Marginal Revolution

Blame it on the young

Tyler Cowen

Nir Jaimovich and Henry Siu write:

We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the U.S. and other G7 economies. During the postwar period, these countries experienced dramatic demographic change, although details regarding timing and nature differ from place to place. Using panel-data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in U.S. business cycle volatility. Through simple quantitative accounting exercises, we find that demographic change accounts for approximately one-fifth to one-third of this moderation.

That's in the June 2009 American Economic Review (somewhat different version).  One ungated earlier version is here.  A later NBER version is here.  The very useful PowerPoints are here.

Assorted links

Tyler Cowen

1. There seems to be a Flynn Effect for memory.

2. How to use Kindle in foreign countries.

3. Few people want to improve their empathy.

4. Should Manhattan buses be free?

5. Negative interest rates in Sweden; not everyone likes the idea.

*Other* notable events from July 4

Tyler Cowen

1803 – The Louisiana Purchase is announced to the American people.

1826 – John Adams and Thomas Jefferson, the second and third President of the United States respectively, both die on the fiftieth anniversary of the United States Declaration of Independence, of which they were both signatories.

1827 – Slavery is abolished in New York State.

1837 – Grand Junction Railway, the world's first long-distance railway, opens between Birmingham and Liverpool.

1855 – In Brooklyn, New York, the first edition of Walt Whitman's book of poems, titled Leaves of Grass, is published.

1865 – Alice's Adventures in Wonderland is published.

1946 – After 381 years of near-continuous colonial rule, the Philippines attains full independence from the United States.

Here is the link, so your celebration should be a good one.

A theory of Fed announcements

Tyler Cowen

If you've been paying attention, the Fed likes to release bad news after the markets close on Friday afternoon. The past couple weeks, they've announced the failures of small regional banks.

Well today [referring to a Friday], they announced something just a little bit bigger - the government bailout/takeover of Fannie Mae and Freddie Mac, the two large mortgage finance guarantors. The markets have been expecting this for a while, but obviously not everyone was expecting it as their stock prices were $5.50 and $4 respectively when the market closed today. If everyone was expecting this, then those prices would have been a lot closer to zero.

Here is more.

The best paragraph I read today

Tyler Cowen

Do I belong in an insane asylum?  Or should I be on the FOMC (with Hall, Thompson and Svensson?)  Damned if I know.  This blog is either grossly overrated or grossly underrated, but it ain’t average.

That's Scott Sumner.

Voice (and loyalty)

Tyler Cowen

After several of you complained, the Kindle price, for Create Your Own Economy, has been lowered to $14.27, from $20 something.  Maybe someone at Amazon reads the comments at MR (really, I had nothing to do with it).

What other prices would you like changed?  Health insurance -- how much should that cost?  A barrel of oil?  Just let them know.

A simple economic model of today's NBA

Tyler Cowen

Given economic bad times, many teams have overspent.  But they have lots of long-term contracts, plus there is a salary cap and luxury tax for going above that cap.  Real wages ought to fall but most of them cannot fall right away.  If a player becomes a free agent, few teams will bid and those players will absorb a disproportionate share of the required wage cuts (the pricing of complementary inputs had some indeterminacy anyway, plus there is an AC constraint). 

The lower returns available mean that a given free agent is more likely to be a self-deluding trouble maker who has worn out his welcome (Artest, Gordon, etc.).  This favors teams with dominant players (Cleveland), strong systems (Boston), and strong coaches.  All those teams can swallow the troublemakers without cracking up.  It also favors teams which suffer from well-defined "missing pieces."  It favors already-good teams and indeed we see that Cleveland, Orlando, San Antonio, and LA have been major players in the free agent or trade markets.

I predict a greater dispersion of win totals for next year's season.

I am wondering to what extent a similar analysis applies to economics departments, or to teams of bloggers, or to other groups of complementary labor inputs.

Addendum: TrueHoop comments.

Adverse Selection Once Again

Alex Tabarrok

Adverse selection is an easy story to tell but a hard story to verify.  In fact, empirical studies indicate that adverse selection is not an important (equilibrium) effect in the market for used cars, or used trucks, or of auto, life insurance or health insurance.  See my earlier post, Adverse Selection is NOT the Problem, for reasons why markets handle asymmetric information better than most economists think.

