Thursday 30 April 2009

BERL redux

Adrian Slack, principal author of the BERL report of which I've been rather critical, provides a couple of responses over at The Visible Hand.
First in response to “BERL should have made the LC very aware of…”. We didn’t prepare the report for their consumption. As with anything that enters the public domain, it is the consumer’s right to interpret it as they see fit and for them to take responsibility for their reaction to it, not for the author to manage their response to it.
In general, I would agree. But not if the response seems likely to turn into a real world policy implementation unwarranted by the paper. If someone took my paper on political knowledge, one finding of which is that Maori on average and correcting for everything else have less political knowledge than do others, and went on to make a policy argument for restricting Maori from voting, I would be doing a lot of jumping up and down about how that conclusion is not warranted from the evidence presented. Ideas have consequences. If folks want to misinterpret my ideas, that's up to them; if folks want to turn a misinterpretation of my ideas into policies, that's something I'd want to do something about. I'd have thought the same of others.
“Eric Crampton takes to the second point of the report thoroughly” - from a position underpinned by strong rationalist assumptions and a non-verifiable argument (e.g. if someone consumes a good the claim that the private benefits must equate or exceed the costs is not verifiable).
All we really have in economics is revealed preference. Preference is revealed by action. I can't look into people's heads to verify that folks choosing A over B really prefer A over B, all costs included, but neither can Adrian. However strong my rationalist assumptions are in figuring that preferences are revealed by action, it takes stronger ones to assume the reverse. It would be a strange strange world if a preference for Holdens was revealed by buying Fords, or a preference for the Canterbury Crusaders were revealed by wearing a Wellington Hurricanes jersey.
Counting the costs (or benefits) of non-harmful consumption were irrelevant as they do not impose a social cost, and benefits were out of scope. But including either of these components would have no net impact on the estimates for non-harmful use.
Valuing the benefits to harmful users is a complicated area. Consumption decisions by addicted, intoxicated or problematic users are likely to violate some of the rationalist assumptions underpinning conventional consumer choice theory. It is unlikely that many harmful drinkers, for example, rationally decide (or can be modelled as deciding) about their drinking behaviour and career prospects. Labour-leisure choices are typically taught that way at an undergraduate level, and provide useful insights, but the assumptions underpinning these models do not hold universally.
As Friedman taught us, "as-if" is all we need. Predictions from the Becker-Murphy model of addiction tend to bear out in the real world (long-term price elasticity of demand greater than short-run elasticity, for example) regardless of underpinning assumptions about rationality. The upshot of the Becker-Murphy model is that we cannot simply point to the existence of addiction and conclude irrationality: their model generates addictive behaviour within a purely rational, full information environment where folks choose between an addictive good and a composite commodity that includes everything else in the world. Why move to assuming irrationality when outcomes are consistent with a pure rationality model?

And even if you want to bring in some bad decision-making, why assume that the benefits are zero? That's torturing the method far too much. Drive consumer surplus down to epsilon if you want, but saying that the benefits to the drinker are less than the cost of the alcohol consumed really looks to be nothing more than a way to inflate costs. If you define benefits as zero, you get to count all of the resources that go into producing the good as costs; if benefits are at least as much as what folks pay for the product, then you don't. There is no basis for assuming benefits to be equal to zero. What basis do I have for saying the benefits are at least as much as folks pay for product? Evidence that they do in fact pay for product!
Low risk drinkers, for example, are affected at work on average one day in four years. This is more likely to reflect a poor, impulsive (and time inconsistent) decision than a calculated choice. Moderate drinkers are affected only about a day per year, but it is unlikely that an employer will employee for having a hangover the day after the end of year party. Employers do not willingly contract in to this kind of behaviour, but bear the costs.
For high risk drinkers, employers have difficultly identifying, let alone punishing, such behaviour. In practice, there is a myriad of reasons that the costs of such behaviour represent externalities rather than internally and rationally borne costs. These might include the relatively low importance of reputation (and therefore reputation risk) in industries that harmful alcohol users are employed in or the difficulty for employers in identifying and documenting alcohol-related problems.
All we need is that the probability of retention or promotion is an increasing function of job performance. If excessive alcohol consumption negatively affects job performance, it reduces the probability of good retention or promotion outcomes.
To paraphrase Dr Cullen, it takes a peculiarly warped sense of values to equate the output lost due to premature mortality with rational consumption choices. Equivalently, people whose drinking makes them unemployable (resulting indirectly in output losses) are more likely to be trapped by addiction than making a rational career choice. The professional who might be modelled using the equivalent variation argument who tosses up between preparing for work the next day or having another beer is unlikely to fall into this category.
Then call me warped. I consciously and deliberately choose a diet that includes richly-marbled steaks, even though such choices may well take a year off my life. Does that make me irrational? I'm maximizing the product of years of life by the quality of each year rather than just years of life. Who's to tell me that my utility function is wrong?

Moreover, if the underlying model is that folks are helplessly trapped by addiction and are completely unable to make choices, I completely fail to understand how a tax increase on alcohol is supposed to help them. If the argument is that there's a vertical demand curve, a price increase doesn't affect Q. We do have decent evidence that consumption responds to prices, but that gives lie to the argument that folks can't make choices.
You can argue your case for the assumptions and perspective you would use, and the emphasis that you would put on Homo Economicus. The research sought to answer a set of questions, with no restrictions from the client on the method beyond it being internationally recognised and no conclusion in mind. The report was upfront that it was commissioned research, what its aims were, that it was conducted independently, and that it was externally peer reviewed by leading academics in this field.
The conclusion was driven entirely by the choice to weigh the benefits of alcohol consumption as being zero for the five hundred thousand (Table 4.1) consumers reckoned to be consuming half of the alcohol drunk in New Zealand. I'm pretty sure that I'm interpreting the report correctly here. Table 4.1 lists 513,000 harmful drinkers in 2005/2006. Half a million in a country of about 4,000,000 - one in eight - is defined as getting zero benefits from the alcohol they consume. Is this plausible?

Turning to the appendix, we find that folks in the "hazardous" and "high risk" groups count as getting zero benefits from their drinking. You're in the hazardous group if you consume 40 grams of alcohol per day. That's opaque. There's a reason that's opaque. Let's pull back the sheet. 40 grams of alcohol. One ounce of draught beer by volume weighs one ounce. A pint is 16 ounces then, either by weight or by volume. A beer that's 5% alcohol by volume is 4% by weight. 40 grams is 1.41 ounces. So hazardous drinking is 1.41 ounces of alcohol per day, which is about 35 ounces of normal beer. So two pints of regular beer, 32 ounces, puts you just below the limit for "hazardous drinking". A beer with lunch and a wine with dinner: BERL says you get benefits from alcohol. Add in one evening drink, and you get zero benefit. Not just zero net benefit: zero gross benefit. You'd have done better by putting your money through a shredder. According to BERL. Without that assumption, about three quarters of the listed costs melt away.

