August 2, 2007
Meeting New People
With this blog, I have met so many amateur economists and aspiring economists and Ph.D. economists that I long ago lost count; I have "met" currency speculators and smugglers, exiles, soldiers, high school students, corporate executives, and of course, newspaper reporters.
Do you remember that I was in the Washington Times a few years ago? It's not something I think about regularly, but last week, this blog received a unique comment:
Kevin,Can I have your email address (by emailing me)? I want to send you a request. Thanks
Warm regards,
Ali
Brunei
Definitely not spam. So I emailed him. It turns out that he's teaching Malay to undergrads in Brunei; they have a blog! As an exercise, he had them translate the Washington Times article into Malay, and debated whether blogging could improve writing.
A few years ago, I invited any person who wanted to blog about economics, regardless of training or experience, to join Truck & Barter. It was not an experiment intended to measure response, though I was happy with the number and quality of people who volunteered. It was not a well-crafted attempt at expanding my social network, though I've developed a network of some strong, but mostly weak ties from all over the world... I just wanted to meet eager and interesting folks, giving newcomers a somewhat established shop, instead of them having to set up their own.
Now I can say that I've met advanced Malay language learners. And I say to them that blogging is what you make of it. Treat it seriously, and your vocabulary, style, and grammar will improve; treat it as a chore or a game or a joke, and you will gain nothing.
For more of what I think blogging ought to be like, see my reply to the article you guys read.
January 7, 2007
That Was a Good Idea
A couple of months ago I talked with my advisor about writing a paper examining policy volatility and its implications for growth. Somebody beat me to it:
Summary: This paper compares the pattern of macroeconomic volatility in 17 Latin American countries during episodes of high and low growth since 1970, examining in particular the role of policy volatility. Macroeconomic outcomes are distinguished from macroeconomic policies, structural reforms and reversals, shocks, and institutional constraints. Based on previous work, a composite measure of structural reforms is constructed for the 1970-2004 period. We find that outcomes and policies are more volatile in low growth episodes, while shocks (except U.S. interest rates) are similar across episodes. Fiscal policy volatility is associated with lower growth, but fiscal policy procyclicality is not. Low levels of market-oriented reforms and structural reform reversals are also associated with lower growth.My idea stemmed from the fact that Latin American politics seems to take large swings from one extreme to another. For example, a liberal party gets elected to power and institutes reform economic growth ensues. The next election cycle a leftist wins power by running on a campaign of a more equitable distribution of income gains. The neoliberal policy reforms are reversed and slower rgwoth follows. I['m not saying this is how it definitely works, but how the idea popped into my head.
The challenge is then to sustain reforms in the long run without a reversion to failed policies of the past. One way is to avoid elections all together and have the country run by an authoritarian leader as in Chile. Another which people have argued is that the size of the coalition matters. The bigger the victory the more likely reforms can be carried out and sustained. Think along the lines of the ruling party in Singapore.
Latin America provides an interesting case because there are apparently large swings politically and this was where my focus would have been as well. The challenge of liberals south of the border is then how too sustain reforms beyond the current term.
November 18, 2006
Anecdotes about Milton Friedman
"Everybody loves to argue with Milton, particularly when he isn't there."
- George Shultz
"Everything reminds Milton Friedman of the money supply. Everything reminds me of sex, but I try to keep it out of my papers."
- Robert Solow
Brad DeLong writes;
“General William Westmoreland, testifying before President Nixon's Commission on an All-Volunteer [Military] Force, denounced the idea, saying that he did not want to command an army of mercenaries. Milton Friedman interrupted him: "General, would you rather command an army of slaves?" Westmoreland got angry: "I don't like to hear our patriotic draftees referred to as slaves." And Friedman got rolling: "I don't like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general." And he did not stop: "We are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher"
On responding to criticisms about giving advise to Pinochet regime (Mankiw article on Friedman);
“Friedman was--and is--unrepentant. Of course, he did not endorse the dictatorship. But, he wrote, "I do not regard it evil for an economist to render technical economic advice to the Chilean government to help end the plague of inflation, any more than I would regard it as evil for a physician to give technical medical advice to the Chilean government to end a medical plague." He also notes that years later, when he offered similar economic advice to China, there were no similar protests, even though the left-wing Chinese dictators were no less oppressive than Pinochet.”
