Marginal Revolution

What I've been reading

Tyler Cowen

1. The American Civil War, by John Keegan.  Maybe I was prejudiced by the early reviews, but I didn't think there was much substance here.  Like all of Keegan's work it is very well-written but if you have basic knowledge about the events it doesn't hold your interest.

2. In Other Rooms, Other Wonders, by Daniyal Mueenuddin.  The Indo-Pak quaint narrative tale is an overexplored genre these days, but still I enjoyed this very much.  It is "full of life," while sidestepping the cliches of other books that are described as such.  Or were all those cliches enjoyable in the first place?  Recommended, surprisingly.

3. The Soul of the Age: A Biography of the Mind of William Shakespeare, by Jonathan Bate.  This book offers plenty of good information but it didn't bring Shakespeare to life for me.  Should I prefer the less reliable yet more Shakespearean Stephen Greenblatt book?  

4. Stitches, by David Small.  By now I've concluded that I'm not good at reading graphic novels, except for the Sandman series for some reason.  This much-heralded story of a sick child, mistreated by his parents, struck me as professionally done but pointless. 

5. Gordon S. Wood, Empire of Liberty: A History of the Early Republic, 1789-1815.  Is "magisterial" simply a fancy word for "boring"?  Since I won't read past p.100 in this book, I guess I'll never find out.

6. Why This World: A Biography of Clarice Lispector, by Benjamin Moser.  I loved this book.  She's an interesting writer with a fascinating biography, plus the book doubles as a history of Brazil and a history of Judaism in 20th century South America.  This is one of the sleeper books of the year.  Here is Wikipedia on Clarice Lispector, with a good entry.  This is one of the sleeper books of the year.

Will Medicare cost reductions stick?

Tyler Cowen

The graph above, which portrays Medicare as a percentage of gdp, is from this SSA piece.  In contrast, Matt Yglesias, Kevin Drum, and others have touted a new short essay as evidence for the claim that the Obama health reform plan will succeed on the cost control front, or at least offer a reasonable chance of succeeding, or at least offers some components which will not be reversed.  Here is one key paragraph:

Virtually all of the Medicare cuts enacted in 1990 and 1993, which accounted for a significant portion of the savings in those large deficit-reduction packages, were implemented. And most of the savings enacted in 1997 other than the SGR cuts — nearly four-fifths — were implemented as well.

Given that Medicare spending growth slowed significantly more than was anticipated after 1997 — in 1999, for the first time ever, it was actually lower than the previous year’s level — and the budget was balanced in 1998 for the first time in 28 years, it is surprising that Congress did not scale back even more of the savings enacted in 1997. There is little likelihood that the positive budgetary outlook that encouraged some easing of the 1997 cuts will return in coming years.

See also Box 2 in the piece (which starts slowly, so skip ahead to the meat I am citing).  If you're wondering about discrepancies between these numbers and the SSA graph, the latter is as a percentage of gdp.

My view is this: the aggregate data show that Medicare expenditures, as a percentage of gdp, have expanded at a healthy clip for every medium-run period you can find since 1973.  I don't doubt that the future -- like the past -- may well show some shorter periods which look better than others but cost control has never worked in the past on anything but a temporary basis.  Citing a bunch of short periods of time doesn't convince me; they didn't stick!  And only one three-year batch of cost controls showed up, as a success, in the aggregate historical data at all.  (Would you believe a worsening alcoholic who pointed to many days or even weeks where his rate of drinking was declining and also mentioned that he drank less for a few years starting in 1993?  Or maybe this reminds you ever so slightly of the debates over recent global cooling and short vs. long-term trends?  Most progressives recognize that a few years of cooling do not contradict the evidence about the long-term trend and yet here is an odd flip of emphasis on a few short-term improvements.)

In Figure D you'll also see that the savings from the 1993-1996 partially period are offset by later, more rapid increases in Medicare spending as a percentage of gdp.

Three additional points are worth consideration:

1. The period of Medicare cost savings, in the early to mid 1990s, coincides roughly with a more general period of cost savings in health care, due to managed care.  This was soundly rejected by the American public, both in their roles as consumers and voters.