In two excellent posts (here and here), Bryan Caplan further points out that the adverse selection model does not explain current regulations.  Adverse selection, for example, implies that it's the low-risk consumers who drop out of the market so it's the low-risk consumers who need a mandate to buy insurance.  But...

When you actually look at these regs, you'll notice some peculiarities:

1. Mandatory insurance is most prominent in the auto insurance industry. But these regulations don't target low-risk drivers. Their main purpose, contrary to the adverse selection model, is to make sure high-risk drivers get insurance.

2. Even more shocking: The regulations usually go on to somehow subsidize the rates that high-risk drivers pay. This is necessary because, contrary to the adverse selection model, insurance companies are able to detect high-risk drivers, and do not want to cover them at a loss.

3. Economists usually mention adverse selection in the context of health insurance. But in the market for individual health insurance - precisely where you'd expect adverse selection problems to be most severe - governments very rarely mandate insurance coverage. Instead, they focus on mandatory employer-provided health insurance, where the adverse selection problem is likely to be milder.

4. When governments do mandate health insurance, they almost always subsidize the rates that high-risk buyers pay. This is once again necessary because, contrary to the adverse selection model, insurance companies are able to detect high-risk customers, and do not want to cover them at a loss.

Bottom line: Real-world insurance regulation has little or nothing to do with economists' "moral hazard and adverse selection" mantra. The "intellectual" bases of real-world regulation of insurance are rather populism and paternalism: Big bad insurers won't cover people unless it's profitable, and simple-minded consumers don't care enough about their own health to pay for it themselves.

See also Tyler's post on this issue which makes many similar points.

Maniacs, all of us

Tyler Cowen

Is blogging declining?  Matt writes:

Laura at Apartment 11D offers an excellent précis of the ways in which the blogosphere of today lacks much of the charm of the blogosphere of four or five years ago. I would say that there are compensating benefits to the new, more professionalized, more institutionalized blogosphere. But it really is different and the change has been for the worse in many ways.

Laura links to many comments.  I'm more optimistic.  Very few (if any) of my favorite bloggers have quit and of course there are some new ones.  It's surprising how few of them have quit.  (If blogging is so great, why hasn't competition competed away their returns?  What about comparative advantage in this sector is so persistent?)  The rest of the output you can ignore.

Some Simple Economics of Mandated Benefits

Tyler Cowen

Via MR commentator John Chilton, here is a link (JSTOR, but free pdf here) to the classic and excellent treatment by Lawrence Summers on mandated benefits.  My view is that the main case for mandated benefits is simply to note that public provision is often worse and that direct subsidy, such as a cash transfer, is not always feasible.

The case against is simple too.  Say that previously unprovided health insurance would have cost the employer 60 and would have been valued by the worker at 40.  You're imposing a tax of 20 on the employment relation.  In the short run firms will hire less labor and during a recession is an especially bad time to produce that effect. 

In the longer run, if the market is competitive, wages will fall by 20.  We're forcing relatively poor workers to consume more medical insurance, and more medical care, than they wish to, at the expense of their cash income.

Do not forget the excellent words of Ezra Klein:

Indeed, the main impact of health-care reform on health may be that if it could contain costs, we'd have money to spend on things that actually do make us healthier.

He means things other than health care in the narrow sense.  I don't know if Ezra opposes the mandates approach (compared to what?) but his quotation indicates a problem with it, even from the standpoint of health alone, much less considering the other pleasures of spending or saving cash.

Of course some of the people covered by the mandate would otherwise end up showing up at emergency rooms.  Treating them that way would get tacked on to my medical bills, one way or another.  With a mandate they are no longer my financial headache. 

With this new change, who's better off?  Me.  Who's worse off?  The previously uninsured poor person.

You might say: "We are covering more people, at a lower price, than we had thought possible."  That sounds like a kind of triumph.  But if you cut through to the actual analysis, your paternalism has to be a lot stronger than your egalitarianism for you to support this kind of measure.

Twitter search of the day

Tyler Cowen

Employer mandate.

How many of you use this function?