Art Diamond recalls;
“One characteristic that came through in class, as well as in his public debates and interviews, was that he was focused on the ideas and not the personalities expressing them. I remember seeing Friedman debating some union official on television. He talked at one point about how he and the official had had to work hard in their youth. Friedman seemed to like the union official; he just disagreed with some of his ideas, and wanted the union official and everyone else, to understand why. By the end of the "debate", the union official had a warm, amused, expression on his face.I remember once Friedman saying that more of us should speak out more often on more topics; that the bad consequences to us weren't as bad as we supposed. Probably he was right; though he had a lot working in his favor---his quick-wittedness, his good will, his sense of humor, and probably his being so short in physical stature---it was probably hard for anyone to feel threatened by him, so they were more apt to let down their guard and listen to what he had to say.”
John Quiggin has similar views of Friedman;
“Friedman was effective in part because he was obviously a person of goodwill. I never had the feeling with him, as with many writers in the free-market line, that he was promoting cynical selfishness, or pushing the interests of business. He genuinely believed that economics was about making people’s lives better and that disagreements among economists were about means rather than ends and could ultimately be resolved by careful attention to the evidence.”
Thomas Sowell recalls;
“The other side of Friedman was his generosity with his time to help students, and even former students. In later years, long after I had left the University of Chicago, he helped me with his criticisms and advice on my work--only when asked. When I was offered an appointment to the Federal Trade Commission in 1976, he was asked by the White House to urge me to accept but he declined to do so. It was the best non-advice I ever got. I would have been miserable at the FTC.”
Walter Block recollects;
“Another personal recollection. Once, at a Mont Pelerin Meeting, there was a panel discussion entitled “How to win a Nobel Prize in economics. The panelists were James Buchanan, George Stigler and, of course, Milton Friedman. This was pretty fast company. I don’t remember any of the specifics but I remember coming away from that event with the thought that “Milton Friedman is an intellectual tiger,” so overwhelming was he in that discussion.”
Related;
More links at PrestoPundit, Tim Worstall, Aplia blog, Southern Appeal and still more Google Blog search.
Podcasts;
Lucas, of University of Chicago, Discusses Friedman's Economics
Friedman on Capitalism and Freedom
Miscellaneous;
How Milton Friedman Changed Economics, Policy and Markets
Milton Friedman- An enduring legacy
The Legacy of Milton and Rose Friedman’s Free to Choose-Economic Liberalism at the Turn of the 21st Century; A Conference Hosted by the Federal Reserve Bank of Dallas
On Milton Friedman's Ninetieth Birthday -Remarks by Governor Ben S. Bernanke
Milton Friedman- Money and Economic Freedom
Milton Friedman interview (The Region)
Milton Friedman, a father of financial futures
The Methodology of Positive Economics
My Tribute to Milton Friedman: The Little Giant of Free Market Economics
Milton Friedman, RIP, and inflation targeting
Applying Some of Friedman's Wisdom
John Maynard Keynes By Milton Friedman
Roofs or Ceilings? The Current Housing Problem
June 12, 2006
Thoughts for the Day
"How will you be of service to your nation and all the world?".."One: What is the nature –– fundamentally –– of the 21st century world? Two: How would you like to change it? How would you like to leave it for your children and grandchildren? Three: What must be done to affect those changes? And four: Who's supposed to do it? Especially, what are you going to do?"
- President Clinton at Princeton University's Class Day Ceremony
“I hope that you will contribute in some measure to economic progress, whether in the United States or elsewhere; and I hope you find some measure of financial reward. But the world has a great deal more to offer than money, and a key question each of you will face repeatedly in your lives is how to use the talent and education that you have been given and the knowledge that you have attained.”
- Ben Bernanke, Commencement Address at MIT
“There is much more to be done, too, in truly integrating Harvard with the world. Students from abroad coming here to study return home changed people, and those they meet here are changed by them. Remember a few years ago the rescue of a doomed Russian submarine crew? This rescue was only made possible by a contact between a Russian admiral and an American admiral - two who never would have communicated if they had not met in a Kennedy School joint military program.”
- Harvard University President Lawrence H. Summers, Commencement Address
“All of which reflects one of the many things that bothers me about our educational system. Considerable parts of it appear designed to teach people to pretend to intellectual tastes and knowledge that they do not possess and that there is no good reason why they should possess.”
- David Friedman (son of Milton Friedman) – he introduces himself as an academic economist who teaches at a law school and has never taken a course for credit in either field.