That's what really bugs me about this report. As David Friedman pointed out a long time back, you really oughtn't have your thumb on the scales when weighing up costs and benefits. Adrian's saying that they had no remit to consider benefits, but that's obfuscation. They defined benefits as being zero for 12.5% of New Zealanders who they say consume half of the produced product, so they're taking a position on the benefits while pretending not to. I hate it when paternalism is disguised as being economic analysis.

Rauparaha over at TVHE seems to be feeling a little bit conciliatory. I'm not.

The Case for Doing Nothing

Greg Mankiw points me to Jeff Miron's excellent talk on the financial crisis. He eloquently makes the case for doing nothing. As Bryan Caplan would say, "Doing something hasn't worked. Isn't it time to give nothing a chance?" I know not how to embed the video here; follow the link above instead.

I haven't done a roundup of NZ policy in a while. That's mostly because nothing much has been happening as we wait for the budget to come out. It looks like some promised tax cuts will be put on hold, but it also looks like there's some chance that the worst part of former Finance Minister Michael Cullen's scuttling of the government's books might be cut: the Working for Families package. Stay tuned.

Incentives matter: Canterbury edition

Some members of the Department of Economics met with the University's Director of Green to be educated in newthink and the new way of rubbish collection on campus. While campus janitorial services will continue picking up litter from hallways and from the sidewalks below our windows, they will no longer empty our office rubbish bins. Instead, we're expected to carry individual used tissues and banana peels from our offices to a central garbage area elsewhere in the Department where we get to puzzle out into which of several rubbish bins individual bits of rubbish ought be placed. The Director of Green argues that carrying bits of rubbish from our offices to the central bins is of zero cost for academic staff. Perhaps next we'll be asked to vacuum the carpets as we walk to and from our offices. I think they're wrong about the costliness of hauling used tissues down the hallway and are underestimating the attractiveness of the aforementioned cheaper alternatives. This won't end well for anybody.

My line managers should note that I am only here pointing out the obvious incentive effects; any increase in rubbish found in the hallways or outside my window post the change has absolutely nothing to do with me.

Dilbert comic is the 25 September 2008 edition.

Wednesday 29 April 2009

Triple bottom line doesn't help the real bottom line

I've been skeptical about corporate social responsibility. Proponents argue that firms implementing triple bottom line accounting will reap all kinds of reputational benefits. A piece of research that runs counter to these arguments and instead confirms my priors comes from Reitenga, Linthicum and Sanchez, 2009, "Social Responsibility and Corporate Reputation: The Case of the Arthur Andersen Enron Audit Failure"
We examine the influence of social responsibility ratings on market returns to Arthur Andersen (AA) clients following the Enron audit failure. Chaney and Philipich (2002) found that AA's loss of reputation resulted in negative market returns to AA clients following the Enron audit failure. Proponents of social responsibility argue that social responsibility can improve the reputation of the firm, while detractors argue that social responsibility expenditures are a poor use of shareholder money. If social responsibility sends a signal to investors regarding the reputation/ethics of management, social responsibility could mitigate the negative returns to AA clients following the Enron audit failure. Using a matched sample of AA and non-AA firms, we do not find evidence that social responsibility mitigated the negative returns to AA clients following the Enron audit failure. Our results are inconsistent with claims that social responsibility can burnish a firm's reputation in a time of crisis and with prior research indicating a positive relationship between social responsibility and market value.
If the CSR folks were right, Arthur Anderson clients with strong CSR policies would not have taken as big a hit as their less responsible compatriots. Turns out not to have been the case. I suspect that proponents of CSR, at least in our Accounting department, would argue that this is evidence of the failure of markets to recognize the importance of CSR rather than of the failure of CSR and will promote triple bottom line accounting ever the more vehemently.

Morning roundup

Tuesday 28 April 2009

Opposition to redistribution: self-interest, or economic thinking?

Andrew Leigh points to recent work showing that preferences for redistribution correlate negatively with education, income, being male, and being white rather than black. The work pointed-to suggests that as folks move up the ladder (education, income, etc), they want to pull the ladder up behind them.

I'll suggest an alternative explanation. Each of the covariates mentioned correlate VERY STRONGLY with "economic thinking". Bryan Caplan's work (US sample) says that the gap in beliefs on positive economic matters between economists and the public is narrowed by education, being male, and income growth; my work (NZ sample) says that economic thinking on a more mixed set of positive and normative questions (though none relating to the desirability of redistribution) correlates positively with being male, having higher income, and having higher education.

What's going on then, in my account, is folks who are more likely to understand economics are more likely to understand the costs of redistribution in terms of economic growth foregone.

Strictly Ballroom: NZ Edition

As you'll recall, Strictly Ballroom was a wonderful movie about public choice: how a cartel will work to protect itself against new entrants by setting up rules that lower their own costs and prevent product innovation by newcomers. If that isn't what you got from watching the movie, read some Tullock then watch it again.

Strictly Ballroom was set in Australia. We now have a real-life Kiwi equivalent.
Dancing with the Stars' Samantha Hitchcock has been banned from competitions after she helped teach young dancers at a Christchurch studio.

The 25-year-old has been deregistered by The New Zealand Dance and Dancesport Council because she helped out at the Colleen Murray Dance Centre, which she also attends, when she does not have a teaching qualification.

Hitchcock, who with TV weatherman Tamati Coffey, won the hugely popular Dancing with the Stars TV show on Tuesday night, cannot enter amateur dance competitions for six months.

Hitchcock said the ruling was ridiculous.

NZDDC president Grant Mcown said he was unable to comment yesterday.
It is the first time the rule has been enforced in this way. Hitchcock said it was outdated.

"I've got all this knowledge but I'm not allowed to pass it on," she said.

Moves to ban Hitchcock started when members of another Christchurch dance studio lodged complaints to the dance council after a Colleen Murray duo Timur and Yulia Mullayanov won the New Zealand Ballroom and Latin Dance Championships in August last year.

The deregistration followed after teachers at Colleen Murray Dance Centre were asked to confirm that Hitchcock and other experienced dancers had helped teach, unpaid, under Murray's supervision - something they say happens everywhere.

Hitchcock's ban ends next month. Colleen Murray has now started a 'no confidence' petition against the council.
It'll be interesting to see whether the no confidence motion passes or not: the members are profiting by the existence of the rule, by and large. I do wish them luck though!

HT: Seamus Hogan

Monday 27 April 2009

Costs and benefits of alcohol, properly done

I previously took BERL to task for its report on the costs of alcohol use in New Zealand.

My colleague Andrea Menclova points me to a previous Treasury analysis of the costs and benefits of alcohol: Felicity Barker, "Consumption Externalities and the Role of Government: The Case of Alcohol". The important difference isn't that there's a ton of health or other benefits from alcohol use; rather, the important difference is that costs that fall on the individual then are netted out: the individual has to weigh those costs as being less than the benefits. What's the conclusion when we do that?
This paper considers the role of government in the case of externalities and, in particular, in the case of alcohol externalities. The purpose of the paper is to assess whether the current level of the alcohol excise can be justified on externality grounds. The paper assesses various mechanisms to address externalities. These mechanisms are institutional solutions, trade in rights to generate externalities, regulatory measures and Pigouvian taxes. The paper assesses these tools in the case of alcohol and concludes that institutional, trade and regulatory solutions are limited in their ability to address the externalities of alcohol. A specific tax can be justified in the case of alcohol. The externalities are large and there is sufficient information on which to base a tax. Given the information constraints the specific tax must be applied uniformly across a rage of units of consumption, rather than to particular individuals. Where an optimal uniform tax is imposed it is reasonable to assume that the amount of revenue collected by the government would be at least as large as the total externality. In 1999/00 the amount of revenue collected from the tax on alcohol was $580 million. This is near the mid-point of the estimated bound of the external tangible costs of alcohol. Thus the current rate of excise tax can be justified on externality grounds.