Here's a search on Karl Malden and Ben Gordon (now a Piston).  Besides entering your own name, what are the best methods for getting quality information out of Twitter?  Is there a successful hybrid blog/Twitter format, where the blogger pairs with Twitter to produce a better aggregator than either could do alone?

Assorted links

Tyler Cowen

1. Ezra Klein's new food column.

2. Washington Post markets in everything?  The paper has yet to respond, so do be aware there may be another side to this story. 

3. Why WalMart caved.

4. 1959.

5. The Kissing Experiment (2009).

6. The end of free banking in contemporary China.

7. California: The Haves and Have-Nots.

Kindle edition of *Create Your Own Economy*

Tyler Cowen

Now ready for pre-order.  You get it July 9, the date of the book release.

When should one blog the obvious...?

Tyler Cowen

Usually I try not to blog points which already have occurred to everyone, even if those points are true and important.  But today I will do so.

First, the idea of an employer mandate for health care is a tax on hiring labor in a time when, if anything, the hiring of labor should be subsidized.  On top of that is the proposal to tax health insurance benefits.  Keynesians especially should be upset about these developments, although I haven't heard many peeps.  Even if they favor this policy in the abstract, surely they are accustomed to the idea that the short run is very important, most of all for labor markets and aggregate demand.

Second, Joseph Stiglitz's idea that "the UN has a key role to play in "reforming the global financial and economic system"" is a bad idea.  It is a very bad idea.  We're past the point where "they can't do any worse than we did" is a good or usable argument.  Has the Public Choice revolution been such an unpalatable pill to digest?

On the brighter side, I did not agree with but enjoyed this comment from thehova (citing Michael Powell):

"Wilco" is a five-letter word for the quiet slaughter of all that is elemental, passionate, and reverentially stupid about rock 'n' roll.

Markets in everything

Tyler Cowen

Chessboxing has a convivial party atmosphere and is far more female friendly than a normal boxing crowd, with 40% of tickets purchased by ladies.

Here is more, with the subheader Swedish Chessboxing Sensation in London.  About a year ago, five or so people sent me links about chessboxing for "Markets in Everything."  I didn't think it was weird enough to merit inclusion in the series.  But now, with the addition of "Swedish" and "ladies" to the mix (or is it the "convivial party atmosphere"?), I think it is weird enough.  Here is Wikipedia on chessboxing.

*Wilco*, by Wilco

Tyler Cowen

If you aggregating a lot of binary opinions, I vote yes you should buy it.  It's more accessible and less mysterious-sounding than their usual fare, which you may consider either a plus or a minus.  If you're wondering what my underlying stance is, a few days ago I said to Brian Hooks something like: "I'm glad I've never really been a fan, that leaves me free to enjoy them without feeling threatened by what they stand for."

Status games among the Amish

Tyler Cowen

Some Amish bishops in Indiana weakened restrictions on the use of telephones. Fax machines became commonplace in Amish-owned businesses. Web sites marketing Amish furniture began to crop up. Although the sites were run by non-Amish third parties, they nevertheless intensified a feeling of competition, says Casper Hochstetler, a 70-year-old Amish bishop who lives in Shipshewana.

"People wanted bigger weddings, newer carriages," Mr. Lehman says. "They were buying things they didn't need." Mr. Lehman spent several hundred dollars on a model-train and truck hobby, and about $4,000 on annual family vacations, he says. This year, there will be no vacation.

It became common practice for families to leave their carriages home and take taxis on shopping trips and to dinners out.

Some Amish families had bought second homes on the west coast of Florida and expensive Dutch Harness Horses, with their distinctive, prancing gait. Others lined their carriages in dark velvet and illuminated them with battery-powered LED lighting.

Most of the article concerns a recent bank run in an Amish community:

Only Amish people can join. The trust's 2,100 depositors receive annual interest of 3.2%, while borrowers pay 3.5% interest on loans. There are no credit checks. Monthly mortgage payments can be no more than 33% of a borrower's gross income.

The trust's structure reflects the Amish philosophy of sharing. It isn't insured by the Federal Deposit Insurance Corp., but by its own bylaws it maintains at least $1 million in cash reserves. The trust has never exercised its authority to foreclose on a home.

A sustained run wiped out the bank's reserves and now it has ceased lending.  Probably it is hard to gather the data, but I would love to read a book Economic Life Among the Amish.