June 4, 2006
An Expert on Corruption
A professor at GMU Janine Wedel has written a lot about the alleged corruption case involving Andrei Shleifer, himself considered a world’s leading authority on corruption. Here is her article in the Boston Globe written in March- the following two paragraphs were cut from the original piece.
"The system is virtually incapable of dealing with such players' infractions and lack of transparency in a timely fashion. It is not for lack of inquiries. A series of governmental and business investigations into the handling of U.S. assistance for Russian economic reforms entrusted to Harvard began as early as 1996. That year the Government Accountability Office published a report calling USAID's oversight over Harvard's Russia project "lax." (GAO staff entrusted to me a copy of their original draft report, which is even more critical.) The following year the Justice Department embarked on its investigation. Yet another case charging Harvard University, Shleifer, and another Harvard principal with fraud was brought by The Forum Financial Group, a Portland, Maine-based mutual funds firm working in Russia. That case was settled out of court in 2002. Only recently has Harvard opened an investigation.While these probes were in process, Shleifer's star, like that of many such players, was steadily rising, not falling. Remarkably, Shleifer has continued to testify before congressional committees and publish articles in reputable journals as an expert on corruption, work with a World Bank anti-corruption unit, and write for Foreign Affairs on the supposed success of Russian "reforms"--without disclosing his role in crafting them. He was awarded the American Economic Association's prestigious John Bates Clark Medal in 1999. And, of course, he remains a tenured full professor at Harvard."
David Warsh’s latest column also talks about the issue;
"Why worry about it if the government didn't have enough evidence to charge him with a crime?
Certainly it is true that criminal and civil law represent different perspectives on conduct. Only the government can charge a crime. The accused is guilty if convicted. The logic of the code, its very language, is that of misdeed, punishment and rehabilitation.
Civil law, on the other hand, governs relationships among private individuals and delineates their rights and obligations. Disputes over torts and contracts ordinarily lead to some kind of compensation for the aggrieved party. There is a sense that such disagreements are an inevitable part of doing business. In most cases, there is not much shame.
And while government pursued a criminal investigation for a time -- a grand jury was empanelled and heard a good deal of testimony -- nothing came of it in the end. Thus Shleifer and Harvard are not said to have been convicted of anything, or to be guilty, or even to have done anything illegal. Instead they are described as having been found to have committed various frauds and breached their contract, respectively….
…A 31-year-old Russian expatriate -- deemed a leading authority on corruption, no less! -- who immediately begins semi-publicly flouting American law and communist sensibility to line his own pocket, and who, after he is caught, persuades the great Harvard University to maintain his innocence. Does this sound like material for a Frank Capra movie or a John Adams opera?
The Shleifer problem is symptomatic of confusion over a distinction that goes much deeper than that between the civil and criminal law -- between the ethical systems that govern the private and the public realms. The locus classicus here, at least in Western civilization, is to be found in Plato, I suppose. …"
For Comment; What do you think is the moral of the story? I wonder what Mankiw thinks about the whole issue.
May 11, 2006
Fareed Zakaria on John Kenneth Galbraith
“I met John Kenneth Galbraith once. About 20 years ago, the legendary economist who died last week agreed to have dinner with a group of graduate students to discuss economics and international relations. What was meant to be an academic seminar soon turned into a riotous evening filled with wine and merriment.
Galbraith regaled us with tales of his exploits from gate-crashing the Potsdam Peace Conference as a young soldier to escorting Jackie Kennedy when she arrived in India. Galbraith was probably the most famous intellectual of his generation, a brilliant writer, towering personality, and a genuine wit but his ideas have not worn so well. Massive poverty programs, large-scale government regulation and extremely high tax rates have been rejected by American voters and reversed in some measure by almost every industrialized country.
It is not Kenneth Galbraith but his archrival and contemporary, Milton Friedman, who reigns supreme… at least that is what the judgment of history looks like today.”
Fareed Zakaria, on his TV show’s latest edition.
I agree with Michael Stastny and Lord Desai;
“He seemed a good man, in that he was honest and well-intentioned, and here I'm sure he has left a fine legacy for his friends and family. But his legacy to economics, is virtually non-existant. Big firms are generally weak, advertizing increases competition, depressions are not caused by excessive speculation, and conventional wisdom has always been for greater government regulation and redistribution.”
Related; Affluence and Its Discontents
March 21, 2006
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!
