unambiguously was the best way to find errors and omissions in my reasoning and clarify my own thought…

It was in a letter to Gary Becker in May 1955, when I was in Britain, referring to a draft of his thesis that he had sent to me: “Nine times out of ten,” I wrote after criticizing his exposition, “sloppy writing reflects (and advertises) sloppy thinking.”

(Two Lucky People, p. 75-76, emphasis mine)

Now that Becker has a blog it would be interesting to hear his reactions then to Friedman’s criticism of his thesis.

The Law of One Price

Virginia Postrel blatantly violates the misinterpreted "law of one price", and tells that differing qualities completely justify intra-personal price divergence:

I bought a 12-pack of 12-ounce Diet Coke, a staple item in the Postrel refrigerator, for $2.98; that's about 2.1 cents per ounce or 24.8 cents per can...

Yet I also purchased a six-pack of .5-liter (16.9-ounce) bottles for $2.78: 2.7 cents an ounce or 46.3 cents a bottle.... I like to be able to close the container to avoid spills.

Finally, I bought a cold 20-ounce bottle of Diet Coke for $1.08, or 5.2 cents an ounce, and drank it immediately. If I'd had the change, I might have bought a 12-ounce can of even colder Diet Coke from a vending machine for 50 cents, or 4.2 cents an ounce.

This is all about the structure of preferences, putting a premium on cold and closable and fresh. There is apparently no tendency for these prices to converge; prices are not bending preferences.

Completely unrelated to Ms. Postrel's diet coke is a paper that shows market liberalization in China has succeeded in generating for many commodities a pattern of market prices that passes a "one price" test. Ms. Postrel has no internal exposure to exchange risk and no internal barriers to trade, and she thoroughly embraced the tremendous choice available to her. Apparently, the same goes for China.

[H/T: KP]

Some Interesting Tidbits

Paul Kedrosky of Infectious Greed has a couple of interesting posts up on his blog. The first shows that even economists have trouble practicing what they preach:

Harry M. Markowitz won the Nobel Prize in economics as the father of "modern portfolio theory," the idea that people shouldn't put all of their eggs in one basket, but should diversify their investments.

However, when it came to his own retirement investments, Markowitz practiced only a rudimentary version of what he preached. He split most of his money down the middle, put half in a stock fund and the other half in a conservative, low-interest investment.

"In retrospect, it would have been better to have been more in stocks when I was younger," the 77-year-old economist acknowledged.

The second one I find a little more interesting as it directly addresses one of my pet peeves of academia, namely that they aren't in touch with the real world. It should come as no surprise that an academic that leaves university life is actually more productive at producing papers afterwards and then gets another boost once they return.

One of the more Hobbesian choices faced by academic researchers with commercializable technologies is what they should do with them. While most money-minded people would say "Go out and make money from your invention", the reality is that most (but not all) academic researchers are in research institutions for a reason: They like to do research, not start companies. Leaving, creating a company, and then selling stuff doesn't strike them as a good time -- and that's fine.

At the same time, hoary Stanford anecdotes aside, most universities still sniff somewhat at faculty-members-turned-entrepreneurs. What's going to happen to your NIH/NSF grant? Who's going to manage your lab? How will you publish papers in the private sector?

All valid questions, so it is interesting to see a paper in the new issue of journal Research Policy that presents a startling factoid: Researchers are more productive at producing papers when they shift from academia to industry, and then they become more productive again if/when they come back into the academic fold.

Maybe they got an original idea that is applicable in the real world? I find it odd that students go from undergrad directly into graduate school and expect to produce interesting research. A lot the graduate students here aren't really sure what they want to do for their dissertation. I have about twenty ideas and most of them can be traced back to my work experience in one way or another. Ultimately, this threatens economics as a viable profession if they can't produce relavent research. I found it amusing researching admissions that my work experience didn't really count for much most likely. Over the last couple of years, I think my amusement has been justified. So, if you're an undergrad thinking of going straight to Econ Phd program, think about getting a job for a few years instead.

Manure

This is a somewhat odd story from the Boston Herald:

An Ivy League economics professor, of all people, should know that a market economy is based on the principal of paying for goods and services.