2. There will be more and more older voters in the years to come.

3. We should give at least some consideration to a "mean reversion" theory, by which current cost savings increase the pressure for future splurges.  I don't want to push this view too hard, but the aggregate data, as I eyeball them, seem to imply "do not reject" for this hypothesis.

On the other side of the ledger, you might argue, pro-Obama, that the very act of passing the legislation represents a countervailing force against this long-run trend of rising costs.

You can still argue for the bill on this basis: "Congress will increase future spending on Medicare as much as it can.  Any other expenditures in the meantime serve a "stuff the beast" function and slow down the future rate of growth on Medicare expenditure.  We'd rather spend the money on extra coverage now, realizing that the threat of future fiscal crisis will force later Medicare cuts."

That's not my point of view, but it's what I think the debate on cost control boils down to.  The best case scenario for the bill is that it won't much help cost control, may not hurt it, but by pre-emption will result in more money spent on coverage and less money spent on old people.

FRED on your home page

Alex Tabarrok

The FRED database at the St.Louis Federal Reserve is an indispensable tool for quickly finding macro data and generating graphs.  Now a FRED gadget is available which automatically updates graphs every time you visit your home page.  If you have an iGoogle account just click on add stuff and search FredGraphs.

Hat tip to Mike Fladlien.

Upward mobility

Tyler Cowen

Many purchasers of knock-off bags move on to buy real ones within a few years, Gosline found in a separate study of 100 consumers.

“The counterfeit actually served as a placebo for brand attachment,” she said. “People were becoming increasingly attached to the real brand even though they never possessed it at all.” 

...Forty-six percent of the counterfeit-bag owners bought the authentic products within two and a half years, she said.

Here is the story, interesting throughout, and I thank John de Palma for the pointer.

Assorted links

Tyler Cowen

1. What do we know about the Great Moderation?

2. The (full) public option would compete with providers.

3. The persistence of poverty.

4. Good essay on marriage.

5. The envelope theorem, Google style.

6. Tiger Woods wife markets in everything, Stepford fact of the day.

Prophets of the MarginalRevolution

Tyler Cowen

If I had to "sell short" one country or city-state in the world today, it would be Dubai.

That's me, December 2007.  I thank the excellent John Chilton for the pointer.

Here are previous installments in the series.

Time Travel with Doctor Who

Alex Tabarrok

When I was a young boy of ten or eleven I lived in a small town in England.  I remember eating the black berries on the country lane on my way home from school and I remember my father and I watching Doctor Who.  Each week the Doctor would venture into mystery and danger and as the tension rose I would boil with greater and greater excitement until suddenly the Doctor would confront the Cybermen or even worse the Daleks!  Just then, of course, the episode would end.  Total agony!  I could not wait for the week to pass and I was a devil to tuck into bed those nights as I trembled with speculation and trepidation about whether the Doctor would survive.

"My Doctor," was primarily the fourth, played by Tom Baker.  His unique signature was a very long scarf--so enthralled was I that I asked my grandmother to knit me a similar scarf which I then wore everywhere I went... even when I returned to Canada and nobody understood the reference.

Recently I have been watching Doctor Who again, now with David Tennant playing the tenth doctor--the best since Baker in my view.

Only now, more than a quarter century past my childhood, I have been watching Doctor Who with my son.  My eldest is a young boy of ten or eleven and he boils with greater and greater excitement as the Doctor ventures deeper into mystery and danger.  He too jumps out of his chair in total agony when an episode ends with a cliffhanger and calming him after such an episode isn't easy!

In the last episodes of the latest season the Doctor teams up with his old companion, Sarah Jane.  The very same Sarah Jane played by the very same actress as accompanied "my Doctor" some thirty years ago--now aged and older just like me.  As I watch Doctor Who with my son, just as I watched with my father, I reflect on time and age and how a dream of my childhood has been fulfilled--my living room darkened and flickering with light has transformed and become my own TARDIS...my own time machine. 