September 2, 2005
More Questions Incorporating Laziness, Please
So Ph.D. economists are not good with economic principles. I'm left wondering if we'd do better if asked questions that 1) are more attuned current entertainment patterns, and that 2) incorporate more laziness. For instance:
You're at home on a Friday night watching a Law & Order marathon on TV. A friend calls you up to go see Wedding Crashers at the Lowes cineplex starting in an hour; movie tickets cost $8.50, though you'd be willing to pay up to $15 for that comfortable stadium seating and a funny flick. You do have to pay for your own ticket, but your friend said that he'll pick you up and drop you off home afterwards.
Q1) What is your opportunity cost of watching Law & Order?
Q2) If you value seeing Wedding Crashers so much more than Law & Order, why were you watching Law and Order to begin with?
August 11, 2005
Phantoms in the Mind
A visit to the hospital often brings up interesting things. A colleague I met at the hospital mentioned about a strange case of a woman who gave birth recently, refusing to take care of her new born.
The birth was normal and the woman took care of the baby initially. After about a week, the woman refused to give milk to the child and got angry when she sees the child. She complained that the child had come into this world after cutting her stomach. The doctor diagnosed her with a rare neurological disease. ( If any one of you had come across a similar disorder and know its technical name please let us know)
The relationship between mind and body has always fascinated me especially after reading the V. S. Ramachandrans popular introduction to neuroscience, Phantoms in the Brain. The above case illustrates a physical change in the body triggering a reaction which affects the person mentally. In other cases like pseudocyesis or false pregnancy (it is said it affected Mary Tudor, a queen of England, who was falsely pregnant twice, with one episode lasting thirteen months) it is the other way. One explanation given by Ramachandran of false pregnancy is that it could be cultural; many women felt extreme social pressure to have a baby during the olden times and the disease is rarely seen today.
Ramachandran (first scientist to have done a successful amputation of a phantom limb) and Oliver Saks have been great popularisers of neuroscience. What I like about Ramachandrans style of writing is that he always try to tell the big picture and adds humour as well. He also warns budding scientists not to ignore every anomaly they see and learn to differentiate between a trivial anomaly and a genuine anomaly:
[A]s a rule of thumb, if an odd, inconsistent observation has been lying around for ages and has not been empirically confirmed despite honest attempts, then it is probably a trivial one. (I regard telepathy and repeated Elvis sightings as belonging to this category.) On the other hand , if the observation in question has resisted several attempts at disproof and is regarded as an oddity solely because it resists explanation in terms of our current conceptual scheme, then you are probably looking at a genuine anomaly. (p.223, Phantoms in the Brain)
Ramachandran points out elsewhere that for sciences that are still in its infancy (like neuroscience and psychology) demonstration-style experiments play an especially important role. He notes for example, in recent decades all medical students were taught that ulcers were caused by stress, which leads to excessive acid production that erodes the mucosal lining of the stomach and duodenum, producing the characteristic craters or wounds we call ulcers. And for decades doctors treated it with antacids, histamine receptor blockers, vagotomy (cutting the acid-secreting nerve that innervates the stomach) or even gastrectomy (removal of part of the stomach). But then a young resident physician in Australia, Dr. Bill Marshall, looked at a stained section of a human ulcer under a microscope and noticed that it was teeming with Helicobacter pylori- a common bacterium that is found in a certain proportion of healthy individuals. Since he regularly saw these bacteria in ulcers, he started wondering whether perhaps they actually caused ulcers.
Bill did mention it to his professors and they were adamant that it was conventional wisdom that ulcers were caused by stress and what he was seeing was probably a secondary infection. Anyway Marshall did not stop there. He carried out an epidemiological study which showed a strong correlation between the distribution of Helicobacter species in patients and the incidence of duodenal ulcers. Even this did not convince his superiors. Finally Marshall swallowed a culture of bacteria, did an endoscopy on himself and demonstrated that his gastrointestinal tract was full of ulcers! He went on to do a proper clinical trail and showed that ulcer patients who were treated with a combination of antibiotics, bismuth and metronidazole recovered at a much higher rate- and had fewer relapses- than did a control group given acid-blocking agents alone.
As Ramachandran mentions:
[A] single medical student or resident whose mind is open to new ideas and who works without sophisticated equipment can revolutionize the practice of medicine. It is in this spirit that we should all undertake our work, because one never knows what nature is hidingEvery scientist knows that the best research emerges from a dialectic between speculation and healthy skepticism.
For Discussion: Should economists give more emphasis to demonstration-style experiments in doing economics like teaching capuchin monkeys to use money (and also to use money for sex) and approaches pioneered by Vernon Smith.