Update on the public plan

Tyler Cowen

Ruth Marcus tells Democrats not to go to the wall for it.  She is not personally against the presence of a public plan, she just doesn't think it is a "do or die" question.  There are other ways of making the sector more competitive, if need be.

Here is the veteran commentator Wisewon on the public plan.

As Ezra Klein indicates, the health insurance exchanges are a more important part health care reform.  Here is a progressive symposium on the public plan; read Paul Starr.

Brad DeLong writes:

We should set up a public plan, let it compete with the privates, and see if it can provide care people like more cheaply than the private insurance companies. Friedrich Hayek would approve: the idea is to use the market as an institutional discovery mechanism.

Is this the SOE model?  I'm still stuck on what the public plan will be instructed to maximize, much less what it will end up maximizing after ?? years of Congressional interference.  And exactly who in our government will mimic the behavior of shareholders?

Assorted links

Tyler Cowen

1. Boston Globe story about Peter Leeson.

2. Seth Godin weighs in on Gladwell vs. Anderson.

3. Tractor Square Dance.

4. The macroeconomics of Australia, with a poke at Kiwis at the end.

5. Free Saudi wedding for quitting smoking.

How to fight corruption in Nepal

Tyler Cowen

The Nepalese government plans to issue pants to airport workers that have no pockets.

A spokesman said trousers without pockets would help the authorities “curb the irregularities”.

The move comes after the prime minister of Nepal said corruption was damaging the airport’s reputation, AFP reported.

Apparently without pockets it is harder to take bribes.  (You also can file this under "Carrying costs > liquidity premium.")  The pointer is from Air Genius Gary Leff, who I might add is allowed to wear pockets.

Ben Casnocha reviews *Create Your Own Economy*

Tyler Cowen

I am delighted with the review, which is more like a review essay, with many interesting observations on internet culture as well as on the book.  The essay title is "RSSted Development."  Excerpt:

...the intellectual and emotional stimulation we experience by assembling a custom stream of bits. Cowen refers to this process as the “daily self-assembly of synthetic experiences.” My inputs appear a chaotic jumble of scattered information but to me they touch all my interest points. When I consume them as a blend, I see all-important connections between the different intellectual narratives I follow a business idea (entrepreneurship) in the airplane space (travel), for example. Because building the blend is a social exercise real communities and friendships form around certain topics my social life and intellectual life intersect more intensely than before. And I engage in ongoing self-discovery by reflecting upon my interests, finding new bits to add to my stream, and thinking about how it all fits together.

Cowen maintains that these benefits enhance your internal mental existence; how you order information in your head and how you use this information to conceive of your identity and life aspirations affects your internal well-being. Because a personal blend reflects a diverse set of media (think hyper-specific niche news outlets in lieu of a nightly news broadcast that everyone watches on one of three networks), and because each person constructs their own stories to link their inputs together, the benefits are unique to the individual. They are also invisible. It is impossible to see what stories someone is crafting internally to make sense of their stream; it is impossible to appreciate the personal coherence of it.

The way the benefits of info consumption habits accrue privately but are perceived publicly approximates romance, Cowen adds. Compare a long-distance relationship to a proximate one. In a long-distance relationship, you have infrequent but very high peaks when you see each other. Friends see you run off for fancy getaway weekends when the sweetheart comes to town. Yet day-to-day it is not very satisfying. In a marriage by contrast you have frequent, bite-size, mundane interactions which rarely hit peaks or valleys of intensity. The happiness research that asserts married couples are happier than non-married ones and especially happier than couples dating long-distance is not always self-evident. Outsiders see the inevitable frustrations and flare-ups that mark even stable marriages. What they cannot see is the interior satisfaction that the couple derives by weaving together these mundane moments into a relationship rich in meaning and depth, and in writing a shared life narrative that is all their own.

After reading the essay, I wonder how many blogs Ben has in his RSS feed...

Markets in everything, vending machines edition

Tyler Cowen

John de Palma has much to offer today:

An entrepreneur who used his redundancy money to start a business selling foldable shoes from a vending machine is to launch in America.  Matt Horan's £5 Rollasole is an emergency flat shoe women can change into from their stiletto heels for the walk home after a night out.  The pumps are already on sale in Ibiza superclubs Eden and Space(...)