I like the Barker paper. I could quibble about some details (allowing 5% of production losses to be external costs), but it frames the problem correctly and shows an appropriate amount of worry about the limitations of the method. Barker notes not having accounted for some external costs, like the costs of caring for victims of alcohol-related accidents. But the Barker's self-recognized limitations in underestimating things are dwarfed by BERL's inclusion of costs that should not count.

How much would we cull from the BERL report if we were to do things properly? All costs that are internal to the individual have to be dropped immediately. A quick accounting has those at $2.46 billion in the BERL figures (Table 5.5): foregone labour income and costs of producing and distributing alcohol. That should go. BERL counts $1.6 billion as the monetized value of premature death and intangible health costs: the vast majority of those fall on drinkers. Barker suggests that about 1/3 of victims of drunk driving are people not in the drunk driver's car; car accidents contribute about $500 million to the BERL number. We then can count $167 million in real road crash costs falling on other parties; BERL (properly) adds in a small value for mortality costs from homicide. So $169 million in real external costs from a $1.6 billion line item: So we should cut out $1.4 billion from the $1.6 billion as being costs that fall on drinkers themselves as a first cut estimate. So, $3.9 billion are costs that shouldn't count in a cost-benefit analysis: they're automatically offset by benefits as judged by the drinker.

BERL cites total social costs of $5.3 billion. $3.9 billion of that, 74%, cannot honestly be counted as policy-relevant costs from an economic perspective.

Morning roundup

First, congrats to Denis Dutton, who's now scheduled for the 2010 TED conference!

A morning links roundup:
  • Easterly on some problems in mosquito net distribution: resale of subsidized net for use as fabric
  • More problems with fMRI studies (note Glenn Harrison's prior take-down of neuroeconomics)
  • Brad Taylor on the massive costs of regulatory impediments to development of anti-aging treatments.
  • Gary Becker on the problems of maintaining central bank independence. New Zealand under the prior government provides a nice case in point (not discussed by Becker): regardless of any signed policy targets agreement, Finance Minister Cullen effectively gave Reserve Bank Governor Bollard the nod to operate well outside the inflation band for extended periods: Sept2005-Sept2006 and Dec2007-Dec2008 inclusive had inflation outcomes above 3%). It took the global financial meltdown to get inflation back to hitting the target band.

Nowcasting the Flu?

Google Search Insights provides data on the volume of searches on selected terms, worldwide, updated daily. I've previously played with this data looking for evidence of an "Atlas Moment". Google has specifically played up the potential for this kind of nowcasting to help track flu trends. And this looks to be a bad one.

Let's go to Google Search Insights and see whether there was any increased search volume on influenza in Mexico as this developed. On a 12-month track, we indeed see a huge spike in flu searches, in Mexico, recently.

That's not particularly helpful though. Let's narrow it down to the last month.

We can see that things started to blip up around 22 April. A troll back through Google News shows stories starting to hit the papers around 23 April; one of these points out that Mexican doctors were already then well aware of the outbreak. Mexico issued its public health advisory on 22 April.

Perhaps the problem is that search insights scales to peak intensity and we ought here be using a log scale to avoid dampening out early warnings. Unfortunately, I can't narrow down the search to April prior to 22 April. But there's no upward trend in March.

I see no evidence that search intensity in Mexico increased in the leadup to the influenza outbreak. However, if the mess started in places where folks live in close proximity with swine and chickens then perhaps we shouldn't be too surprised that the first thing affected folks did wasn't a Google search.

The worldwide search trends are interesting. Mexico does have the highest search intensity, followed by Indonesia, the US, and Canada. Indonesia. Hmm.

Long story short, I can't see any way that folks could have predicted the flu outbreak by having carefully watched search intensity in the leadup to last Wednesday. It would be great if Google could allow some search date operators that could exclude recent traffic: I'd love to see what the chart would look like for April, in Mexico, until 22 April.

Update: NBR points me to a Google Map tracking worldwide cases.

Sunday 26 April 2009

IQ and preferences

The Stanford Marshmallow experiment showed us that whether a 4 year old kid was willing to wait a while to get two marshmallows instead of one is a pretty good predictor of later IQ.

Further evidence on the link between time preference and cognitive ability from PNAS:
Economic analysis has so far said little about how an individual's cognitive skills (CS) are related to the individual's economic preferences in different choice domains, such as risk taking or saving, and how preferences in different domains are related to each other. Using a sample of 1,000 trainee truckers we report three findings. First, there is a strong and significant relationship between an individual's CS and preferences. Individuals with better CS are more patient, in both short- and long-run. Better CS are also associated with a greater willingness to take calculated risks. Second, CS predict social awareness and choices in a sequential Prisoner's Dilemma game. Subjects with better CS more accurately forecast others' behavior and differentiate their behavior as a second mover more strongly depending on the first-mover's choice. Third, CS, and in particular, the ability to plan, strongly predict perseverance on the job in a setting with a substantial financial penalty for early exit. Consistent with CS being a common factor in all of these preferences and behaviors, we find a strong pattern of correlation among them. These results, taken together with the theoretical explanation we offer for the relationships we find, suggest that higher CS systematically affect preferences and choices in ways that favor economic success.
- Burks, Stephen, Jeffrey Carpenter, Lorenz Goettec and Aldo Rustichini, 2009, "Cognitive skills affect economic preferences, strategic behavior, and job attachment". PNAS. doi: 10.1073/pnas.0812360106

Unfortunately, our library's gateway for external access to PNAS seems to be down; the full paper's certainly worth reading, and I'll have to do so when I'm back at work.

Folks fond of de gustibus assumptions previously could handle IQ heterogeneity by saying it just tilted the budget line: higher levels of educational attainment are cheaper for folks with greater cognitive skills, and so on. If IQ hits time and risk preferences directly though....

HT: Gene Expression, where Razib recently pointed out the best strategy for increasing your kids' IQ:
So the best way to increase the intelligence of your offspring? Fuse your gametes with someone intelligent! You don't even have to believe in intelligence to do this, as many who do just this don't. The main issue isn't that people won't be a position to fuse their gametes with individuals in the same range as themselves in terms of intelligence. Rather, it's that they won't let the fusion come to fruition!