But Martin Weitzman, Harvard University's Ernest E. Monrad Professor of Economics, allegedly got caught in the act of swiping a truckload of horse manure Friday, police said.

``You'd think he'd know better,'' Rockport horse farmer Charlie Lane said.

``We had to go up there and put a lock on the gate. He was in there when my stable manager got there,'' Lane said.

The stable manager, Phillip Casey, penned Weitzman's truck in and called the cops.
``He offered $20 to let him go,'' Lane said. ``Phillip said no, and he offered $40. Phillip still said no.''

Weitzman, 63, of Gloucester, is charged with larceny under $250, trespassing with a motor vehicle and malicious destruction of property under $250 for tearing up some land with his tires, police said.

He didn't return a call to his office.

Truck, Barter, and Exchange

Much of what I have read lately references the words of Adam Smith that inspired this blog's name.

THIS division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.

Adam Smith - An Enquiry into the Nature and Causes of the Wealth of Nations. 1776. Book I, Chapter 2

In his 1964 SEA address, What Should Economists Do? ($) James Buchanan quotes Smith's text, and get's right to it:

Somewhat surprisingly, it seems to me, the relevance and the significance of this "propensity to truck, barter, and exchange" has been overlooked in most of the exegetical treatments of Smith's work. But surely here is his answer to what economics or political economy is all about.

Economists "should" concentrate their attention on a particular form of human activity, and upon the various insitutional arrangements that arise as a result of this form of activity. Man's behavior in the market relationship, reflecting the propensity to truck and barter, and the manifold variations in structure that this relationship can take; these are the proper subjects for the economist's study.

In other words, study what people do to make economic activity successful. Notice that Buchanan cuts off "exchange" for rhetorical effect. I've noticed that many others routinely do this.

For example, Deidre McCloskey, in "What Would Jesus Spend?" from last year:

The desires of people who followed Jesus--or Mohammad or Amos, or for that matter Buddha--might well become different from those they typically now indulge. But that doesn't change how the system would work best. It would get the high-speed presses for printing Bibles by fostering a system of private property in which people's ideas and their labor seek their best employment in printing--what the blessed Adam Smith called the "simple and obvious system of natural liberty." And it would get the airplanes to Yosemite by allowing alert consumers to seek reasonable deals in travel, what Smith called the propensity to truck and barter.

While writing in Reason Dr. McCloskey uses the full quote:

Dickering, or as Adam Smith put it, "the propensity to truck, barter, and exchange one thing for another" is "a necessary consequence of the faculty of reason and of speech." Smith was vividly aware of the faculty of speech, but nonetheless confined his system to the more behavioral and observable and quantitative division of labor. Hayek, who first came upon the idea (Smith’s and the inklings of his own) when attempting during the Great War to lead men in an Austrian brigade speaking a dozen different languages, nonetheless confined his extension of Smith to the division of information.

Via AL Daily, we now find Gavin Kennedy using the phrase to describe what Adam Smith really meant:

He saw society as becoming naturally harmonious through the intense dependence of each person on the labour of every other person and taught that the propensity to "truck, barter and exchange" led to people serving their own interests best by serving the interests of others from whom they needed daily necessities.

That is his true legacy, the melding of his moral sentiments with liberty, justice and his economics. It is time his legacy was claimed back.

As I wrote last year, I still think a closer, scholarly look at why Smith uses all three words is warranted.

Photos of Economists

I've spent way too much time looking at Robert Gordon's excellent Photos of Economists, 1969-2005. My favorite -- I'm not certain why -- is the young Don McCloskey.

FC Got No Game; But Someone Else Does (UPDATED)

Here's a shocker: turns out, no one in business really uses game theory, despite it's being taught to nearly every MBA candidate in the US. (I'm sure this will warm Kevin and Steve's hearts.)

Fast Company: First, we scoured the literature. We selected a relevant portfolio of 40 publications and submitted our queries. We tried again. And again. And we found . . . nothing . There were plenty of mentions of government spectrum auctions, and A Beautiful Mind came up hundreds of times. Not quite what we had in mind.

Perhaps, we thought, the media just doesn't get it. Undaunted, we assembled a panel of 30 respected game theorists around the world, and we sent them a survey asking, "Can you think of any examples of real, live companies that have consciously applied game-theoretical concepts to a real business problem?"

