Marginal Revolution

The deficit commission report

Tyler Cowen

I've read only the summaries (and here), not the report.  Mankiw is happy, Krugman and DeLong are upset.  The home mortgage interest deduction goes and income tax rates are 8, 14, and 23 percent.  No one thinks this is the final deal.  I would say evaluate this as you would a movie trailer: will it get people to take the next step of thinking about a ticket purchase?  The top 23 percent tax rate is like the quickly cut scene with the rolling boulder, the skimpily clad girl, the grinning enemy, and the face of the star.  "The Bowles-Simpson plan has a ratio of roughly $3 in spending reductions for every $1 in revenue increases..."  It won't happen in real life.  As a movie preview I judge this as "good enough."  It basically declares that some major deductions have to be on the table and it gets us to the next step.

Ezra Klein comments.

Loan markets in everything

Tyler Cowen

Women in remote Korawan, 70 km from Allahabad, have come up with a novel bank which exclusively deals with goats - accepting the animal as savings and lending it out as loans.
       
"Prema and her friends hailing from Afrozi village have establish a bank which deals exclusively in goats," development block coordinator Subedar Singh told PTI.
      
In tough terrains of Mirzapur district, most of the people are engaged in crushing stone to earn a living.

"Wives of these people help them in crushing stones and breed two-three goats for additional income," Singh said.
       
"Though the area is best suited for goat breeding, no effort was made to establish it as a full fledged business activity," he said.
      
 "We provide goats to women having interest in taking up breeding as a full-time activity as loan. When a goat gives birth to kids, generally two to three in numbers, one of them is deposited with the bank again," Prema explained.
       
Goats in the bank are medically examined every week.
       
"In case a goat dies, then it is either replaced from the market or from the bank depending upon the availability," Prema said.

The link is here, the point is from Paul Hsieh and Jeffrey Williams should be happy.  The locale is in India.

Assorted links

Tyler Cowen

1. Who supports free trade?

2. Progressive taxation by any other name?

3. Literature and economics, massive on-line volume, free, smart people.

4. Henry on Ireland and public choice and how the mess came about.

5. Zoellick clarifies his remarks on gold; it's not a gold standard he is advocating.

6. Geophagy.

7. Is QEII behind commodity price inflation?

Don't flip out over QEII (repeating myself)

Tyler Cowen

I'm not sure it will work, because it won't fix the housing market, may not restore the demands for wealth-elastic goods in a sustainable manner, may not restore the normal flow of credit to small businesses, may not lower subjective estimated risk premia, and may not fix the general disconnect between expectations and reality.  The effects on long-term interest rates are murky.  No one -- and I mean no one -- has a coherent story about how nominal stickiness of wages lies at the heart of our current dilemma.

Still, QEII may do some good.  Money matters, even if we don't always understand how or why, and excessively tight money has never done market-oriented economics any favors.  Think of QEII as a make-up for some earlier monetary policy mistakes.  Some of the relevant alternatives include a trade war with China or direct government employment of the unemployed and with what endgame?  QEII is not some terrifying burst of potential hyperinflation.  The TIPS market is forecasting in the range of two percent inflation and it's gone up -- what -- sixty basis points since August?  That's hardly the end of the Republic.  During the Reagan recovery, inflation never fell below four percent.  I've thought through "trigger models" of rapidly escalating inflation, but they don't scare me much.  The Fed simply needs to be ready to unload its heavy balance sheet without delay.

I do take seriously some of the more speculative criticisms, namely that QEII may set off bubbles in some emerging markets, or that it may break the euro (and that the euro would not otherwise break of its own accord).  Still, those hypotheses are far from established and it is difficult to believe that say three percent U.S. price inflation should bring international doom.  These factors also need to be weighed against the international and political economy costs of continued American economic stagnation.

I'm unhappy with claims that "we're not doing enough" and that therefore this is no test of the idea of monetary stimulus.  This is what QEII looks like, filtered through the American system of political checks and balances.  And if it looks small, compared to the size of our problems, well, monetary policy almost always looks small compared to its potential effects.  I'm willing to consider this a dispositive test and I am very curious to see the results.