Wikipedia knowledge deserts Africa fact of the day

Tyler Cowen

Almost the entire continent of Africa is geographically poorly represented in Wikipedia. Remarkably, there are more Wikipedia articles written about Antarctica than all but one of the 53 countries in Africa (or perhaps more amazingly, there are more Wikipedia articles written about the fictional places of Middle Earth and Discworld than about many countries in Africa, Asia, and the Americas).

There are some countries that are crammed with a dense amount of floating virtual information, such as Germany (with an average of one article tagged for every 65 square km), while others remain as virtual deserts, such as Chad (with an average of one tagged article every 17,000 square km).

Sharp divides between the Global North and the Global South can likewise be seen when looking at the number of geotagged articles per person. Austria, Iceland and Switzerland all have around one geotagged article for every 1,000 people, while in China or Guinea there is just over one article for every 500,000 people.

Here is the full article, interesting throughout and with a good map.  For the pointer I thank Michelle Dawson.

Mandates don't stay modest, a continuing series

Tyler Cowen

Breaking a three-day stalemate, the Senate approved an amendment to its health care legislation that would require insurance companies to offer free mammograms and other preventive services to women.

The vote was 61 to 39, with three Republicans joining 56 Democrats and the two independents in favor.

This happened directly after the release of evidence showing that many mammograms do not pass a comparative effectiveness test.  Once the test became a public issue at all...well, now you see what happens.  CBO, take note.

State licensed hypnotists

Alex Tabarrok

Kevin Carey has a sadly amusing post on occupational licensing:

Back when I was working for the Indiana General Assembly, one member...became convinced that it was crucially important for the state to address, via statute, the problem of rogue hypnotists traveling the land, preying upon unsuspecting Hoosiers. He wasn’t anti-hypnotist, mind you–he thought the government needed to protect people from unqualified hypnotists...

So the state passed a hypnotist licensing law, complete with the requisite boards, professional standards, forms to fill out, fees to pay, and so on....Then, after the law was enacted, a funny thing started happening: The state began receiving license applications from people who didn’t live in Indiana....It turns out they were doing it so they could advertise in the yellow pages and on bus-stop billboards as “state-licensed.”

Hat tip to Matt Yglesias.

Sentences to ponder

Tyler Cowen

Felix Salmon writes:

Remember too that when you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government’s tax revenues. And indeed federal revenues have been rising faster than median wages for decades now, thanks to the rich getting ever richer.

Given the government’s insatiable appetite for cash, it’s only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don’t pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue.

The government’s interests, then, are naturally aligned with those of the plutocrats — and when that happens, the chances of change naturally drop to zero.

Whenever there's an MR post categorized under both "economics" and "political science," it's usually pretty brutal.

Meta-list for best non-fiction books of 2009

Tyler Cowen

I've been reading lots of year-end "best of" lists, from serious outlets that is, and these are the books which I see recurring with special frequency:

1. Richard Holmes, The Age of Wonder: How the Romantic Generation Discovered the Beauty and Terror of Science.

2. Cheever: A Life, by Blake Bailey.

3. David Grann, The Lost City of Z: A Tale of Deadly Obsession in the Amazon.

4. Gordon Wood, Empire of Liberty: A History of the Early Republic.

5. Columbine, by David Cullen.

8. By Greg Grandin, Fordlandia: The Rise and Fall of Henry Ford's Forgotten Jungle City.

9. Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World.

10. Pops: A Life of Louis Armstrong, by Terry Teachout.

I thought all of those were well done but Lords of Finance was the only one I loved.  My favorites are here and Lords arguably would be third on that non-fiction list of two.  In fairness to the authors I've only browsed Gordon Wood (report coming soon) and I haven't yet read Pops but suspect I might like it very much (report coming soon).

If you wish, you can dig into some of the book source lists I used for this meta-list here.  Have someone ready to throw you a rope.

Here are some "best albums" lists, if you wish to wade through those.  They are harder to aggregate and I haven't found a useful way of doing it.

Assorted links

Tyler Cowen

1. Jeff Frankel's vision of fiscal responsibility.

2. Sumner on Selgin; Scott remains one of the best arguments for the blogosphere.

3. Why was the Canadian housing market different?

4. "We found that negative emotions play a key role in how much we enjoy sports."