Link here.  No, innovation is not dead:

...Katie Shea, a senior at the Stern School of Business at New York University, is instead pursuing her dreams of entrepreneurship. She has founded a shoe company that designs and imports collapsible shoes that women can wear while walking to work and then stuff into their pocketbooks..."

But where is the vending machine?  Scrub that one.  I want something different from my vending machines:

...Over the last decade, Mr. Torghele, 56, an entrepreneur in this northern Italian city who first made money selling pasta in California, has developed a vending machine that cooks pizza. The machine does not just slip a frozen pizza into a microwave. It actually whips up flour, water, tomato sauce and fresh ingredients to produce a piping hot pizza in about three minutes...

Here are previous MR posts on vending machines.  Here is my favorite.

Video testimonials to the Cowen/Tabarrok Principles text

Tyler Cowen

You will find them here.  If you are thinking of using the book for a course, please write us and we will try to get you a review copy.  There is a macro book, a micro book, and a combined volume.

Assorted links

Tyler Cowen

1. Transcapitalist blog, by Melody Hildebrandt and Anita Gardeva.

2. The impunity game: rejecting free money out of anger.

3. Polemic against Sweden.

4. Are bubbles welfare-improving?

5. Is the traditional theory of consumer behavior sometimes *correct*?

In which regards are autistics more rational?

Tyler Cowen

Many bloggers are citing a recent Scientific American piece, one part of which covers how autistics come closer to satisfying some canons of economic rationality.  Since I discuss the underlying research in Create Your Own Economy, I should point out that the SA article doesn't quite get it right.  They serve up:

One group that does not value perceived losses differently than gains are individuals with autism...

I would sooner describe the underlying research as showing that framing effects are weaker (NB: not absent) for autistics.  That is, for the autistics it matters less whether a given change in endowment is described as a gain or a loss, relative to varying frames.  I read the SA account ("when balancing gains and losses") as conflating framing and endowment effects; in any case the exposition is not clear.

SA writes:

...this seeming rationality may itself denote abnormal behavior...

An alternative would have been: "The autistics are in this way more rational."

One underexplored question is whether most people distrust those who are not irrational in particular, commonly realized ways.  Even the researchers on the original piece considers the superior performance of autistics on the test to be a sign of their processing "failures."

Another part of the piece concerns the skin conductance responses; there is preliminary evidence that autistics approached the framed choices in a less emotional manner, at least by that one measure.  

Create Your Own Economy considers a number of possible overlaps between economics and autism, including Vernon Smith's claim that Adam Smith was himself on the autism spectrum.  It also considers other ways in which autistics are likely to be more rational, such as being less likely to encode false memories and less likely to resort to excessive use of narrative to organize their memories and explanations.

Aid Realism for the Idealist

Alex Tabarrok

The failure of foreign aid to lead to economic development has left many cynics in its wake. For this reason, I enjoyed The Blue Sweater, Jacqueline Novogratz's story of moving from aid-idealism to aid-realism without ever passing through the way-station of aid-cynicism.  As a naive, aid-idealist Novogratz spent a lot of time on the circuit in Africa; eventually hard lessons wore away the naivety but not the idealism.  Of course, Novogratz learned a lot about the corruption, failure to experiment, and lack of accountability of the aid agencies but she also learned to be realistic about the do-gooders:

Philanthropy can appeal to people who want to be loved more than they want to make a difference.

But the hardest lessons were about the poor.  In the late 1980s, Novogratz worked with a group of native women to build up a thriving business in Rwanda.  Inevitably some of her friends became terrible victims of the 1994 genocide.  Perhaps even worse, some of her friends became perpetrators.  Hard lessons like these drove Novogratz's evolution.

I've read the following sort of thing many times:

It is so often the people who know the greatest suffering--the poor and most vulnerable--who are the most resilient, the ones able to derive happiness and shared joy from the simplest pleasures.

I've heard it so many times, I tend to dismiss it but Novogratz follows up with this:

That same resilience, however, can manifest itself in passivity, fatalism, a resignation to the difficulties of life that allows injustice and inequity to strengthen and grow...

Which, for me at least, turned a trite observation into an important insight.