Brad DeLong's fiscal plan

Tyler Cowen

You'll find it here and I agree with much of it.  I would phrase the rhetoric differently, but let's put that aside.  And also let's assume -- as is likely the case -- that Obamacare is here to stay and thus that is taken off the table.  The most important development is simply that Republicans (and Democrats) support the potential for Obamacare to reduce the rate of growth of Medicare expenditures.  That is the #1 issue in fiscal policy today.  And it saddens me how infrequently it comes up, except to be attacked.

I get nervous when I read Brad's phrase "commit immediately," which appears repeatedly in the post and it appears in critical moments.  I favor the specified commitments but I also think they are highly unlikely.  The phrase "commit immediately" is almost an oxymoron, as the call for immediacy highlights that no one to date has made such a commitment or wants to or, in all likelihood, will, until of course an emergency comes, as with the passage of TARP.

This "don't commit, rather do it now" reasoning is easy to understand when the Democrats pushed for a rapid passage of Obamacare, or when we look at the frustration with the stalled repeal of DADT.  Few on the left thought that "precommitment to do" was a viable option in those cases, so the push was "do it now," even if that was not convenient in terms of the election or, in the case of DADT, relations with the Pentagon.  Yet when we return to fiscal policy, the talk is once again of "commitment."  I fear it is a placeholder for the idea of "no commitment."

What's the best fiscal policy when there is no commitment?  I say let the Bush tax cuts expire fairly soon, so that spending feels to the public like it has a cost.  (It's become increasingly clear to me that when it is possible for taxes to fall again that they will do so; I am less worried about high tax rate lock-in than I was fifteen years ago.)  Have prominent Republicans endorse the better parts of Obamacare.  Continue QEII but no second fiscal stimulus and no extension of any Obama tax cuts, which were a mistake in the first place.  Carbon tax if possible but it's not.  Reindex Social Security ASAP.  Cut discretionary spending where you can.

That's my fiscal recipe, for this lovely Wednesday morning, sans commitment.  Like Brad's proposals, it won't happen, but it feels "merely impossible," as opposed to impossible at a more fundamental metaphysical level.  Should that distinction matter?

Oh, and get rid of DADT during the lame duck session of Congress.  Ha. 

Addendum: Interfluidity has brilliant, and related, remarks.  The best post I've read in some time.

Chromosomal clubs?

Tyler Cowen

...a few months earlier, a newly available DNA test revealed that Samantha and Taygen share an identical nick in the short arm of their 16th chromosomes...

Some mutations are so rare that they are known only by their chromosomal address: Samantha and Taygen are two of only six children with the diagnosis “16p11.2.”

It turns out that individuals (and their parents) who share these diagnoses are meeting and exchanging information and forming mini-alliances.  Here is the full story, though I am not entirely comfortable with the tone and selection of the article as a whole -- only negatives, for one thing.  Rare copy variations also may be a significant source of human progress and, for that matter, individual contentment.

For the pointer I thank Andrew S.

Assorted links

Tyler Cowen

1. Bryan Caplan, statistical theist?.  I sometimes say that the GMU blogging group is divided into theistic and atheistic thinkers, as we have several of both.

2. Tim Harford is switching to Twitter (don't tell Mario Rizzo).

3. Markets in everything?: pay for red lights to go green.

4. What is the main lesson of this short video?

5. Markets in everything: cell phone storage for high school students, liquidity premium exceeds carrying costs edition.

6. Liebowitz and Margolis on where the lock-in literature went wrong.

7. Walter Russell Mead on Obama.

Theories of comparative advantage

Tyler Cowen

Isabel Archer writes:

Note that we are both skipping the sanity rally. I'm against restoring sanity. My comparative advantage at dealing with insanity is too great. I want to continue to extract rents from it, please.

Here is more and hat tip goes to Bamber.

All the Devils are Here

Alex Tabarrok

Lots of excellent material in McLean and Nocera's All the Devils are Here.  In addition to devils there are also a few skeletons: in 1990, for example, Fannie paid Paul Volcker to defend and endorse its low capital standards.

A highlight is the chapter on the GSEs and how tightly they wound themselves into the political process. 