5. Dubai photo show; use "Full Screen" mode.

6. Uh-oh.

The decentralization of science, including climate science

Tyler Cowen

If you would like takes on Climategate different from my own, here are Megan McArdle, Seth Roberts, and Clive Crook, plus I have mislaid a Bob Murphy post, maybe he can leave the link in the comments (it's here). 

I am by no means an expert in climate science but I will explain in more detail why I would stress different issues.  (Please do set me straight where I am wrong.)  I see science, including climate science, as very much a decentralized process, based on the collective efforts of thousands of researchers.  The evidence for our current understanding of climate change also comes from a wide variety of disciplines, including chemistry, meteorology, oceanography, geography, tree ring studies, ice sheet studies, and a good body of theory, which has held up well.  These results all point in broadly similar directions.  Call me naive but, with apologies to Robert Sugden, I don't think many scientific results depend on what comes out of East Anglia, even if you include its emailing affiliates from Penn State and the like.  Even very, very simple climate models generate many of the basic results.

It's correct to claim that East Anglia is a "central player" in climate change studies and that the IPCC looks to its estimates, as most sources report.  It's no less important that other, competing models -- in a competitive scientific framework -- support similar perspectives.  Here's a sentence from the unit's own account of its origins:

It is likely that CRU ranks only behind NCEP/NCAR, ECMWF (ERA-40) and NCDC as the acknowledged primary data source by climate scientists around the world.

In other words, it's not the only source.  I simply don't think that all those other scientific units are controlled by people who hate capitalism, or SUVs, and wish to conspire to destroy them and succeed in faking and twisting the data.  Or if you want to look outside the "conspiracy," consider this short bit:

“We knew about global warming long before you read about it in your newspapers,” says Niels Gundel, as he cocks his rifle and peers out across the water. He is speaking Greenlandic, with a tour guide acting as interpreter.

And:

I find myself grasping at reasons to be hopeful. The Arctic has been subject to some natural warming in the past: there was a brief heating in the Middle Ages. Couldn’t it be happening again? I couldn’t find a single scientist who said this was the primary cause. The warming in the past was localised, affecting only parts of the Arctic; this is affecting everywhere, all at once. 

In the last two years I recall seeing numerous (distinct) new findings, all along the lines of "climate change may be accelerating,"  As far as I can tell, most of these new results do not rely on East Anglia per se.

I'm open to persuasion -- I would love to think climate change is not a problem and sadly I don't think it's a problem we will succeed in solving -- but so far I haven't seen the discussions of ClimateGate address these points in a manner which would change my mind.  

Brain Slicing

Alex Tabarrok

See a man's brain sliced to pieces live over the internet.  Weird.

Addendum: Background here.

Dubai fact of the day

Tyler Cowen

Dubai now has the tallest building in the world, and 11 skyscrapers that are taller than any European building.

That's from Ed Glaeser, who offers a more general take on the city-state.

Assorted links

Tyler Cowen

1. Raisin-covered goat cheese (via Yana).

2. Markets in everything: chocolate phone edition.

3. Victor Niederhoffer reviews Modern Principles: Microeconomics.

4. Machine allows anyone to work for the minimum wage.

5. Scott Sumner on the Tabarrok-Cowen AS-AD model.

6. David Wessel on the financial crisis.

The future of Africa?

Tyler Cowen

I'm still thinking about this fascinating article from the NYT magazine last week, titled "Is There Such a Thing as Agro-Imperialism?".  Here are two excerpts:

...one of the earth’s last large reserves of underused land is the billion-acre Guinea Savannah zone, a crescent-shaped swath that runs east across Africa all the way to Ethiopia, and southward to Congo and Angola.

And:

...as of earlier this year, the Ethiopian government had approved deals totaling around 1.5 million acres, while the country’s investment agency reports that it has approved 815 foreign-financed agricultural projects since 2007, nearly doubling the number registered in the entire previous decade. But that’s far from a complete picture. While the details of a few arrangements have leaked out, like one Saudi consortium’s plans to spend $100 million to grow wheat, barley and rice, many others remain undisclosed, and Addis Ababa has been awash in rumors of Arab moneymen who supposedly rent planes, pick out fertile tracts and cut deals.