Novogratz's experiences eventually developed into the Acumen Fund, a venture capital firm for aid.  The idea is to invest patient capital in scalable, for-profit businesses that deliver services to the poor.  The fund, for example, has invested in a firm producing drip irrigation systems in Pakistan, a Tanzanian firm that produces mosquito nets and an Indian firm producing internet-telephone kiosks in small villages.

The fact that the businesses have been for-profit has been critical.  In selling bed nets for example the Tanzanian firm learned that talking about malaria doesn't sell. What sells, in the words of one of their top salespersons is, "The color is beautiful, and you can hang the nets in your windows so that your neighbors know how much you care about your family."  As Novogratz puts it:

Beauty, vanity, status and comfort....The rich hold no monopoly on any of it.  But we're a long way from integrating the way people actually make decisions into public policy instead of how we think they should make them.

Patient capital is no panacea--what is?--but by investing in entrepreneurs who must listen to their customers a charitable venture-capital firm can multiply the effectiveness of its philanthropy.  

There is a powerful role both for the market and for philanthropy...Philanthropy alone lacks the feedback mechanism of markets, which are the best listening devices we have; and yet markets alone too easily leave the most vulnerable behind.

Cap-and-trade-war

Tyler Cowen

Eric Posner and Paul Krugman defend the use of tariff threats against polluting countries, such as China.  I'll outsource my response to an earlier post by Matt Yglesias:

The bottom line about the international aspects of climate change is that the very idea of an effective response assumes the existence of a generally cooperative international environment. It doesn’t assume the non-existence of the odd “rogue” state here or there, but it assumes the absence of any kind of serious great power rivalries. Not just China, but also India and probably Russia, Brazil, and Indonesia as well are going to need to cooperate in a serious way with the OECD nations on this. And I just don’t see how you’re going to get where you need to get through coercion. If anything, I think attempted economic coercion of China is more likely to wind up breaking down solidarity between the US, EU, and Japan than anything else. First, we impose our carbon tariff. Then suddenly Airbus and European car companies are getting all kinds of sales because the EU hasn’t followed suit. Now not only are the Chinese mad at us, we’re mad at the Europeans. Optimistically, at this point everyone decides coercion is unworkable and we start to back away.

I'll say it again: the current version of Waxman-Markey will make things worse.  Keep in mind by the time we are slapping those 2020 tariffs on China, we won't have made much progress on emissions ourselves.  How would we feel, and how would it influence our domestic politics, if the Chinese demanded we pass Waxman-Markey, while polluting at a high level themselves, or otherwise they will stop buying our Treasury securities?

Malcolm Gladwell dissents from Chris Anderson's *Free*

Tyler Cowen

Here are excerpts and the full original article.  Excerpt:

Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.

I haven't read the book yet, but hope to report back when I do.  For this pointer I thank Eric Wignall.

Addendum: Via Chris F. Masse, Anderson responds.

Knowledge and Decisions

Tyler Cowen

Today I wanted to cover lots of different topics, so here is a thought from Thomas Sowell:

Perhaps people who are busy gushing over the Obama cult today might do well to stop and think about what it would mean for their granddaughters to live under sharia law.

And to think that I was worried about high marginal rates of taxation.  The full article is here.

Not so long ago, Yana asked me: "What does Thomas Sowell think of Barack Obama?"  I believe I now have an answer for her.

The Dark Theorem of Economics

Tyler Cowen

Christopher J. Ayres sends me a paper.with the following abstract:

I begin by proving the "Dark Theorem of Economics," from which it follows that the foundations of economic theory rely on the Axiom of Choice (AC). All current solution concepts in game theory
also require the theorems implied by AC. In particular, lexicographic utility, lexicographic probability, the real line being well-ordered, and the existence of a universal space are all equivalent to AC; therefore any argument to disprove their existence must be false. Any proofs using properties that fail under AC must be redone. The concept of Nash Equilibrium becomes either a tautology (in the absence of AC) or violates rationality (in the presence of AC); we provide an example demonstrating this. Knowledge, Common Knowledge, Epistemics, Game Theory, and Macroeconomics (through the failure of Rational Expectations) must be rebuilt. Any economics …field or concept relying on these must also be rebuilt. I begin this process with the de…finition of "Fundamental Game."