Everything the GSEs did was behind the scenes.  But for Congress, it was the homeowners who mattered, since they were the constituents....Johnson solved this problem by establishing what Fannie Mae called partnership offices.  Officially, these were operations dedicated to finding opportunities to purchase mortgages...unofficially, they were the grassroots of a highly sophisticated political operation.  Fannie's first partnership office was in San Antonio, which just happened to be home to Representative Henry Gonzales, then the chairman of the House banking committee...

There was a certain formula to these offices.  They were staffed by someone close to power--the son of a senator, a governor's assistant, a former congressional staffer.  They held ribbon-cutting ceremonies, always with a politician present, to announce, for instance, that Fannie was going to put millions into a senior citizen center.  There were as many as two thousand ceremonies a year in partnership offices all over the country....

Fannie Mae also funneled money to politicians....Over the years, the foundation became one of the largest sources of charitable donations in the country.  It made heavy donations to, among others, the nonprofit arms of the Congressional Black Caucus and the Congressional Hispanic Caucus.

Fannie hired key insiders to plum jobs..[long list of names,AT]..."It was like the local Tammany Hall operation--a jobs program for ex-pols!" says one closer observer.

Fannie spent a staggering amount of money lobbying: $170 million in the decade ending 2006...

McLean and Nocera go on to document how this power meant reports alterted, investigations dropped and so forth.

We need more of this kind of historical public choice, history written with an eye to how power is wielded in the political sphere and how law is really made.  (For another example see my paper, The Separation of Commericial and Investment Banking: The Morgans vs. The Rockefellers.)

Addendum: Arnold Kling's review.

Markets in everything very good subtitles on the article

Tyler Cowen

I liked this one:

Market forces govern a baby’s value among vervet monkeys and sooty mangabeys

The full article is here.  I was not surprised to learn that a sooty mangabey is, indeed, sooty in color.

For the pointer I thank Kathleen Fasanella and Chris Valickas.

Yuck markets in everything

Tyler Cowen

There is a market in baby foreskins:

Because of this, they’re not tossed out with the rest of the medical waste after a birth. Instead, hospitals sell them to companies and institutions for a wide variety of uses. Companies will pay thousands of dollars for a single foreskin.

Some of the strangest purposes they’re put to:

• Cosmetics: Foreskins are used to make high-end skin creams. The skin products contain fibroblasts grown on the foreskin and harvested from it. One foreskin can be used for decades to produce fancy face cream like the SkinMedica products hawked on Oprah.
• Skin grafts: In addition to making products for skin, a baby’s foreskin can be turned into a skin graft for a burn victim. Because the cells are extremely flexible, they’re less likely to be rejected. Currently, this technology can be lifesaving in providing a real skin “band aid” to cover an open wound while a burn victim heals. Researchers at Harvard and Tufts are working on advanced skin replacements that use human foreskins.
• Cosmetic testing: All those cruelty-free cosmetics you buy? Some of them are tested on foreskins. This yields better results, since they’re human skin. And it saves the lives of the rodents your shampoo would otherwise be tested on.

Does this make the hospital ever-so-slightly more interested in continuing the practice?  For the pointer I thank Andromeda.

The more things change...

Tyler Cowen

Via Veronique deRugy, here is the recently elected Rand Paul on earmarks:

In a bigger shift from his campaign pledge to end earmarks, he tells me that they are a bad “symbol” of easy spending but that he will fight for Kentucky’s share of earmarks and federal pork, as long as it’s doled out transparently at the committee level and not parachuted in in the dead of night. “I will advocate for Kentucky’s interests,” he says.

The top ten economists on Twitter

Tyler Cowen

The list is here, with Paul Krugman at #1 and yours truly at #6.  I am not sure who exactly counts as an economist, so perhaps there are some omitted names.

Assorted links

Tyler Cowen

1. Should they privatize Pompeii?

2. Gateway books for Turkey.

3. The debate in Massachusetts over fee-for-service, and here.

4. Martin Wolf criticizes the gold standard.

5. Economist Paul Zak hugs all of his co-workers.

6. Are balanced arguments more persuasive?

7. Hoover Institution now has a blog.

8. Papers with humorous titles are cited less often.

Ireland facts of the day

Tyler Cowen

The increase in spending, which is part of Ireland’s present problem, is quite recent. From 2000 to 2006, the number of people employed in the Irish health sector increased 20 percent, in education by 27 percent, in the justice sector by 22 percent, and in the civil service by 27 percent.