Foreign investment can do wonders but the interaction between such investment and corrupt foreign governments can also be negative if workers and citizens are not granted adequate rights.  This article caused me to revaluate possible paths for some African futures.  The Coase theorem is finally kicking in.  I see corrupt politicians deciding it is more profitable, and also more secure, to "sell off" their countries than to oppress them in the traditional manner.  I see a new kind of tax farming, based on the extraction and exploitation of resources and raw materials, with African labor along for the ride.  It will mean higher living standards and better infrastructure, but probably not along a path that will look very appealing to most Western observers.

Contra Max Weber

Tyler Cowen

Davide Cantoni (who by the way is on the job market, from Harvard) reports:

Many theories, most famously Max Weber's essay on the 'Protestant ethic,' have hypothesized that Protestantism should have favored economic development. With their considerable religious heterogeneity and stability of denominational affiliations until the 19th century, the German Lands of the Holy Roman Empire present an ideal testing ground for this hypothesis. Using population figures in a dataset comprising 276 cities in the years 1300-1900, I find no effects of Protestantism on economic growth. The finding is robust to the inclusion of a variety of controls, and does not appear to depend on data selection or small sample size. In addition, Protestantism has no effect when interacted with other likely determinants of economic development. I also analyze the endogeneity of religious choice; instrumental variables estimates of the effects of Protestantism are similar to the OLS results.

The full paper, and other work by Cantoni, is here.  I believe this is the most thorough statistical test of the Weberian hypothesis to date.

From the comments

Tyler Cowen

People are not always eager to lay down good vs. evil thinking.  I don't mean to pick on any single commentator but here is one example:

...E T Jaynes is spinning in his grave that you used Bayes to justify an increase[d] belief in AGW based on scientist's personal beliefs when they lacked the to support their own conclusion.

They believed something so strongly they faked data? A scientist should only believe something so strongly because they have the data to support their belief!

This was perhaps the most misunderstood blog post (including by other bloggers) I've written, yet the original text is quite literally clear, though perhaps it confuses people by not offering up the emotional valence they are expecting.  I did not try to justify any absolute level of belief in AGW, or government spending for that matter.  I'll repeat my main point about our broader Bayesian calculations:

I am only saying that #2 [scientists behaving badly because they think the future of the world is at stake] deserves more than p = 0.

Nor is my point that p is large, but rather if you don't consider this p at all your reasoning is incomplete.  People simply do not wish to hear that sometimes they should pay heed -- incomplete heed at that -- to the opinions of evil others.  It's remarkable how many people responded to this blog post by attacking either the scientists or, in some cases, me.  

Who says there's a credit crunch?

Tyler Cowen

Somali pirates are raising money through a local equity offering:

In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.

Here is one internal account:

"Four months ago, during the monsoon rains, we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking," Mohammed said.

"The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials ... we've made piracy a community activity."

For the pointers I thank Pin-Quan Ng and Eric Crampton.

From TwitterWorld

Tyler Cowen

Austrian "term structure of capital" paradox: high elasticity of derived demand + low elast of substitution in production.

That's from Garett Jones.  Garett also asks:

Do smart phones make waiting rooms uglier?

Assorted links

Tyler Cowen

1. Charles Goodhart wants to stop QE.

2. Will premiums go up or down?

3. Free chapter on experimental economics.  And the first chapter from Scroogenomics.

4. The first chapter from Randall Collins's Violence, an excellent book.

5. "Hobbits" seem to be a unique human species.

6. "Although it may sound counterintuitive, loneliness can spread from one person to another..."

*Unchecked and Unbalanced*

Tyler Cowen

This book represents an attempt to explore the problem of the discrepancy between the trends in two phenomena: knowledge is becoming more diffuse, while political power is becoming more concentrated.

That's the first sentence of Arnold Kling's second new book; in another context I might have called it "Words of Wisdom."  My blurb on the back was:

This is essential reading on the political dangers facing us today and the risk of excess centralization.  Arnold Kling is one of my favorite commentators.