Friday 24 April 2009

Costs of everything, value of nothing

NBR points me to a recent analysis by BERL of the costs of alcohol use in New Zealand. Apparently the Law Society is basing some recommendations towards greater regulation on the report. Kiwiblog also comments. A rather important, but thusfar ignored, point from the report:
This study takes a conventional approach for economic cost studies, which “do not attempt to fully consider the economic benefits of alcohol… and other drugs, and should not be confused with cost-benefit or cost-effectiveness analyses” (Single et al, 2003: 14).
In other words, everything is a cost. Imagine applying this methodology to anything else. What are the costs of car use? Of apple growing? Of coffee? It's very easy to get big numbers on the cost of anything, if you don't offset the corresponding benefits.

If this were a cost-benefit analysis, rather than just a pure cost analysis, things would look very different. First, we'd need to estimate how much folks enjoy the alcohol they drink. We could do that by assuming a linear demand function and extrapolating from the point estimate of the price elasticity of demand. That would be a minor point though. The more important feature would be that many of the costs listed would disappear entirely, washed out by private benefits. Let's work this through. The study counts as costs reduced labour productivity. If you go to work with a hangover, you're less productive. Similarly, if you spend a night out on the town rather than putting in the overtime, you're not producing as much. If we only count costs, then these get included: costs to society via lost output and costs to the government via reduced tax revenues. But if we worry about NET costs rather than gross costs, these have to disappear. Why? Because if I decide to drink and be less productive at work, I'm less likely to get a promotion or a salary increase. My productivity affects my wages. If I decide to be less productive and have a lower expected salary path, that's between me and my employer: I'm bearing the costs. If I decide to do it, that's prima facie evidence that I weigh the benefits as greater than the costs.

The report also counts as costs reduced government tax revenue because of folks being less productive and earning less. By this logic, every time I take a holiday rather than putting in overtime, I'm costing the government money. Think about the underlying assumption here and whether we ought to be viewed as owning ourselves or whether we're cogs for the production of tax revenue for the government.

What other gross costs disappear if we allow for benefits of alcohol consumption? Anything that primarily affects the individual gets dropped. Health, mortality, lost output -- all of those are costs I bear directly. You can make an argument that the health system bears costs, but the report admits that collected excise taxes outweigh the costs to the health system! It's only when they add in taxes on foregone labour income that they can get a negative fiscal effect. Correction 27 April: see below. And again, by that logic, your holiday or OE should be banned because it costs the government money.

I'd previously criticized a similar report on the costs of smoking over in the NZ Med Journal: the O'Dea Report. Lots of similarities between this report and that one. When the desired conclusion drives the method, take care in interpreting the results.

The Law Society should know better than to take this kind of report seriously. I could produce, using the same methodology, a report showing the massive social costs of the existence of BERL, the consulting firm that put out this report. First, assume that their reports have zero value, then add up all the costs of the researchers that waste their time writing them, then add up all the time we waste reading and complaining about them....

Update/correction 27 April I misread the final paragraph of the report. They list excise taxes of $167 million from excessive alcohol use and health costs of $286 million. Note, though, that these are only the proportion of excise taxes paid by individuals defined as consuming "excessively". Actual excise taxes in 2008, by Crown reports, were $573 million. Actual alcohol tax revenue outweighs actual health expenditures on alcohol, but tax revenues from problem drinkers don't cover their health costs. This is always a problem with a linear tax on something that has convex costs. See Felicity Barker's excellent Treasury analysis of 2002 on alcohol taxes.

In which the masthead is explained, and homage is paid unto Tullock

Don Boudreaux reminds us of the greatness of Gordon Tullock. I tell my students of the Pantheon of the Econ-Gods. At the summit of Olympus, hurling thunderbolts at all those who displease Him, sits Gordon Tullock. The Elder Gods then include Becker, Friedman, Buchanan, Coase, Alchian, Demsetz, Hayek. But Tullock stands above all. Indeed, Tullock is the middle name of the little fella accompanying me in the picture above right.

Sometimes, students would deny that they drive more recklessly when wearing a seatbelt. Tullock liked to illustrate the idea of offsetting behaviour for them by asking what they'd do if a large spike extended from the steering wheel and pointed directly at their heart. Wearing a seatbelt is a mild form of that effect, but in reverse. Tullock's students came to call the thing the "Tullock Spike". And so we have my masthead picture.

Paul notes that Tullock once threatened to have me killed. This is true. In the spirit of sharing Tullock Tales (and see also here), here's mine.

Gordon Tullock and I share a birthday. While we were walking together over to Buchanan House for a seminar, I noted that we have something in common. Tullock replied, "Well, I guess we'll have to do something about that then, won't we." (the italics are for added ominous intonation).

I later ran into him at Carow Hall and asked him what he planned on doing about our having a shared birthday. He told me that he'd arranged for some boys from upstate to have me shot.

Towards the end of his 80th birthday party (a very nicely-catered event), I thanked him for throwing me such a great birthday party. He laughed and replied that he'd be sending me the bill for it.

In his class in public choice, he asked us to identify the best form of government. I of course replied "Eric dictator." He laughed again and said that was strictly dominated by one other form of government: Tullock dictator.

Do read the Cafe Hayek piece on some of Tullock's more important contributions. He's a living god. If Stockholm doesn't award him the Nobel before t=T, the committee ought to be rounded up and shot. Or at least have spikes attached to their steering wheels.

Infinities, infinitessimals, and imponderables

Thirty years ago, the case against nuclear power was framed as the “Zero-Infinity Dilemma.” The risks of a meltdown might be vanishingly small, but if it happened, the costs would be infinitely large, so we should forget about uranium. Computer models demonstrated that meltdowns were highly unlikely and that the costs of a meltdown, should one occur, would be manageable—but greens scoffed: huge computer models couldn’t be trusted. So we ended up burning much more coal. The software shoe is on the other foot now; the machines that said nukes wouldn’t melt now say that the ice caps will. Warming skeptics scoff in turn, and can quite plausibly argue that a planet is harder to model than a nuclear reactor. But that’s a detail. From a rhetorical perspective, any claim that the infinite, the apocalypse, or the Almighty supports your side of the argument shuts down all further discussion.

From a discussion by Peter Huber in the City Journal on carbon realism which nicely lays out the problem but I'm not sure yet finds the solution. Oceanic sequestration looks less promising than it once did; rising acidity would also be a problem. Nuclear power is still more expensive than coal as best I'm aware. Only so much of the midwest can be turned into forest; tropical forests are far more useful than those in the sub-tropics (and Canada's boreal forest, on a carbon basis, ought be clear cut to get savings on albedo). More prizes for solving sequestration or achieving workable fusion?
HT: Arts & Letters Daily

Thursday 23 April 2009

Survey of economists on the financial crisis

Forte Antonio and Pesce Giovanni have just released their survey of economists on the causes and consequences of the current financial unpleasantness. I'll update with a link once the paper's up on REPEC. 772 economists, academic and otherwise, answered the survey at the end of 2008. Results on causes of the crisis, split by respondent location:

Pretty easy to quibble about whether the housing market bubble ought to be counted as a Fed Reserve problem or a market problem, but as Tyler points out, nobody forces you to put the bananas on your roof even if they're subsidized.
The more depressing results are here.

Crisis is the health of the state.

Maximizing a non-monetary utility function: Bayreuth edition

In my Assorted Links post, I noted some features of ticketing for the Wagner festival at Bayreuth.