In the past decade, Irish health spending has doubled, in real terms. In 2000, about 22 million items were prescribed; 10 years later, 52 million items were. People aren’t twice as healthy as a result.

As far as taxes on income are concerned, Irish people now pay about half as much as an equivalent family does on the same income in Germany. There is currently no recurring tax on property, no charge for water supplies, and modest fees for a college education. Welfare payments compare favorably with those in Northern Ireland.

Here is more.  Currently there is talk of a "buyer's strike" in the market for Irish bonds.  When the Irish accept the full extent of the standard of living "reset" implied in all of this, how big a step back will be required?  Ten years?  More?  If you take away pre-war, war, and post-war examples, is there any precedent for such a large reset in the history of wealthy countries?  Apart from contemporary Iceland, that is.

Roger Myerson is guest-blogging at CheepTalk

Tyler Cowen

Here is his introduction and here is his first post, on financial reform, recovery, and Paul Krugman.

Here is my earlier post on Myerson's Nobel Prize.

Keynes on prosperity and the Great Depression

Tyler Cowen

For the moment the very rapidity of these changes is hurting us and bringing difficult problems to solve. Those countries are suffering relatively which are not in the vanguard of progress. We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come--namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.

Alexander Field, the economic historian, would one day argue much the same, with numbers behind it.  For Keynes even the Great Depression wasn't just an AD problem.  (Obama worries too.)

From Keynes, here is 7 pp. more, fascinating throughout, although mostly totally wrong and there is a naughty mention at the bottom of p.6.  It is his famous essay "Economic Possibilities for our Grandchildren."  Keynes argued we would one day (soon) have enough material prosperity to abolish scarcity.  Most importantly, from his Bloomsbury perspective, pro-commercial norms could fade away, as they would no longer be needed as an incentive.  Society would be much the better for it; Daniel Bell later turned this argument upside down by fearing the decline of this ethic.

More wealth brings, on average, greater happiness (see Wolfers-Stevenson for the evidence, Kahneman too), but often through indirect and circuitous routes, and without guarantees.  The bottom line is that most of us keep on striving for more.  Furthermore, happiness isn't the only end we desire, and money is a route to power and esteem as well, as distinct from happiness.  Material satisfaction isn't enough in life.  Unlike Keynes (and Bell), I expect that norms to both encourage and regulate avarice will be with us for a very long time to come.

The Luck of the Irish

Tyler Cowen

It's getting worse.  Here is one bit:

The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.

That is from Morgan Kelly -- read the whole thing.

Bob Zoellick on monetary reform

Tyler Cowen

If you had asked me to bet in which year the President of the World Bank would recommend that we consider some version of a gold standard, I would have picked the wrong number:

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

Indeed that is 2010 and the full proposal is here.  I feel like I should pay something to somebody, but I am not sure to whom.  Or in which medium of exchange.

Assorted links

Tyler Cowen

1. Just give the poor cash.

2. Interview with John McPhee.

3. A writer who is losing language.

4. The political economy of the Roman constitution.

5. Raghu Rajan on QEII.

6. Amazon best books of 2010 list.

7. "leaves some marks on their faces..."

Daylight Savings Time and Nominal Shocks

Alex Tabarrok

Nick Rowe has an excellent and timely post on DST and monetary policy:

Metrification was a nominal change that had negiligible real effects, as far as I know. Daylight Savings Time is a nominal change that has real effects. Some monetary changes, like currency reforms where we knock a couple of zeroes off the old currency and call it the new currency, are like metrification, where nothing real changes. And maybe all monetary changes are like metrification in the long run. But some monetary changes are like Daylight savings Time, and have real effects, at least in the short run.

If we understood Daylight Savings Time better, and how it works, we might understand monetary policy better.

Indeed, Nick makes some progress (slightly technical) on this question, read the whole thing for more.