Here Arnold explains his two books.

Will you bail out Dubai?

Alex Tabarrok

Would you like to buy an indoor ski resort in Dubai? Maybe you already have.

Andrew Sorkin makes a good point in today's column. The problem of moral hazard is often written off as a problem for "the future," less important than dealing with a present crisis. Not so.  The bailouts may have encouraged more lending to other places that were perceived as good bailout prospects.

That had to be what Citigroup, with its firsthand expertise with bailouts, must have been thinking when it lent $8 billion to Dubai last year. Oh, and here’s an interesting fact: Citigroup made the loan to Dubai on Dec. 14, 2008. Take a look at the calendar — that’s after it received tens of billions in TARP funds. Citigroup’s chairman, Win Bischoff, said at the time, “This is in line with our commitment to the U.A.E. market in general, and reflects our positive outlook on Dubai in particular.” Good call.

The limits of good vs. evil thinking

Tyler Cowen

Good vs. evil thinking causes us to lower our value of a person's opinion, or dismiss it altogether, if we find out that person has behaved badly.  We no longer wish to affiliate with those people and furthermore we feel epistemically justified in dismissing them.

Sometimes this tendency will lead us to intellectual mistakes.

Take Climategate.  One response is: 1. "These people behaved dishonorably.  I will lower my trust in their opinions."

Another response, not entirely out of the ballpark, is: 2. "These people behaved dishonorably.  They must have thought this issue was really important, worth risking their scientific reputations for.  I will revise upward my estimate of the seriousness of the problem."

I am not saying that #2 is correct, I am only saying that #2 deserves more than p = 0.  Yet I have not seen anyone raise the possibility of #2.  It very much goes against the grain of good vs. evil thinking:  Who thinks in terms of: "They are evil, therefore they are more likely to be right."

(Which views or goals of yours would you behave dishonorably for?  Are they all your least correct views or least important goals?  With what probability?  Might it include the survival of your children?)

I do understand that this line of reasoning can be abused: "The Nazis went to a lot of trouble, etc."  The Bayesian point stands.

Another example of misleading good vs. evil thinking stems from the budget.  Many people believe:

3. "If the Republicans win, they will irresponsibly cut taxes and do nothing real to control spending."  You may have even seen this view in the blogosphere.

One response to this is 4. "We should ensure that the Republicans do not win and criticize them every chance possible."

An alternative response is 5. "Sooner or later the Republicans will in fact win and I cannot prevent that.  Right now the Democrats should spend less money, given the truth of #3.  In this regard the Republicans, although evil, are in fact correct in asking the Democrats to spend less money, if only to counterbalance their own depravity."

I do not see many people entertaining #5.  #5 implies that a group judged as dishonest should be granted some probability of speaking the truth on an important issue.  (Nor will pro-Republicans be attracted to a claim which portrays their group as dishonest.)  Note also that by accepting #5 you are admitting and partially accepting the ability of the Republicans to "out-game" the Democrats.  That makes #5 even harder to accept.

Again, I am not asking you to buy #2 and #5 outright.  I am simply suggesting they have a higher "p" than many people are willing to grant them.  And that is because we are accustomed to judging the truth of a claim by the moral status of the group making the claim.

Facts about Greece

Tyler Cowen

This year, the budget deficit will rise to 12.7 per cent of gross domestic product - and this assumes there are no further accounting tricks to be uncovered. Deutsche Bank calculated in a recent research note that the country's public debt-to-GDP ratio is headed for 135 per cent. Gross external debt - private and public sector debt owed to foreign creditors - was 149.2 per cent at the end of last year. The real exchange rate has gone up by 17 per cent since 2006, which means the country is losing competitiveness at an incredible rate. Had Greece not been in the eurozone, it would be heading straight for default.

The government's 2010 draft budget foresees a deficit reduction to about 9.1 per cent of GDP. But the number is misleading. The lion's share of the total deficit reduction effort is earmarked to come from tax measures, and most of those from the fight against tax evasion. Tax evasion is always the item first on the list of desperate governments.