I've been thinking on it a bit more and it looks to me like the organizers at Bayreuth have figured out a nice way to massively subsidize effort in local Wagnerian societies. In short, the Wagner opera festival isn't there so much to generate a profit for the organizers as it is there to serve as a prize for folks willing to work hard in their local Wagnerian societies.

The stylized facts:
  1. Tickets are priced far below market price if you're willing to wait for nine years and assiduously fill in fruitless application forms for those nine years; only about 10% of tickets sell through this route.
  2. Some tickets sold through very expensive package tours (and surely Bayreuth charges those package tour places much higher prices for their tickets)
  3. Tickets distributed (at face value, but shorter/no wait) through local Wagnerian societies: some countries' societies (like NZ) have call on more tickets than they'd use; others are oversubscribed and must be allocated.
At a glance, it seems like a great mechanism for massively subsidizing regional Wagnerian societies: Bayreuth is a prize in a tournament game, not a market. The tournament game is putting in enough time and effort in your local Wagnerian society to ensure that you get a ticket sometime. The sum of time and effort put into those societies, by the winners and the losers, is greater than the value of the money that Bayreuth could redistribute for local promotion of Wagner if they instead priced the festival at market clearing.

I know nothing about this other than the three stylized facts above. Is my conclusion entirely insane?

Wednesday 22 April 2009


On my last flight back from the US, I watched Bottleshock, a film of the story behind the famous blind tasting in which California surprised the French. I enjoyed it more than the raters over at Rotten Tomatoes, but most movies seem better on flights.

New Zealand seems to have just pulled its own version of the same. Or, at least has come close. At a blind tasting in London, a couple of Kiwi reds made the top six.
Then the bombshell. The wines' identities are revealed and we gasp when we discover who was playing for the Bordeaux team. The three medal positions go to: 2005 Château Lafite-Rothschild (£975 a bottle), 2005 Château Mouton-Rothschild (£675) and 2005 Château Angélus (£295). Just off the podium, in fourth, is 2006 Sacred Hill "Helmsman" at – wait for it – a staggeringly modest £17.95 a bottle. We sit open-mouthed. 2005 Château Haut-Brion (£700) is fifth and 2006 Newton Forrest "Cornerstone" – at just £15 a bottle for heaven's sake – is sixth.
"You've opened my eyes," declares Robinson, speaking for us all. "I think this is the closest to Bordeaux you can get."
"I knew exciting things were happening in Hawke's Bay, but had no idea how exciting," murmurs Alun Griffiths of Berrys. "I need to get some on our list fast."
Utils per dollar spent: advantage Kiwi.

The funniest for me is that our local ratings guide, Michael Cooper's New Zealand Wine Guide, puts the Helmsman as not being worth the money at NZ$65 (though still a five-star wine); the Newton/Forrest Cornerstone rates an average value 5* at NZ$50. Cooper's wine of the year is Mission's Hawke's Bay Reserve Syrah 2007 at NZ$23 and 5*.

Guess it's time to cellar some Hawke's Bay reds before you lot go and bid the prices up.

HT: National Business Review

Links and updates

  • The Washington Post and New York Times have picked up on the biofuels tax credit story first reported on by Chris Hayes at The Nation (and which I'd blogged on here).
  • NotPC points to a wonderful video of a Formula 1 car doing doughnuts. On snow. On artificial snow. In the desert: Dubai's indoor ski venue. Rand may have preferred the lit cigarette as symbol of man's mastery of nature. I'll take this.
  • Tyler Cowen's review of the film The End of Poverty. Tyler usually walks out of movies he doesn't like. Forcing himself to sit through it would not have been cheap.
  • Lubos Motl recommends a film Roissy would like.
  • KiwiBlog approvingly cites New Zealand's Treaty Negotiations Minister on moves towards compensation. Cowen previously wrote on the impracticability of intergenerational compensation. It's worth reading.
  • Solow on Posner on the economic crisis
  • If ever there were a case for scalping, it would be at Bayreuth. The annual festival of Wagnerian opera has a nine year waiting list for tickets: you have to apply for tickets nine years in a row to have a chance at getting a ticket. Reznor previously discussed anti-scalping mechanisms. At Bayreuth, they go even further:
    If you are wealthy, buy a ticket on the black market. WARNING! In recent years the attitude of the Festival management has hardened not only towards the "scalpers" who trade in black-market tickets but also those who buy such tickets. A "scalper" is anyone who asks more for a ticket than its face value. The Festival management regard such tickets as void and invalid. There have been instances of individuals with black-market tickets being forcibly ejected from the Festspielhaus and in at least one case dragged from their seats. It is reported that offenders are advised to leave Bayreuth immediately and not to return. So if you use a black-market ticket, you must be prepared to be black-listed for life.
    The FAQ also notes that you can buy expensive package tours, including tickets, from approved agents. Sound familiar?

Tuesday 21 April 2009


And I hereby welcome my 10,000th visitor (according to SiteMeter) who came in from Niota, Tennessee, read my post on rent-seeking in academia, and left. Thanks for stopping by!

I know that KiwiBlog gets 10,000 visits a day and Tyler probably gets that in an hour, but I'm pretty happy to have accumulated 10,000 in the month or so that I've been posting.

A reminder for readers in Auckland: I'm giving a talk later this afternoon for LEANZ. Hope to meet some of you there! I'll be talking about my work on political ignorance, with a few Kiwi-centric details left out of the paper.

Monday 20 April 2009

Food inspection: Quality floors and ceilings?

Don Boudreaux's post on food inspections reminds me of an interesting American case. During the "mad cow" scare a few years ago, which hammered Canadian beef exports to the US and American beef exports to Asia, Creekstone Farms decided to give the customer what he wanted: beef fully tested for BSE. They built a testing lab, trained up the staff, and were ready to start testing 100% of their animals at slaughter.

Now, if the point of USDA food inspection is to ensure that all food consumed is of at least a certain quality - helping to help prevent food-borne illness - you'd expect them to have supported Creekstone's move. Or at least been indifferent to it. Of course, you'd be wrong. The USDA banned Creekstone from implementing its testing regime.

The USDA's line is that random testing is sufficient to ensure food security; moreover, as the tests aren't as reliable on younger animals, testing of all animals could not guarantee BSE-free product. False positives could cause alarm.

This has been working its way through the courts since 2006. Last September, the DC Circuit sent it back to the District Court; Creekstone hasn't yet announced whether it will continue with the case.

I can imagine a public interest story consistent with the USDA's position. I just don't believe it. The public interest story would be built around that Creekstone's move looks like an off-diagonal in a prisoner's dilemma game where the social optimum is testing of downer cows and older beasts and little testing of younger ones but where the Nash equilibrium is the (costly) 100% testing of all animals driven by irrational consumer fears. I don't find the story too plausible: guaranteed "GE-Free" or organic products haven't taken over the food market. Folks weigh quality, safety and "solidarity in consumption" against price. Another public interest variant would be that false positives in the 100% testing regime could lead to foreign demands for 100% testing of all beef and further restrictions on US exports. Again, I don't buy it. Surely Creekstone's first move on seeing a positive result would be to double-check with another $20 test kit. And perhaps even a third test to arbitrate if the results of the first two were in conflict. I can believe restrictions following a confirmed positive case, but false positives would be sorted out prior to that stage. I'm having a hard time seeing a reasonable public interest case; it looks more like the stifling of competition through quality ceilings.