Will Ron Paul oversee the Fed?

Tyler Cowen

Politico reports:

Here's a little irony in the House GOP sweep: The next chairman of the monetary policy subcommittee -- overseeing the Federal Reserve?

None other than Ron Paul (R-Texas), who'd just as soon abolish the Fed.

Paul is the ranking member of the Subcommittee on Domestic Monetary Policy and Technology on the Financial Services , which oversees the Federal Reserve, the U.S. Mint and American involvement with international development groups like the World Bank. Unless someone bumps him, he's next in line for the subcommittee gavel.

The Republican Conference has to vote on the matter, however.  Paul has long called for the abolition of the Fed and restoration of a gold standard.

France outlaws discount pricing for eBooks

Tyler Cowen

A mobilization by French publishers at last month’s Frankfurt Book Fair has proven successful: Last Tuesday the French Senate voted for a law imposing a fixed price on eBooks for sale within French territory — that is, just as with print books in France, everyone has to sell a given ebook for the same price. No discounting.

Here is more; solve for the equilibrium!  Oddly, in the United States, the market has been moving toward an approximation of this outcome, at least for new books, though not for classics.  Probably both prices need to fall, though perhaps they will in rough tandem.  I believe the equilibrium value of a hardcover or e-version of a bestseller is below $10, given the recent shift out of the supply curve for the written word.

Is there a long-run deflationary trend right now?

Tyler Cowen

Although the cited source says as much, please don't take these remarks as my dismissal of the relevance of AD cyclical macro.  Still, I find this idea intriguing:

Anyone who still thinks falling prices are a cyclical phenomenon isn’t looking closely. It’s secular, and the sudden ubiquity of discount outfits shows how Japanese consumption has become a race to the bottom of the pricing spectrum.

There is more detail here and note the trend is occurring even though Japan does not have declining real per capita income. 

In a wide variety of areas, ranging from ethnic food vs. fine dining to blogs vs. books to the art world (Outsider Art is often more visceral and enduring) to clothing, there is a common realization going on: cheap stuff is often better than the more expensive stuff.  Furthermore, information technology allows you to reframe your consumption, countersignal your personal image, and reaffiliate with others, and their social movements, in ways which increase the status value of the lower priced goods.  It is now quite easy to find the (possibly) small pool of people who will respect you for your cheap hobby or obsession.  You can buy obscure items and even your uninformed friends can Google to find out what they are and why some people think they have value.  In relative terms, a famous, mainstream, and somewhat upper-class "Nordstrom" label is worth less than before.

These developments remove or at least limit the status-based reasons for buying the higher-priced goods.

Mike Munger took us all for pupusas and we loved it; no one was bitching about the absence of seared tuna.

Assorted links

Tyler Cowen

1. Applying RCTs to the rot of hamburgers.

2. PW Best Books of 2010 list; not my picks.

3. Read the comments on this article; "the culture that is NW Washington"?

4. Speculative hypotheses about China and QEII; interesting but not all well-founded.

5. The class he would like to teach.

6. Cap and trade for antibiotics?

7. Zadie Smith reviews Social Network.

Melchior Palyi, prophet of the financial crisis

Tyler Cowen

There is a very good new WSJ article on the research of my colleague David M. Levy and his co-author Sandra Peart.  The article starts:

Decades before anybody had ever heard of a mortgage derivative, an economist named Melchior Palyi predicted key causes of the 2008-2009 financial crisis with precision that makes a modern reader's hair stand on end.

His warnings help explain why investors insist on trusting market gatekeepers they know to be fallible—such as policy makers, regulators and credit-ratings firms.

The seeds of today's problem were planted long ago, and its forgotten history holds important lessons. In 1936, as part of reforms under the new Banking Act, the U.S. government mandated that federally regulated banks could no longer hold securities that weren't rated investment-grade by at least two ratings firms.

...Mr. Palyi, then teaching at the University of Chicago, was a vocal skeptic from the outset. Looking back into the 1920s, he found that investment-grade bonds went bust with alarming frequency, often in the same year they were rated. On average, he showed, a bank that followed the new rules would end up with a third of its bond portfolio going into default.