The response was . . . a deafening chorus of head scratching.

"The short answer is, I don't know," said David Levine of UCLA. "Let me think about this," replied MIT's Muhamet Yildiz.

Not to be too snarky, but having been in a few classes with MBA candidates at UChicago...I'm not sure they do much with the economics they were taught either.

UPDATE: Turns out, Fast Company did find someone who may be putting game theory to good use. Though, he might not really know it: Shaq.

Game Theorists Say... "There must ... be a credible commitment on the side of the relational monitor to the prescribed function in each contingency."

Shaq Says...
"It's about honesty ... I'm like toilet paper, Pampers and toothpaste. I'm definitely proven to be effective."

Hmmm. Perhaps it's not that people actually be knowingly applying game-theoretic strategies, but simply act as if they were?

Larry Summers Defends Himself

Mahalanobis has the... ah... goods on Larry Summers' remarks about men having higher genetic variability in intelligence and lower family opportunity cost. Dr. Summers is sorry that so many women misunderstood him! Btw, my wife has always agreed with the substance of Dr. Summers' claims.

UPDATE: Gene Expression has relevant links and commentary.

Armchair Economics Reading List

The lecturers we had in the first year economics classes at the university used to recommend Robert Heilbroner’s Worldly Philosophers. Thomas Sowell thinks it is not worth the paper it’s written on since according to him “..its whole way of thinking leads the student away from economic analysis and away from intellectual development generally.” (p. 142, A Personal Odyssey ).

Writing economics for the general audience is no easy task. My favourite writers include John Kay and Paul Krugman both of whom are according to Peter Dougherty, Princeton University Press's economics editor, the best such writers today. My ideal armchair economics reading list would include the following:

1. The Truth About Markets (John Kay)
2. Basic Economics (Thomas Sowell)
3. Peddling Prosperity, Pop Internationalism, The Age of Diminished Expectations and The Accidental Theorist (Paul Krugman)
4. Hidden Order (David Friedman)
5. Free to Choose (Milton Friedman)
6. New Ideas from Dead Economists and From Here to Economy (Todd Buchcholz)
7. The Armchair Economist and Fair Play (Steven Landsburg)
8. Hard Heads, Soft Hearts (Alan Blinder)
9. The Economics of Life (Gary Becker)
10. The Academic Scribblers
11. The Literary Book of Economics (Michael Watts)
12. Economics through stories; The Invisible Heart and The Choice (Russell Roberts), Fatal Equilibrium, Deadly Indifference and Murder at the Margin (Marshall Jevons)

May be I should include Arnold Kling’s book Learning Economics, but I have not read it. Feel free to comment about your ideal list armchair economics.

Succinct Links

This week’s Carnival of the Capitalists is up at Incite. Last week’s Carnival at Will Pate had my earlier post about pyramid schemes. (Thanks!)

This week’s Economist has an interesting survey on outsourcing.

Australian economist blogger John Quiggin makes some reflections on the November 11 which marks ‘the armistice that was supposed to bring an end to the Great War in 1918.’

Making Up for the S'

I receive wonderful junk mail all the time, almost all of which promises me tremendous savings on goods and services I have no desire to purchase. Of course, since our two-bedroom apartment is now crammed with baby furniture and toys, I have received snail mail advertising for more furniture from this place.

This ad is an extra-duty load of information. Free furniture! Instant Rebates! Bedding Special! Shopping Spree! Really annoying layout! I hate this ad.

And I guess adding the extra .com to the web address at the bottom is supposed to make up for all those s' that have been left off for savings in previous advertising.

Bad Surveys

I'd like to state my views on survey error clearly, but I have to write quickly, so you should expect some oddities in what follows:

IMHO, we have no reason (i.e. statistical theory) to expect political polls to be consistent with one another. Most polls, although done cost effectively, are not scientific enterprises; the pollsters do not, and cannot, take the care necessary to be reliable. I do not accept as valid their "margins of error" at any given level of confidence. Those numbers--48% this or that with a +/-3% margin of error--simply do not mean what survey authors suggest.