Here is the full article.

What determines a professor's reputation?

Tyler Cowen

In economics, that is.  A new paper by Daniel Hamermesh and Gerard Pfann tries to answer that question.  Their abstract is worded a little awkwardly, I would summarize their results as follows:

1. Adjusting for citations and other measures, "reputation" (defined both in terms of awards and the quality of the department you inhabit), does not rise with the quantity of articles published by an individual.

2. Adjusting for citations and other variables, having your citations in a single dominant piece, rather than scattered across a greater number of pieces, does not predict reputation.

3. The quantity of articles published does predict mobility and salary (adjusting for quality), even though it does not predict reputation.

I take the lesson to be that lots of schools -- non-top departments -- want to hire churners with a lot of published output.  I'm a little worried about which quality measures should be predicting which in this paper, but nonetheless the results rang true to my ear.  The paper (NBER) is here.  Angus also comments.

Nicaragua bleg

Tyler Cowen

I'll have three days there, fairly soon.  I've never been to Nicaragua before, though I've spent a fair amount of time elsewhere in Central America.  Your recommendations would be very welcome and many of them will be used.

Assorted links

Tyler Cowen

1. 83-year-old woman fights poverty in Haiti.

2. Will monkeys type Shakespeare if given enough time?

3. The albinos are in hiding.

4. "I am not a number, I am a free man!": free and on-line.

5. More on China's excess capacity.

6. Willem Buiter to be chief economist at Citigroup, yet here is the clincher.

7. Where should I eat?  Chain restaurant flowchart.

Irving Fisher: Underappreciated economist

Alex Tabarrok

Tyler points to Malthus as a much underappreciated economist. John Cassidy points to Pigou.  For my money, Irving Fisher dominates.  Other people (e.g. London Banker and Yves Smith) have also extolled Irving Fisher, but I would still rank Fisher as highly underappreciated relative to insight and clarity of thought.

Here from his classic, The Debt-Deflation Theory of Great Depressions, are some choice insights. 

Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to (7) Hoarding and slowing down still more the velocity of circulation.

The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way.

With perhaps the qualification that even real rates of interest may fall is this not a brilliant summary of current events?  And on the solution to the crisis:

On the other hand, if the foregoing analysis is correct, it is always economically possible to stop or prevent such a depression simply by reflating the price level up to the average level at which outstanding debts were contracted by existing debtors and assumed by existing creditors, and then maintaining that level unchanged.

With a few changes to growth rates rather than levels is this not fully modern?  And the following, with its hint of the importance of expectations, strikes a very Sumnerian tone (or rather, of course, Sumner's analysis strikes a very Fisherian tone).

...The fact that immediate reversal of deflation is easily achieved by the use, or even the prospect of use, of appropriate instrumentalities has just been demonstrated by President Roosevelt. Note Charts VII and VIII.

And behavioral economics was nothing new to Irving Fisher:

The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realising a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.

When it is too late the dupes discover scandals like the Hatry, Krueger, and Insull scandals. At least one book has been written to prove that crises are due to frauds of clever promoters. But probably these frauds could never have become so great without the original starters of real opportunities to invest lucratively. There is probably always a very real basis for the "new era" psychology before it runs away with its victims.

Holding the line on the "public option"?

Tyler Cowen

Perhaps it's just political posturing, but on substantive grounds I don't get it.  The biggest problems with the proposed reforms have to do with the incentives created by the mandates.  That includes the incentives for would-be purchasers (better to just pay the fine and remain outside the pool), the incentives for the subsidized (very high implicit marginal tax rates), the incentives for employers (look for illegal aliens), the incentive for doctors to stop treating Medicare and especially Medicaid patients, and the incentives for the insurance companies (there's probably a way to scare off high-risk customers or otherwise game the customer carry requirements).

There is room for disagreement as to how big these problems are in absolute terms, but still they should be seen as the major problems with the likely bill-to-come, issues of cost aside.

The public option alleviates these problems, albeit in a minor way, by removing some individuals from this circle of possibly unworkable incentives.