The record was so unreliable that it would be "still more responsible," Mr. Palyi growled, to "stop the publication of ratings altogether." He was especially troubled that the new banking rules switched the responsibility for credit safety from bankers—and even bank regulators—to ratings firms.

"From there," he warned, it "will have to be shifted again—to someone else," presumably taxpayers. Liquidity, Mr. Palyi argued, was being replaced by what he scornfully called "shiftability," a new kind of risk that could someday "be magnified into catastrophic dimensions."

The underlying research by Levy and Peart is here.  If the WSJ article is gated for you, just enter "Melchior Palyi" into news.google.com and an ungated copy is likely to pop up.

Claims I wish I understood -- quantum Darwinism

Tyler Cowen

The resulting theory of Quantum Darwinism is relatively straightforward:

1)      Human measurements are only one, rather unusual, means of forcing decoherence of a superposed or entangled quantum state into simpler states. The primary mechanism causing decoherence is the many types of interactions that the quantum system has with its environment. Typically quantum systems experience a vast number of such environmental interactions selectively destroying entangled quantum states.

2)     As a result these environmental interactions, or environmental monitoring, only a small minority of quantum states, called pointer observables, are able to survive and evolve for any sustained period of time in the deterministic, classical manner of axiom 5 above. Their prolonged survival is due to the peculiar property of these pointer states that interactions with the environment and the subsequent decoherence leave them largely unchanged. They alone are able to survive in the face of environmental monitoring.

3)     As the pointer states are the only ones able to survive decoherence, and as interactions with the environment pass information concerning the quantum state to the environment, a quantum system's environment becomes heavily imprinted with redundant copies of information concerning the quantum system's pointer states. It is these environmental copies that we actually experience and from which we gain information concerning quantum systems in almost all cases. For instance quantum systems are in continual interaction with the vast number of photons in their immediate environment. When we observe an object visually we are actually accessing information that has been imprinted on photons during previous interactions with the quantum system under observation.

4)     The redundant imprinting of information in the environment makes this information available to multiple observers and provides the basis for our classical concept of objectivity or the ability of numerous observers to access and confirm the same information.

While this process may explain the emergence of classical physics from quantum physics it may not be clear where the Darwinian part comes in. Zurek explains his motivation in naming Quantum Darwinism:

Using Darwinian analogy, one might say that pointer states are most fit. They survive monitoring by the environment to leave descendants that inherit their properties. Classical domain of pointer states offers a static summary of the result of quantum decoherence. Save for classical dynamics, (almost) nothing happens to these einselected states, even though they are immersed in the environment.

Here is more.  Here is Wikipedia.

Will pot become legal?

Tyler Cowen

Megan McArdle clinches it:

In my experience, the big dividing line is having kids.  Read this interview with P.J. O'Rourke and discover some shocking things coming out of his mouth about how he doesn't want his kids to do drugs. Having kids makes you realize how narrowly you escaped killing yourself--and remember all the friends who overdosed, or got arrested on a DUI, or spent their twenties working at a job that would let them smoke up three times a day, only to realize at age 35 that they had pushed themselves into a dead end.

Before the pot-smoking parents start crawling out of the woodwork to tell me that I'm totally wrong, that there are lots of parents who support legal marijuana--I'm not saying this happens to every single person who has a kid. But in my experience, as the kids approach the teenage years, a lot of parents do suddenly realize they aren't that interested in legal marijuana any more, and also, that totally unjust 21-year-old drinking age is probably a very good idea.

I would add to this. Parents are not even preferring the policy which (necessarily) best protects their kids.  Parents are preferring the policy which gives them a slightly better feeling of being in control of their kids, whether or not they are.

The new Deirdre McCloskey book

Tyler Cowen

Bourgeois Dignity: Why Economics Cannot Explain the Modern World.

It is due out November 30th and it centers on the role of ideology in bringing about the Industrial Revolution and the modern world more generally.  

Further assorted links

Tyler Cowen

1. What would a'la carte cable TV pricing look like?

2. Did controversial votes hurt the Democratic candidates?

3. Magnus Carlsen drops out of World chess championship cycle.

4. Andrew Gelman on what happened in the election.

Assorted links

Tyler Cowen

1. Charity.

2. The cut in government spending after World War II.

3. Hail the rare variants!

4. Nerd econ T-shirts.

What's in your Wallet? Depends on your Browser.