Links: There are several good neuroscience and cognitive psychology blogs like Mind Hacks, Brain Waves, Brain World, Cognitive Daily, Neurodudes and Neuroeconomics.
Here are lectures of Ramachandran which was made to his latest book The Emerging Mind. Even OECD has publications on the brain. Neuroeconomics is fast becoming an important area of economics.
June 24, 2005
Book Tag
John Palmer book-tagged me, so here it goes:
Number of Books I Own: The most important empirical questions call for rigorous data gathering. I shall use the imprecise (but ever popular and pretty cool) estimation method of counting linear feet of filled bookshelf space. Eyeballing my trusty tape measure, I found that I have 16.5 shelves 32 inches wide, 11 shelves 28 inches wide, 17 shelves 28 inches wide full of books. This yields 1295 inches of linear shelving. Assuming the average width of my books is 1-1.3 inches, I have 1000-1300 books.
Note that this does not count electronic books I have on hard drives, of which I have several dozen: Shakespeare plays, etc. Of course, why own electronic books, when Project Gutenberg has 16,000 at your immediate disposal?
The Last Book I Bought: Not by Bread Alone by Vladimir Dudintsev. I paid 50 cents for an excellent first U.S. printing of this wonderful anti-bureaucratic Soviet novel. The skinny: Dmitri Lopatkin, an engineer and inventor, devises a new means of casting pipes, and is stymied at every step by those whose job it is to promote Soviet science and direct industrial production.
Last Book I read Relations by Zsigmond Moricz, in which our protagonist, Istvn Kopjss, becomes Town Clerk of his small Hungarian Town, through no devices of his own. Hilarity does not ensue -- as his relations swarm in like flies -- and as he moves from a lowly but respectable cultural adviser to a man of great power and influence who runs in an unscrupulous social circle. Here's more:
His criticism of the gentry is, however, merciless in Relatives (1932). Hailed by todays critics as Mriczs most important novel, it tells about small-town nepotism and corruption relating to the fate of Kopjss who, after rising to higher office, becomes innocently involved in illicit transactions, through a web of suddenly emerging uncles, brothers, and cousins, and is driven ultimately to the verge of suicide. Kopjss is a typical Mricz hero, a crossbreed between Misi Nyilas (innocent) and the Reverend Matolcsy (ambitious idealist), but without their redeeming qualities; although like them he is a victim of circumstance, he is a weak character. It is the grimmest of Mriczs novels even the scenery seems to be always grey; there is no laughter, no warmth, no true human relations, but instead scarcely disguised selfish motives, pretensions and ugliness are everywhere.
Five Books that have Meant the Most to Me.
1. The Man Versus the State by Herbert Spencer. His adamant committment to personal liberty, based on economic liberty, leaves little role for the state, and hence is often considered to be a form of "social darwinism" by those who see state action as salvation. I think such labelling of Spencer and his work is just plain wrong and dumb, and this would be harder to do if his critics sat down and actually read his Social Statics, Education, First Principles, and his collected essays.
2. Adam Smith's An Enquiry into the Nature and Causes of the Wealth of Nations. Spurred by a high school economics class, it was the first serious book I ever read on my own. I read huge chunks in high school, and that left a lasting impression. Of prime importance was the notion that it was not in the national self interest of the British to maintain and protect the American colonies. Somehow, I managed to make it through high school without anybody ever once mentioning that mercantilism was an idiotic and flawed way of creating national wealth.
3. Buchanan and Tullock's The Calculus of Consent for its use of simple visualizations in explanations of logical ideas about voting, and for demonstrating to me clearly that the standard 50%+1 rule for the legitimacy of democratic decisions rests on a tremendous base of fundamentals which ought to reexamined very closely.
4. I, The Jury by Mickey Spillane for an excellent example of simple and entertaining writing, and for presenting an fantasy world so radically different from the silly dorm-room culture that surrounded me as I read them at night.
5. The Very Hungry Caterpillar by Eric Carle. That's right, a childrens' book! Why, you ask? Because the most important things to me aren't necessarily intellectual. Every early morning for months, my son has walked to his bookshelf and taken Caterpillar out. He has then demanded to sit on my lap, wanting me to read it to him over and over again. Given that, the nature of the story, which is cute and fun, is irrelevant.