I still can see why you might not favor adding a public option to the plan, basically for the usual reasons which plague many government programs.  As for the politicians who are drawing a line in the sand at the public option, to me that's just a sign they don't understand the major potential problems in the plan in the first place.

Swiss minarets

Tyler Cowen

I have a few points:

1. Sooner or later an open referendum process will get even a very smart, well-educated country into trouble.

2. Given that the referendum came up, it was wise to root for its defeat.  The victory of the referendum is a symbol that prejudice can now advance a step.

3. That said, was there not some other way to sidestep this dilemma?  Washington D.C. doesn't allow tall buildings to compete with the Washington Monument, yet no one considers that a restriction on political freedom (though it may be a bad idea for economic reasons).  The Swiss cantons could have done the same for their town churches.  Note that a restriction on a minaret is not a restriction on a mosque.

4. I favor greater Muslim immigration into the United States and I think Muslim emigration to Europe is working better than most people think.  I am happy to see that Switzerland has become a more cosmopolitan society, in large part by taking in more emigrants, including Muslims.  Nonetheless, call me old-fashioned, but I don't think a Swiss town center should look like the photograph above.  I guess the Swiss don't either. 

5. I also don't have any problem with Mecca limiting the size of Christian churches in that town, or say if an American billionaire wanted to build a really big cross there.  (Oddly Dubai allows it.)

6. The United States is special and thus it allows a very, very large mosque not so far from Bowling Green, Ohio.  I am pleased we have the sort of polity which makes this possible, but I also recognize many other countries cannot inhabit this same political space.

7. The overall lesson is that knowing how and when to defuse an issue is one very large part of political wisdom.  The Swiss usually pass this test but this time they failed it.

What is the unhappiest day of the week?

Tyler Cowen

It is Sunday, at least according to one study conducted in Germany, by Swedes.  Could it be because there is much less to buy?  Because the cities empty out?  Because walking in nature is overrated?  Because you are supposed to go to church or are supposed to spend more time with family?  Indeed the effect is stronger for married people.  For former East Germans there is not a significant Sunday effect.

When I lived in Germany, Sunday was my least favorite day, as it was in Wellington, New Zealand, although that is not the case living in the United States.

For the pointer I thank Bruce Bartlett.

Assorted links

Tyler Cowen

1. "Best buy" programs, from the Poverty Action Lab.

2. More favorite fantasy novel picks.

3. The research productivity of Robert Tollison varies with the business cycle.

4. Economic incentives can work for blood donation: another blow against the Titmuss hypothesis.

5. Blog posts to giggle over; read the comments too.  And then there is Robin's response.

My NYT column on Austro-Chinese business cycle theory

Tyler Cowen

The column is here and one excerpt is this:

China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector.

A longer excerpt is this:

China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.

Chinese planners now talk of the need to restrict investment in sectors that are overflowing with unsold products. The global market is no longer strong, and domestic demand was never enough in the first place.

Regional officials have an incentive to prop up local enterprises and production statistics, even if that means supporting projects or accounting practices that are not sustainable. For an individual business, the standard way to get more capital resources is to put forward a plan for growth. Because few sectors are mature, and growth has been so widespread, everyone can promise to be profitable in the future.

Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.

Put all of this together and there is a very real possibility of trouble.

I then outline how the negative scenario might run and that involves deflation on the goods side, for both China and the U.S., and higher U.S. borrowing costs on the capital side.  A few related points:

1. The word "malinvestment" does not appear in The New York Times style guide but it survived to the final published draft of the piece.

2. Scott Sumner offers a skeptical take on my claims.

3. The piece cites Malthus in the same breath as Hayek.  Malthus is a much-underappreciated economist and in macroeconomics he was much better than the naive overproduction theorists.  His cyclical story is ultimately about proportionality and it is based on a "tragedy of the commons" effect -- for the production of capital goods -- which is not so different than his population mechanism.  Malthus, by the way, had quite a modern understanding of supply and demand, well before the marginalist revolution.

4. I still am not convinced that we have avoided a new version of "the vertigo years," based on a fundamental discombobulation of economic expectations.  This is probably just historical coincidence, but the Great Depression did come last to China.