Alex Tabarrok

What's in your wallet? Less if you use Firefox or IE and more if you use Chrome. Here from J-Walk Blog are interest rates for a car loan from Capital One if you use IE.

and here are the rates if you use Chrome:

I found something similar and the Consumerist also reports similar results. 

Price discrimination makes sense if Chrome users are better searchers, as seems likely. I suspect, however, that it is price experimentation and the Chrome<IE effect is being reported more often than the reverse.  I cleared cookies and tried a couple of times and although rates varied the lowest rate was still with Chrome.  I gave up after a few tries, however.

Trust the reactions of your peers more

Tyler Cowen

Dan Gilbert, Tim Wilson, and co-authors have found:

Two experiments revealed that (i) people can more accurately predict their affective reactions to a future event when they know how a neighbor in their social network reacted to the event than when they know about the event itself and (ii) people do not believe this. Undergraduates made more accurate predictions about their affective reactions to a 5-minute speed date (n = 25) and to a peer evaluation (n = 88) when they knew only how another undergraduate had reacted to these events than when they had information about the events themselves. Both participants and independent judges mistakenly believed that predictions based on information about the event would be more accurate than predictions based on information about how another person had reacted to it.

The link to the article is here.

What I've been reading

Tyler Cowen

1. Hector Abad, Oblivion: A Memoir.  A boy's, and then a man's, relationship with his father; it may put this bestselling Colombian author on the Anglo-American map.

2. Robert D. Putnam and David E. Campbell, American Grace: How Religion Divides and Unites Us.  This book is very well done, but it suffers from the "I already agree with it" problem; it shows for instance that religious people make better neighbors, even after making the relevant statistical adjustments.

3. The Penguin Book of Irish Poetry, edited by Patrick Crotty.  This is spectacular, covering both the medieval material (beautifully translated) and the last fifty years, and everything in between.  The volume looks like it should sell for $40, yet it goes for $15 on Amazon.  Definitely recommended, a real contribution and also a wonderful Christmas present.

4. Manuel de Lope, The Wrong Blood.  For those who love poignant Spanish meditations on memory, at the expense of plot.  I finished it, eagerly, but take the caveat seriously.  One good bit: "...no one on his way to a wedding seems like a dangerous man, and experience taught that dangerous men can come from a wedding...and so the owner of Etxarri's Bar gave no thought to his loaded shotgun."

Political games

Tyler Cowen

The vote- or seat-maximizing incentive for the Republican Party as a whole is to lay low, put forward no "Newt Gingrich" villain figure, and let Obama continue to take the blame for the ailing economy, while avoiding fights they can lose, because of the President's superior bully pulpit and media presence.

The incentive for individual Republican Congressmen is...different.

When it comes to marijuana legalization, I believe that the "anti-" forces will muster as many parental votes as they need to, to defeat it when they need to.  The elasticity of supply is nearly infinite at relevant margins.  Legalization may appear "close" for a long time, but in equilibrium it will not spread very far.  The "no" votes will pop up as needed.

Assorted links

Tyler Cowen

1. God and country.

2. Markets in everything, Pee Wee Herman edition.

3. Markets in everything, Jeff Koons skin care products edition.

4. Theories about how the UK times paywall might work.

5. The seven most powerful new economists?

Sentences to ponder

Tyler Cowen

California law (namely the Coogan Act) states that a child actor's income is 100% theirs, making it difficult for parents to use the money to support the family.

There is more here.

Regulatory Capture and Judicial Incentives

Alex Tabarrok

John Kay recounts the classic story of regulatory capture:

In 1887, Congress passed an act to regulate the US railroad industry. The legislation originated in the demands of farmers and merchants for protection against the “robber barons”.

Despite this background, railroad interests supported the bill. Charles Adams, president of the Union Pacific Railroad, explained his reasoning to a sympathetic congressman, John D. Long. “What is desired,” he wrote, “is something having a good sound, but quite harmless, which will impress the popular mind with the idea that a great deal is being done, when, in reality, very little is intended to be done.”