The case has had plenty of coverage in the usual outlets. Boudreaux's post just brought it back to mind.

News of the Perfectly Ordinary

What to do when the governing interim military regime suspends the constitution and clamps down on freedom of the press? Start reporting on the perfectly ordinary. Some recent tidbits from the Fiji Daily Post:
17-Apr-2009 11:19 AM
VOLUNTEER FDP photographer, Max, reports that he has cleaned his teeth.
‘It was new experience for me’, the young scholar admitted, ‘but I did it’.
Asked which teeth he cleaned, Max pointed to his front, top row.
‘These ones’, he enthused, ‘these are the ones I cleaned’.
An inspection of the alleged clean teeth confirmed his claim.
Max further conceded to fellow reporters that he will also try ‘taking a shower’.
When asked when, he said, ‘one day’.
Man gets on bus
15-Apr-2009 11:44 AM
IN what is believed to be the first reported incident of its kind, a man got on a bus yesterday.
“It was easy,” he said.
“I just lifted one leg up and then the other and I was on”.
Fiji Daily Post reporters found witnesses willing to confirm the happening.
“Yes”, said one who asked to remain anonymous, “I saw him get on the bus”.
Another witness who also preferred to remain unidentified told this newspaper it was “the early morning bus”.
“I was waiting opposite the shop when I saw him run to catch the bus.”
What happened next was a remarkable feat – the man actually got on the bus, we believe.
Students from a local school who had been waiting for two hours in the rain for the bus also confirmed that they saw the man board.
“We are happy for him”, one student remarked in terms reminiscent of Neil Armstrong (the first man to step onto the moon): “it may be one small step for him, but it is one giant step for the people of Fiji”.
Paint dry
15-Apr-2009 11:33 AM
PAINT has apparently dried on his old couch, Max reports.
Given the job of painting the couch, Max was excited at the prospect of the paint drying.
But when asked how it dried, he was nonplussed.
“It just went on wet, but after about four hours, it started to dry”.
“That was when I realised, paint dries,” the young scholar observed.
Fiji Daily Post asked Max if he intended to do more painting.
“Oh yes,” he replied, “I like watching paint dry.”

I particularly love the "one small step" line.

I can't see any such stories after the 18th of April, but the old ones haven't been purged either. Hmmm.

HT: Kiwiblog

Friday 17 April 2009

Mankiw: a Cowen follower?

Fun from Salon today: a listing of the most strident critics of Obama's economic policy. #2, Greg Mankiw:
GREG MANKIW: Professor of economics at Harvard University; former chairman of President Bush's Council of Economic Advisers; visiting fellow at the American Enterprise Institute

Earliest critique: Pre-inauguration, in the New York Times, Jan. 11, 2009

In the econoblogosphere, Mankiw plays a role for conservatives analogous to what Paul Krugman provides for the left, albeit without the passion.

Stimulus: Mankiw is skeptical of fiscal policy, believing that tax cuts, as opposed to spending, should be the fiscal instruments of choice. He also fears the rise of protectionism that the Buy American stimulus provisions threaten.

Banking plan: Mankiw's bottom line: The banks need to suffer more. Specifically, he follows the influential libertarian economist Tyler Cowen's argument (recently featured in the New York Times) that banking creditors need to accept losses on their bad bets.

Most hurtful quote: "[T]he borrowing and debt imposed on future generations will not be very different [from Bush], at least if the numbers in the Obama administration’s own budget document can be trusted."

Fortunately, there's an expert for everyone here. Whether you think the stimulus is far too small or unlikely to be effective regardless of size, whether it has too many tax cuts or too few, whether you think the banks should be made to suffer their losses, be nationalized, or that they have effectively taken over the Obama administration, there's somebody here you can pick who'll agree with you.

One who didn't make the list: Robert Higgs. How does Higgs model central bankers so well? He thinks of a normal banker, then takes away reason and accountability.

Thursday 16 April 2009

Technorati bleg

I get nothing but 403 errors in trying to claim Offsetting Behaviour over at Technorati, and I get nothing but silence from their tech support. Anybody have any clue how to solve this?

Rent seeking: academia edition

It turns out that the cost of vetting NSERC grants in Canada outweighs the cost of just giving every qualified scientist the average grant.
Using Natural Science and Engineering Research Council Canada (NSERC) statistics, we show that the $40,000 (Canadian) cost of preparation for a grant application and rejection by peer review in 2007 exceeded that of giving every qualified investigator a direct baseline discovery grant of $30,000 (average grant). This means the Canadian Federal Government could institute direct grants for 100% of qualified applicants for the same money. We anticipate that the net result would be more and better research since more research would be conducted at the critical idea or discovery stage. Control of quality is assured through university hiring, promotion and tenure proceedings, journal reviews of submitted work, and the patent process, whose collective scrutiny far exceeds that of grant peer review. The greater efficiency in use of grant funds and increased innovation with baseline funding would provide a means of achieving the goals of the recent Canadian Value for Money and Accountability Review. We suggest that developing countries could leapfrog ahead by adopting from the start science grant systems that encourage innovation.

I don't often see examples of over-dissipation of rents. On the other hand, I'd fully expect the number of grant applications to increase somewhat if NSERC shifted to an "everybody gets $30K" policy. I'd fully expect the authors to have addressed this, but I'll have to wait 'till InterLibrary Loans sends me the article to tell.

HT: Paul Wells, who also points to discussion of this article over on Science Blogs.

Are you a terrorist?

The libertarian blogosphere is rightly annoyed that the Department of Homeland Security views as an important branch of right-wing extremist and potentially terrorist groups "those that are mainly antigovernment, rejecting federal authority in favor of state or local authority, or rejecting government authority entirely." Reason has developed a nice little quiz based on the DHS report (quoted above, footnote page 2). Based on my answers to the quiz, I just might be a terrorist too.

Everyone seems to have forgotten (or not noticed) that DHS similarly put out a report on potential left-wing extremist terrorism.
DHS/Office of Intelligence and Analysis defines leftwing extremists as groups or individuals who embrace radical elements of the anarchist, animal rights, or environmental movements and are often willing to violate the law to achieve their objectives.
DHS worries that the lefties will engage in cyber attacks. Presumably the left are smarter and understand that internet thing while the right are too busy building shelters in the middle of Wyoming. They also worry a bit about real-world attacks by the animal rights folks - perhaps sensibly so.

Aren't we all potential threats?

Update: Roissy provides a wonderful satire on Reuters reporting on the DHS report. Follow the first link with caution, as Tyler warns that Roissy is evil.