In Stephen Landsburg's recent post, he excluded "all of the potential problems with surveys other than sampling error". Well, in my view, we can't exclude nonsampling error; nonsampling error actually dominates sampling error. Our focus on sampling variance is understandable, since that variance is what is seen. But it is the unseen that is of critical importance.

In polls, and in the recent hideous Iraq death toll survey, unmeasurable nonsampling error confounds any attempt to take the point estimate as "best"; reported sampling error bounds are NOT total error estimates. To get survey statistics accurate within precise and quantifiable confidence limits, you must conduct all aspects of survey procedure in exact accordance with the statistical theory used to structure the survey. That is, you must make sure nonsampling error does not enter the analysis in the first place. Some examples:

1) The frame (a master list of units to be surveyed) must include everyone in the relevant population.
2) The sample (the acutal units chosen to be surveyed) taken from the frame must be done according to a predetermined but random method.
3) All units chosen in the sample must respond.
4) All questions must be clear, and all responses must be accurate.
5) All computations are performed without error.
6) All results are printed without error

Any and all deviations from 1-6 will create unquantifiable errors, making the reported numbers and error margins larger or smaller than what their values would have been if the survey were conducted in exact accordance with statistical theory.

Assume 5 and 6 hold, and let's rename 1-4 in conventional sampling terms:

1b) Frame error - Every time somebody is not in the frame, he has no chance of being selected, increasing the relative liklihood that some are chosen over others. This biases estimates, because those who are selected have their responses improperly weighted.

2b) Nonprobability sample - Selecting units nonrandomly means using a rule of judgement to select them; there is no reason to believe that such a selection method is impartial. This unknowable bias can have dramatic effects on estimates.

3b) Nonresponse error - Some people don't respond. People who don't respond are likely to be different than people who do respond in ways that concern the analysis. Picking a substitute from within the respondents based on similar characteristics, or imputing responses based on previous answers, might lessen bias, but cannot eliminate it.

4b) Response error - Some people a) lie, b) forget, c) didn't have an opinion until asked, or d) try to appease the interviewer. .

Economists tend to group 1b-4b in a mass called "measurement error", as if their measuring scale were always "off" by a given amount. I think this is a terrible mistake on the part of economists, although I understand the need to simplify.

Unless 1b-4b are ignorable (i.e. made very, very small) which, as far as I know, HAS NEVER OCCURRED IN SOCIAL RESEARCH, a statistician can honestly state that his personal "best" estimate of Z (the population parameter) is X (the sample estimate), but he cannot honestly state that Z is between X-x and X+x with (1-a)% confidence (where x is the standard error).

For instance, do we really believe the Iraq study authors when they write:

We estimate there were 98,000 extra deaths (95% CI 8000-194,000) during the post-war period.

That 95% figure lets the authors calculate the sampling variability in the absence of nonsampling variability, but it does not give us any reason to believe that nonsampling errors are ignorable. Who knows if the actual number of dead is represented by the distribution given, since nonresponse was rampant, replacements were arbitarily chosen, and respondents could give unverifiable information? This violates 2,3, and 4.

Every time 1, 2, 3, or 4 is violated, X and x move in unpredictable ways. This creates variances and biases that shift and skew the reported sampling interval in unknown ways. These are biases and variances that we have no reason to believe will cancel out. Pollsters with a terrible frame and 20% response rates are not as bad, but they give me no reason to believe their results, as a matter of statistical practice.

This is not to say that good survey research is impossible. Under controlled conditions, it's possible to make nonsampling errors ignorable. But such errors always affect even the best of social statistics, which opinion polls aren't.

New York Times Roundup

The New York Times is a sophisticated paper, at its best when it avoids politics altogether. Three recent articles demonstrate some great reporting:

I. Although the federal government subsidizes paved roads to no end, it is still not enough for Greyhound to make a profit taking you there.

Ritzville is one of 269 stops in 17 states throughout the West and Midwest that Greyhound dropped over the summer. In Washington State, 21 Greyhound stops were cut; in Minnesota, 59; in North Dakota, 11, including the capital, Bismarck.

Six senators and a number of other officials in the affected states have asked Greyhound to reconsider. The company has responded that it cannot continue to make the unprofitable rural runs....