On the whole, he got what he wanted. The Interstate Commerce Commission established by the act was chaired by a lawyer with experience of the railroad industry – acquired, naturally, by acting on behalf of his railroad clients. When, a decade later, the Supreme Court ruled that a rate-fixing agreement between railroads was illegal, the ICC was crestfallen: surely, the commission said, it should not be unlawful to confer, to achieve what the law enjoins – the setting of just and reasonable rates. Soon after, Congress approved legislation making it a criminal offence to offer rebates on tariffs the ICC had approved, and the commission thereafter operated as the manager of a railroad cartel.

Kay is a little too quick, however, to argue in favor of judges.  Aside from the tradeoff (which Kay notes) that Judges will be less informed than people closer to the industry (the bias-efficiency tradeoff familiar from econometrics), judges also have their own set of interests and incentives.  Elected judges, for example, tend to be biased towards plaintiffs (voters) and against out-of-state corporate defendants (non-voters).  More generally, I think Kay understands politics without romance but still sees law with a romantic lens.

The application of public choice insights to legal institutions, "law without romance," is a new and growing field. If you are interested, I recommend The Pursuit of Justice, a very good new book on this topic (edited by Ed Lopez, I was general editor.)

Request for podcast requests

Tyler Cowen

You write the questions or requests and Jerry Brito will cull through them, choose his favorites, and interview me, based on your questions.  The podcast will then appear on his podcast blog and I will link to it.

Comments are open...I might even cover one or two of the residue questions here on MR.

Britain fact of the day

Tyler Cowen

In 1960, the British drank 3.6 pints of wine per head per year; by 1971 they drank 7 pints, by 1973 9 pints, by 1975 11 pints and by 1980 almost 20 pints.  One obvious reason was that it was cheaper than ever, with the duty having been slashed when Britain joined the EEC; another was that people picked up the taste on holiday; a third was that wines were advertised more successfully, being associated with glamour, luxury, and ambition, and aimed particularly at young women.

That is from Dominic Sandbrook's excellent State of Emergency, The Way We Were: Britain, 1970-1974.

My impression of the election results, from a great distance

Tyler Cowen

There is an anti-gay backlash in Iowa and I don't see marijuana climbing the legalization hill, if it can't make it through current-day California.  We're seeing the high water mark for pot, as aging demographics do not favor the idea.  Just 32% of the Tea Party candidates won; admittedly that figure should be adjusted by the rate of incumbency (a lot of Tea Party candidates were challengers).  In any case, there was not a Tea Party tidal wave.  Sarah Palin as nominee is up a few points on InTrade.com, although I do not see why.  Haley Barbour is also up and Chris Christie is down considerably (why?).  Given that the Democrats did better than expected in the Senate, Obama's reelection chances look better now than they did a week ago.  The Republican strategy is not dominating in broad constituency, MSM-reported, "lots of scrutiny" races, even with an abysmal economy and a not so popular health care bill.  My mental model of Obama is that he will cut deals with the Republicans, even on (mostly) their terms, if indeed any deal is on the table.  I would be pleased if critics of the Obama presidency would indicate their managerial background and expertise, yet few do.  How many of them could manage a team of ten people with any success? 

The next step in FinReg?

Tyler Cowen

Mr Bachus told the FT that he would go “page by page  [through Dodd-Frank]. . . to identify job-killing provisions or lending-killing provisions”. He highlighted new rules pushing over-the-counter derivatives trading through clearing houses and on to exchanges as a problem for non-financial corporate users.

“The derivatives provisions in Dodd-Frank alone... as they stand now they’re going to take a trillion dollars out of our economy. Think how many jobs that’s going to kill,” he said.

It is difficult to fathom how that last pararaph (article here) can make any sense, other than as fabrication.  What is the public choice factor here?  Ag producers who trade customized swaps and who wish to keep doing so?  Or is it financial institutions, including the trading branches of commodities firms, which earn money trading the spread?  How about traders which don't want to deal with the potentially onerous margin requirements at a newly established clearinghouse?  All of the above?