Wednesday 15 April 2009

Offsetting Behaviour: condom use edition

About a month ago, the Pope released a statement arguing against reliance on condoms in the fight against AIDS in Africa. He was excoriated for this view. David Friedman today wonders whether there might not be offsetting behaviour in condom use in Africa.
Just as with auto safety and auto accidents, making sex safer has two effects working in opposite directions. It makes the chance that a given act of sex will result in AIDS transmission lower. But, by lowering that risk, it reduces the incentive to avoid sex entirely, to avoid sexual acts such as anal intercourse that are particularly likely to transmit AIDS, to avoid sex with people likely to give you AIDS, such as prostitutes. On theoretical grounds we have no way of knowing whether the net effect will be more AIDS or less.

It turns out that there is evidence that, just as in the auto case, the two effects roughly cancel. That, at least, was the widely reported conclusion of a Harvard AIDS researcher who had actually looked at the data. “We have found no consistent associations between condom use and lower HIV-infection rates, which, 25 years into the pandemic, we should be seeing if this intervention was working.”
Todd Zywicki over at Volokh previously pointed to stronger confirmation of this offsetting effect. The Alligator, linked to by Zywicki, quotes Dr. Edward Green, Director of Harvard's AIDS Prevention Research project:
In epidemics that are population wide, where most HIV is found in the general population, for whatever reason we can't get people to use condoms consistently, and when they use them at all, that seems to have the effect of disinhibiting people's behaviours so they end up taking greater sexual risks and cancelling whatever risk reduction they have gotten from the technology they're using.

Condoms make you feel safer, so you take more risks. Always beware the offsetting behaviour.

Monday 13 April 2009

Rational smoking

One reason adult smokers don't quit is that they simply place lower value on their health and longevity than do non-smokers. So say Khwaja, Sloan and Wang in the latest Journal of Law and Economics.

Khwaja and coauthors run some stated-preference surveys on smokers. I'm pretty skeptical of contingent value methodology in general, but this seems to be one of the more carefully conducted ones. After a presentation on the effects of chronic obstructive pulmonary disease, survey respondents were asked to choose between different living locations which involved tradeoffs between cost of living and risk of contracting chronic obstructive pulmonary disease; they then were asked whether they'd be willing to have an operation to cure said disease where the surgery carried a known risk of death. They found that value of life or cost of disease measures taken by these methods varied systematically across smokers and non-smokers. So long as any problems in using this methodology can wash out as a fixed effect across cohorts, the difference across cohorts is useful.

Where advocates of high tobacco taxation often allege hyperbolic discounting by smokers, with taxes then helping smokers to solve self-control issues, this study shows that observed smoking behaviour can be explained without recourse to hyperbolic discounting. Smokers simply don't value their health as much as the anti-tobbac lobbies might wish them to.

I'd had a bit of fun a couple of years ago with the New Zealand anti-tobacco folks over in the New Zealand Medical Journal. Cost-benefit analyses written on behalf of these groups make great fodder when lecturing on things to watch for in a motivated cost-benefit analysis.

Sunday 12 April 2009

All you need is a subsidy ...oops

It's always dangerous to mess with the price system. Even if there are proven positive or negative externalities from particular types of behaviour, and even if you're careful about how you specify the legislation giving form to the tax or subsidy, there often will be unintended consequences.

Case in point: tax credits for use of alternative fuels. US Congress passed legislation back in 2005 providing tax credits for fuels mixing biofuels with normally-taxed fuels. $0.50 per gallon for those fuels. What happens? Christopher Hayes at The Nation explains:
Enter the paper industry. Since the 1930s the overwhelming majority of paper mills have employed what's called the kraft process to produce paper. Here's how it works. Wood chips are cooked in a chemical solution to separate the cellulose fibers, which are used to make paper, from the other organic material in wood. The remaining liquid, a sludge containing lignin (the structural glue that binds plant cells together), is called black liquor. Because it's so rich in carbon, black liquor is a good fuel; the kraft process uses the black liquor to produce the heat and energy necessary to transform pulp into paper. It's a neat, efficient process that's cost-effective without any government subsidy.
So the paper industry was previously using a kind of biofuel for its heating, prior to the tax credit. Great!
By adding diesel fuel to the black liquor, paper companies produce a mixture that qualifies for the mixed-fuel tax credit, allowing them to burn "black liquor into gold," as a JPMorgan report put it. It's unclear who first came up with the idea--Wrobleski told me it was "outside consultants"--but at some point last fall IP and Verso, another paper company, formerly a part of IP, began adding diesel to its black liquor and applied to the IRS for the credit. (Verso nabbed $29.7 million at just one of its mills in the final quarter of 2008 for its use of mixed fuel.)


No one in Congress seems to have anticipated this creative maneuver. This past fall the Joint Committee on Taxation computed the cost of extending the tax credit for three months and projected it would cost a manageable $61 million. It now appears that the extension (which was passed as part of the TARP) could cost as much as $2 billion before the credits expire at the end of this calendar year.

In fact, the money to be gained from exploiting the tax credit so dwarfs the money to be made in making paper--IP lost $452 million in the fourth quarter of 2008 alone--that the ultimate result of the credit will likely be to push paper prices down as mills churn at full capacity in order to grab as much money from the IRS as it can.
It's kinda the point of the price system that nobody has to know all of the alternative uses to which resources can be put. When markets set prices, nobody in Congress has to know that the paper industry uses a byproduct biofuel which readily could be adulterated with taxable fuels to harvest a subsidy. When Congressmen instead set prices, there will always be consequences they hasn't thought of, no matter how well-intentioned or careful they've been.

Hayes draws the useful and depressing conclusion:
Whether or not Congress gets around to turning off the spigot, the episode is a useful reminder of the persistently ingenious ways the private sector can exploit even well-intentioned legislation. Considering that the success of the Treasury's recently announced plan to rescue the financial sector depends, in part, on the private sector not gaming the rules, the black liquor story seems particularly germane.

Friday 10 April 2009

Art instinct?

Denis Dutton argues convincingly that we've evolved artistic preferences that are universal across diverse parts of the world.

Further evidence that Denis is correct (or at least evidence consistent with Denis's theory), today via Cognitive Daily.
A team led by Thomas Fritz visited the Mafa people and played excerpts from Western music intended to evoke one of three emotions: happiness, sadness, or fear. The listeners were pre-screened to make sure they had never been exposed to Western music. The experimenters showed the listeners images of faces expressing each of these emotions, and asked the listeners to point to the face that best represented the emotion conveyed by each excerpt.
The results? The isolated tribe could identify emotions conveyed in Western music at rates significantly different from chance: "So even people who've never been exposed to Western music can understand the intended emotion." Moreover, both Westerners and Mafa could recognize clips of each others' music that had been modified to make it dissonant.

Go over to Cognitive Daily to hear the music samples. I'm not sure that Mafa music will be making it up to the top of my playlist anytime soon.

Zeitgeist via Google Search Insights

I previously noted that we're likely not in an Atlas Moment. While sales of Atlas Shrugged have skyrocketed with the depression, Google Searches show a similar skyrocketing of searches on Karl Marx.

The search there was pretty basic. Let's expand things a bit. First, a straight-up search comparison on Ayn Rand versus Karl Marx isn't entirely fair. Folks might misspell Rand's name, folks might search on "communism" rather than "Marx", and so on. Let's run a more comprehensive comparison.