I joked with Chris that the other people who pursued this line of inquiry met with unfavorable ends.  But that doesn't mean he is wrong.  Fortunately, I am a pragmatist when it comes to the foundations of economic theory or lack thereof.  It's hard enough to define what a number is, so if you push on the foundations of micro theory, don't expect a completely comfortable journey.

Singapore markets in everything

Tyler Cowen

...the restaurant is designed from top to bottom in a medical theme. wheelchairs, hospital beds, operating lights, test tubes and more, the design is completely off the wall. The interior is far more subtle than the al fresco seating out front.

It's called The Clinic and here is more information, and photos, including information on one of its tastiest dishes.  Here is their imaginative website.  Here is a floor plan with two excellent photos.  You sit in wheelchairs and drink out of IV bags. 

How many interesting cities are there in Venezuela bleg?

Tyler Cowen

That's a serious question.  I've never been to the country.  I was browsing on Wikipedia and I came across the following description of their second largest city, Maracaibo:

Maracuchos are extremely proud of their city, their culture, and all of Zulia. They usually claim that Venezuela wouldn't be the country it actually is without Zulia. Rivalry with inhabitants of other regions is common, specially with Gochos (people of the Mérida state) and Caraqueños (people of the city of Caracas).

Unfortunately, the city of Maracaibo has no facilities to treat domestic sewage.

Actually for a short visit I don't mind the sewage bit; the lack of sights of interest is more off-putting.  I have loved every part of South America I have visited (and that includes many poor places and indeed most of the continent, short of Paraguay and Venezuela), yet when I read about the cities of Venezuela I cannot muster much enthusiasm for seeing them.  Does Wikipedia simply fall flat on this topic?  Or does some factor make these cities boring?

Yes, I know about Angel Falls and the wood sculptures of Mérida.  But of the major cities of Venezuela, how many of them are interesting to see and visit?  And is there a theory behind your answer?

Assorted links

Tyler Cowen

1. Review of North, Wallis, and Weingast.

2. Sunstein nomination still being held up for animal welfare issues.

3. Big subsidies for GE Capital; hey, they're not a bank!

4. Global warming graphs and analysis.

5. History of home ownership subsidies.

6. New economics journal, edited by Kenneth Arrow.

I, Toaster, and good luck to you

Tyler Cowen

I'm Thomas Thwaites and I'm trying to build a toaster, from scratch - beginning by mining the raw materials and ending with a product that Argos sells for only £3.99.

http://www.thetoasterproject.org/

And how did he smelt the iron ore into steel?  He used a microwave.

For the pointer I thank The Browser and also Andrew Sullivan.

The new Smoot-Hawley?

Tyler Cowen

The House bill contains a provision, inserted in the middle of the night before Friday’s vote, which requires the president, starting in 2020, to impose a “border adjustment” — or tariff — on certain goods from countries that do not act to limit their global warming emissions. The president can waive the tariffs only if he receives explicit permission from Congress to do so. The provision was added to secure the votes of Rust Belt lawmakers who were wavering on the bill because of fears of job losses in heavy industry.

Here is the story and Obama deserves praise for opposing this provision.  Here are my comments on the issue itself.  The bottom line is that Waxman-Markey, as it currently stands, would in fact be counterproductive, once the international scale of the problem is taken into account.  That we learn about this provision only now is startling enough.

I write this all as someone who a) favors a much higher price for fossil fuels, b) thinks that if micro-nutrients are a good idea they are not an alternative to addressing climate change; we could do both with positive expected long-run return, c) thinks that many people on the "Right" oppose W-M mostly because its passage would raise the status of environmentalists and others on the "Left" (but they will not admit as much), and d) thinks that our collective American incompetence in limiting emissions does not eliminate our moral obligation to address the problem.

Sadly, Ezra Klein nailed it:

Climate change is a big problem. It will eventually require a big solution. My understanding is that the polling suggests that people don't like it when you tell them this is a big problem and they don't want to be convinced that they need to spend their time worrying about something new. In fact, like kids who want to believe that they're going to the doctor for a lollipop, they want to hear that this is an awesome new jobs program. But it isn't an awesome new jobs program. It's an effort to avert a catastrophe on the only planet we know how to inhabit. I can't see a successful respon[se] to climate change that doesn't presuppose a majority sharing that belief.