Runners up include Mises' Human Action, Tukey's Exploratory Data Analysis, and Feller's An Introduction to Probability Theory and Its Applications, Volume 1 (I don't like volume 2). And so many, many others...
Tagging Others
I refuse to retransmit social pressure, so let's just say I forgot about this section. In other words, I tag nobody. Don't like it? Go read a book.
June 3, 2005
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.
June 2, 2005
How the Distribution of Production Explains the Distribution of Income
The word "distribution" means two things to economists, one active, the other passive.
The active use describes human action: how people are using plans, processes, methods, strategies, and organizations to better their living conditions. Goods and services follow channels of distribution. All along inumerable production networks, rights, materials and ideas are distributed (i.e. both traded and stolen) from person to person, organization to organization, following a path not of least resistance, but of greatest profit. People are distributed among and within organizations, held there by interest and ownership, voluntary consent and weaker alternatives.
The passive use is as a tool of description: a method of counting and grouping people based on some trait, for instance, income. This type of distribution is summarized by a small set of statistics, describing either the exact shape of the distribution, or its important characteristics.
Perhaps surprisingly, the passive definition is considered more sexy and exciting than the active one; newspapers are always writing about it, and debates over it are furious and heated.
But it is the active definition that is the core of an economic system. The active use is what Adam Smith analyzed at work in the pin factory, even if he didn't use the words. And the passive use is what he analyzed to see if economic outcomes fit his moral system.
And as far as the "distribution of income" goes, I think that is an entirely misleading collection of statistics.
The truth is that production is distributed over vast networks -- not income.
Income is usually contracted for between two parties: an agreement to pay for a specific set of services. The transfer of income is one step in the distribution of cash flows -- but it is not the end product of all cash flows. Income is just one node in the cash flow network; it is the mirror image of a retail store receiving goods for sale.
The study of the active distribution of income is fine in itself, but not terribly interesting. And the study of the distribution of income in the aggregate is generally a passive affair. Take a snapshot of incomes and one time, and then another, and compare and contrast. Histograms do not show the flow or pattern of incomes, do not show the causes of variance, and must be taken with great care before being entwined in discussions of morality.
But it is the study of the distribution of production that is really exciting. Production is dynamic; even a snapshot of production reveals its underlying activity, complexity, and most of all, dynamism.
The snapshot of a passive distribution of income tells you no such story by itself. In other words, you must impose the story on the data -- personal, subjective stories related only anecdotally to the data presented.
May 30, 2005
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 Friedmans criticism of his thesis.
May 26, 2005
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...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.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.
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]
May 11, 2005
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.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.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.
April 9, 2005
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 $250 for tearing up some land with his tires, police said.
He didn't return a call to his office.
March 26, 2005
Truck, Barter, and Exchange
Much of what I have read lately references the words of Adam Smith that inspired this blog's name.
THIS division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.Adam Smith - An Enquiry into the Nature and Causes of the Wealth of Nations. 1776. Book I, Chapter 2
In his 1964 SEA address, What Should Economists Do? ($) 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.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.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.
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 (Smiths 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.As I wrote last year, I still think a closer, scholarly look at why Smith uses all three words is warranted.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.
March 25, 2005
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.
March 3, 2005
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?
January 18, 2005
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.
November 13, 2004
Armchair Economics Reading List
The lecturers we had in the first year economics classes at the university used to recommend Robert Heilbroners Worldly Philosophers. Thomas Sowell thinks it is not worth the paper its 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 Klings book Learning Economics, but I have not read it. Feel free to comment about your ideal list armchair economics.
November 12, 2004
Succinct Links
This weeks Carnival of the Capitalists is up at Incite. Last weeks Carnival at Will Pate had my earlier post about pyramid schemes. (Thanks!)
This weeks 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.
November 2, 2004
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.
October 30, 2004
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.
September 6, 2004
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.Though some smaller bus companies are sprouting up, they're also likely to be feeding at the trough.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.
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.I love competition.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.
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.
July 8, 2004
Supply and Demand Immigration
Today I was flipping through the channels on my radio when I stumbled across Bill OReilly 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. OReillys 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 its 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 Bills advice. Right?
Unfortunately OReilly 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 OReilly, Id 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 dont 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. OReilly 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 its a more interesting debate.
June 16, 2004
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.
June 5, 2004
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.
May 29, 2004
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.?
May 28, 2004
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...
May 24, 2004
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.
May 19, 2004
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?
May 15, 2004
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?)
May 13, 2004
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.
May 12, 2004
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?