With that in mind the federal government already offers a subsidy program to promote rural intercity bus service. But in a letter sent in July to the senators who asked that he reconsider the cuts, Greyhound's president, Stephen E. Gorman, said the program was not enough to compensate for the company's losses.

Though some smaller bus companies are sprouting up, they're also likely to be feeding at the trough.

II. I'm writing this post on my Acer Aspire 2012WLMi laptop; Acer is once again trying to conquer the U.S.--and China:

Last week, Acer named as its president Gianfranco Lanci, an Italian who led its operations in Europe and the United States. The current president, J. T. Wang, will become the chairman and chief executive. The management shuffle was caused by the retirement of Stan Shih, the company's founder.

The promotion of a Westerner to the No. 2 post is an unusual move for a Taiwanese company. But Acer may need Mr. Lanci's understanding of cross-cultural issues....

The company has signed deals with Carrefour, Europe's largest retailer, and Best Buy, the largest electronics chain in the United States, as well as with prominent distributors like Ingram Micro and Tech Data.

I love competition.

III. Also note that inflation has caught up with New York's mansion tax:

The Gramercy Park co-op purchased by the young eye surgeon just three weeks ago has two spacious bedrooms, two and a half bathrooms and a large terrace with unobstructed views of the Empire State Building. It's quite nice by Manhattan standards, but few would confuse it for a mansion....

Yet New York State seems to think the co-op is a mansion, at least for tax purposes. Because the 1,850-square-foot apartment sold for $1,065,000, he was required to pay a "mansion tax" of $10,650, or 1 percent of the purchase price, as part of his closing costs. All buyers of one-, two- or three-family homes in New York that sell for $1 million or more are subject to this levy. New Jersey began imposing a similar fee on Aug. 1.

Supply and Demand Immigration

Today I was flipping through the channels on my radio when I stumbled across Bill O’Reilly discussing the porous border between the United States and Mexico. He offered a solution to the “problem” (whether or not it is actually a problem is another blog in itself). Mr. O’Reilly’s suggestion is that California, New Mexico, Arizona and Texas use their National Guard forces to patrol the border. He continued on saying that within a few months so many people will get caught that the “coyotes” who smuggle paying customers over land will no longer be able to charge high prices based on guaranteed success. Those high prices are what ensure that there are many “coyotes” in business. If the success is no longer guaranteed, the argument goes, prices will drop, “coyotes” will go out of business, and illegal immigration will decrease substantially. What about smuggling people over water? Bill says that it’s not efficient enough so no one will resort to it on a large scale. Using economics, the border would be secure if we simply take Bill’s advice. Right?
Unfortunately O’Reilly has failed to take into account the fact there will still be millions of people who want to cross the border. Think of immigration as a market. Safe border-crossings are the commodity, “coyotes” are the suppliers, and those who wish to come into America are the buyers. The National Guard may reduce the amount of safe crossings that are produced in the short-run. However, given the huge demand for safe crossing, “coyotes” are more likely to innovate new ways to sneak across undetected than they are to quit altogether. Furthermore, while I have extremely little knowledge of oceanic smuggling operations (about as much as O’Reilly, I’d guess), I know that if the price people are willing to pay is high enough, someone will figure out how to make it worth the costs. Remember, 70 years ago commercial air travel was thought to be unfeasible too.
Trying to reduce the incidence of a specific transaction, if both parties are voluntary participants, is pretty darn close to impossible. We can see that fact in the market for illicit drugs. America has focused on reducing the supply of drugs. Yet considering the quantity of the resources devoted to stopping the supply, most experts would agree that we don’t capture even half of the drugs that are sold in America (I believe 10%-15% is a more accurate estimate). Similarly, even if we reduce the supply of safe border-crossings we have done nothing to decrease the desire of people to enter the United States. Mr. O’Reilly falls prey to the assumptions that most politicians and pundits succumb to: a fundamental misunderstanding of the incentives that regulation creates. I suspect that “coyotes” will probably always have newer, smarter ways to deliver their goods because they have a keen financial interest in doing so. Maybe we should pay Border Patrolmen extra for each illegal border crossing they prevent. It might be more effective. At the very least it’s a more interesting debate.