Assorted links

Tyler Cowen

1. Does Kindle help you concentrate?

2. Do the English age mentally [what's the right term here?] more rapidly?  Compared to Americans, one study found a decade's worth of difference.

3. Temperature trends.  And one look at consequences.

4. Review of Virtuality (full of spoilers, but better than never knowing at all).

5. Can pigeons appreciate good art?

Signaling confusion

Alex Tabarrok

Wall Street Journal article headline:

Microsoft Windows 7 Price Cut Seen As Good Strategic Move

First sentence of same article:

Shares of Microsoft Corp. (MSFT) fell a day after the software giant said a price cut will be offered as part of its impending release of a new version of Windows.

How much good could health care monopsony do?

Tyler Cowen

Greg Mankiw has an interesting column on the public plan option; you've already seen related points on his blog and on MR.

Today I'm interested in a slightly different question, namely the potential benefits of monopsony.  Imagine a benevolent single buyer of health care services.  Forget about whether or not it could be a government; let's just focus on the logic of the model.  I can think of a few scenarios:

1. The buyer bargains down price and suppliers in turn lower quantity.

2. The buyer bargains down price and the monopolizing suppliers respond by expanding quantity.  The monopsonist moves us to a more competitive solution.  Note that under this option the direct institution of more competition could have the same effects.

If #2 is true, you might expect supply restrictions to be an important issue.  That is, the people who favor monopsony should also favor greater competitiveness on the supply side.  Yet this does not seem like a current priority.  I hardly ever see talk of deregulating medical licensing, allowing paramedics and nurses to perform more basic medical functions, or abolishing other entry restrictions.  I do recall that an earlier version of Obama's plan, struck down by Congress, would have created a nationwide insurance market.  There was no big fight, either in the administration or in the blogosphere.

Those who favor monopsony might have another model in mind.  In this model there are many medical suppliers but each supplier still has a fair degree of ex post monopoly power.  Search costs, non-transparency, lock-in, and consumer irrationality can generate this kind of result.  And in these models allowing for more entry needn't much help the basic problem.

Under #2, which other policies will help set this market right?  What are the possible policy substitutes for monopsony?

And in #2, what happens if a monopsonist third party payer bargains prices down?  What are the offsetting quality responses?  Are monopsonists good at bargaining for higher levels of quality?  Or might the all-in-one, bureaucratic nature of the monopsonistic enterprise mean that the monopsonist is very good at bargaining over price (measurable) and very bad at bargaining over quality (harder to measure and verify and we already know there is irrationality, non-transparency, lock-in, etc).

If we put monopsony in place, can a version of the Card-Krueger monopsony model apply to medicine, namely a welfare-improving minimum wage for doctors, albeit at a very high level?  That would mean we don't want the monopsony to economize on how much we spend on health care. 

For all the recent writings on health care, these questions remain underexplored.  Comments are open, but today I'm not interested in the usual bickering about public vs. private sector.  I'd like to hear about the logic of monopsony.

When No Means Yes

Alex Tabarrok

... Having voted against the administration's climate change bill on the record means that at least some of these House Democrats will be able to vote for what emerges from a House-Senate conference later in the year. Therefore, the chances of a climate bill being enacted this year is now much greater than it was 24 hours ago.

That's the ever-perceptive Stan Collender on the politics of the climate change bill.

The Powerpoints of Emily Glassberg Sands

Tyler Cowen

Find them here and they are excellent.  One thing we learn is that women playwrights are more likely to write stories about other women.  Women playwrights are also more likely to write plays with fewer major characters (slide 19).  Outside evaluators are most likely to perceive the story's characters are less likable, if they believe a given script was written by a woman (slide 31).  They also judge the economic prospects of a script to be poorer (slide 32).  It is female artistic directors who have the harshest judgments of scripts submitted under female names (slide 34).  Women writing plays about other women have the toughest time (slide 36).  On Broadway, female-written shows are 18 percent more profitable than male-written shows yet they do not have longer running times (slides 44 and 45).

The original paper is here.  She'll be on The Colbert Show on July 2.

Hat tip goes to the indispensable Literary Saloon blog.