Political Passion Metric

Jeff Jarvis wants a way to measure the passion of our political opinions:

Imagine a 0-5 scale like this:
0 - Don't give a damn.
1 - Would defend my view in a conversation
2 - Would start a conversation on the issue to say what I think.
3 - Would write a letter to the editor (or weblog post) on the issue.
4 - Would consider the issue when voting for a candidate.
5 - Would change a vote for a candidate over the issue.

I found this list wanting, if only because I've been trained as an economist. I responded almost automatically that most people express their preferences more accurately with money than do with words.

In the comments I suggested that we add an economic dimension to the passion scale. For instnace, "Would contribute more than 5% of my income to causes representing my view," or much better, "Have contributed more than 5% of my income to causes representing my view."

5% was an arbitrary number I stole from Gordon Tullock; apparently a "fiver" was also an industry standard at one point.

Random Stuff

You never know what you'll find going through the referrals:

How does regulation affect the pron industry? Check out Agoraphilia to discover the possibilities(thanks to Mahalanobis).

Also from Mahalanobis, is an entry talking about how Austrians have Yen based loans and mortgages. I find this fantastic and, hence, sent an email for clarification. It seems counter-intuitive for Austrians to get Yen based loans when they have the Euro.

You should check the whole blog, especially since he has similar interests to Ian's.

The Calico Cat mentions Truck&Barter as a great blog while lamenting the Jessica Cutler controversy. Michael doesn't mention this blog's attempt to appeal to the same crowd. What is interesting is this post on the right's favorite slot jockey. From what people tell me, hiring a dominatrix isn't necessairly about sex, so would there be a real controversy?

Edit: I changed the credit from Kevin to Ian for the post concerning, well you figure it out.

Michael responded to the email I sent concerning the Yen loans:

> Am I reading your post right when you say that Austrians have
> Yen based loans and mortgages? If this is correct, why, exactly,
> aren't they in Euros? It seems silly for all but sophisticated
> players to engage in such transactions.

First of all, here is some data: 300,000 Austrians (Population: 8,200,000)
currently hold a foreign-currency loan. Quite interesting: According to
some newspaper reports, the general public had been informed (via TV,
Magazines, ...) about the volatility of the yen, and, as a result,
many people swapped to Swiss francs.

I found an article were Hans Abele (a professor of mine) said (freely
translated) that only due to the advent of foreign currency credits
(market liberalisation) a justifiable interest rate (he uses the term
"marktgerecht", literally "market-fair", I guess he thinks of an interest
rate that would be attained if markets worked efficiently)
was established in Austria. He says that there have been untenable
interest rate spreads.

Nevertheless, I do think that people are not informed adequately about
the currency risk AND that banks prefer giving foreign-currency
loans to home-currency loans due to the higher commission they can
reap (many transactions, higher account maintainence charge and what not).

Only recently a friend of my mother told me that her daughter has
aquired a very expansive house. I asked her how she thinks that her
daughter will ever be able to pay back that money and she replied:
"No problem, she has a yen-denominated credit, she almost doesn't
pay any interest". What more shall I say ;-D.

Aaliyah Changes Places on the Balance Sheet

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

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

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

The Importance of Framing

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

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

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

Fake Money, Real Incentives

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

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

Excerpts:

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

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

[...]

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

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

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

We have Charts!

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

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

From CoD:

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

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

Arts in the Economy: An outcome or a determinant?

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

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

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

{...cut...}

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

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

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

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

Accounting Definitions

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

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

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

It all started after a productive lunch meeting:

some very bright colleagues and we were exchanging stories about businesses that thought all was well and then one day woke up and realized they couldn't pay the bills.... Hardworking individuals that had dreams and good ideas (and employed people) and managed their way straight into the ground because they didn't REALLY understand the difference between: Free Cash Flow, EBITDA, Depreciation, Profit and Net Profit.

I took accounting in college (from a Wall Street analyst who lectures on the side), and hated it. I even sold the textbooks after the class was over.

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

My Stats Profs Would be Proud

This is just a humorous aside.

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

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

"Correlation does not imply causation."

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

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

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

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

Anyone want to offer others?