For Marx, we'll use all of the following terms: "Das Kapital", "Das Capital", "Communist Manifesto", Marxism, Communism, "Karl Marx", "Carl Marx". For Rand, we'll use: "Atlas Shrugged", Objectivism, "Ayn Rand", "Ann Rand", "The Fountainhead", "Virtue of Selfishness", "John Galt". I think that's a reasonably comprehensive list of terms folks would be looking for, but feel free to try your own variations. If you include only Marx, be sure to run the "-Groucho, -Richard, - "Marx Brothers"" and so on. Here's the link to my search. The blue line below shows Marxism while red shows Objectivism. I've also added in an orange line for searches on recession.

The first thing worth noting is massive seasonality in the Marxism search. Any guesses who shows up more in University courses? The seasonality tracks exactly northern hemisphere summer and winter breaks. Ocular least squares suggests a downward trend for both from 2004 through 2007 followed by an increase for both. Ocular least squares also suggests a lot more comovement between the Marxism search and recession than between Objectivism and recession. It looks to me like the increase in the Marxism searches is greater than that for the Objectivism searches. Compared to Marxism, it really doesn't look like an Objectivist Moment.

Some critiques in the comments at my prior post and over at Marginal Revolution wondered about the relevance of search terms or popularity. I'd of course agree. But some libertarians have suggested that the increased sales of Atlas Shrugged may point to an Objectivist Moment; that's also a popularity measure. I'd worry in book sales that online copies of Marx's works are easily found while online versions of Atlas Shrugged are a bit harder to find. Some also have pointed to university syllabus requirements as biasing things. That ought to be a fixed effect across years: I'd say that the growth in either since 2007 points more to effects of the recession. And of course note that Marx still beats Rand even in the middle of semester breaks.

Now, let's try Keynes versus Rand. The Rand search is as before (in red); Keynes (in blue) includes "Keynes" and "Keynesian" then subtracts anybody else named Keynes that shows up otherwise as common searches. Like Marx, Keynes shows a lot of seasonality tied to university schedules. Ocular least squares suggests a strong downward trend for both through mid 2007, flatlining through mid 2008, then a big increase for both from then. Recession isn't included as it throws out the scale.

Let's focus in on the period since January 2008.

Again, I'd suggest looking at growth rather than levels to identify trends. Ocular Least Squares suggests a baseline for Keynes around 40 and for Rand around 55 through mid 2008. The new baseline looks to be about 60 for Keynes and about 80 for Rand: a bigger absolute increase for Rand, but about the same in percentage terms. This is all pretty rough. If the 14 month old weren't about to wake from his nap, I might try downloading the data and running something more than Ocular Least Squares on it. But the eyeball check suggests that if there were an "Atlas Moment", as compared to a "Keynes Moment", I'd say it ran February of 2009 through mid-March, and is now over.

Thursday 9 April 2009

Quotes of the day

The fad for washing your rubbish and putting the shiny bits in one bin and the slimy crap in another bin – something I was familiar with from previous cities I’ve lived in – is considered passé in Christchurch. We are exhorted to Love our Rubbish. Here, every house has been issued with three hulking great wheelie bins. On certain days the city looks as if it’s been invaded by legions of the daleks’ retarded kid brothers.

You can hear the metallic voices of their overlords emanating from the Council chamber: “Expropriate! Expropriate!”
- Bernard Darnton, NotPC
Think of government as a charity. From a libertarian perspective, it is a charity run by the Mafia, which will break your knuckles if you don't make your donations. It is also a badly mismanaged charity. It funnels lots of money into questionable causes, and even when the causes are good the programs that it funds tend to be very wasteful.

I would like to see government have to compete with other charities on a level playing field. I often say that government should have had to fund the financial bailouts by holding a bake sale.
- Arnold Kling, Econlog
“From our perspective, we look at this pretty thoroughly and there is always a tension around fair use … I would encourage everybody, think in terms of what your reader wants. These are ultimately consumer businesses and if you piss off enough of them, you will not have any more.”
- Eric Schmidt, Google.

Trent Reznor and business strategy

Midas Oracle points me to a fascinating lecture on Trent Reznor's business strategy. In short, Reznor has found a way to make money in the music business without relying on copyright. The lecture is excellent. I've known lots of the bits and pieces, but the presentation below puts it all together nicely. I'm generally opposed to using Powerpoint or videos in my lectures, but I will air this one in the week I spend on the economics of copyright in my current topics class.

I used to say that David Bowie was the smartest guy in the music industry because he came up with a way of consuming today future royalty streams: Bowie Bonds. You could even argue that Bowie was there hedging against risks caused by effective copyright erosion.

Today, Reznor's the one to watch.

Full disclosure: have been a fan since Downward Spiral. Not that I don't like Pretty Hate Machine; just that farmboys from southern Manitoba had barely heard of Skinny Puppy and Ministry in the early 90s. Nine Inch Nails didn't show up on the radar there 'till 1994, or at least not on my radar.

Tuesday 7 April 2009

Tuesday evening links

Help! Help! I'm being repressed!

Back in mid-March, (ex)Professor Rancourt claimed in interview:
Q. How is it possible to give every student an A+? Don’t we need some kind of evaluation system?

A. You put “A+” in the box where it says “student grade.” It’s quite easy. And with that simple move, you remove the instrument of power and oppression in the classroom. My job description says nothing about rank ordering students for employers or graduate school. It says “optimize education.”
Pretty clear: he gave everybody an A+ because he finds grades oppressive. Of course, giving everyone a B or a C would have done just as much to eliminate the oppressive hierarchy of ordinal grades, but might not have pleased the students as much.

Now he's claiming that the University of Ottawa was unfair in dismissing him:
Rancourt also submitted his students' final exams as evidence that he was evaluating their work properly, but the committee refused to look at these, as well.

"Now my union will take on the case, and they will fight it vigorously. It will go before a labour-law arbitrator, and then it will go to court, and we'll see if their case will hold up. They will have the burden of the proof. The allegation is that I fraudulently assessed student performance in this one course. I think they have a weak case.
Surely the review committee will weight his later defense by his prior argument. It's kinda like claiming self-defense as a motive after having previously bragged about the murder you were planning.

Monday 6 April 2009

Auckland Supercity

Central government in Wellington seems set to force Auckland's eight local councils to merge into a mega-city. Complaints thus far have centered around the potential loss of voice as constituents become more distant from their representatives.

I'm worried about something else entirely. Voice is nice, but the threat of exit is a more powerful check on local governments' activities. Tiebout explained it all back in 1956 with his pure theory of local expenditures. In short, competition among jurisdictions for residents forces them to run their operations more efficiently; mobility across jurisdictions also allows matching between consumer preferences and government service bundles. So, if the rates in one of the local councils are getting steep relative to the services provided by the council, moving to the other side of town can help.

Whatever efficiencies of scale there are from having services provided to a larger jurisdiction can also be achieved by contracting out. This happens endogenously and only where the economies of scale are substantial enough to justify it. It's then hard to see from whence come the efficiencies of amalgamation. For example, if a couple of councils find that they'd save money by jointly running their fire services, nothing stops them from setting up a joint fire service that caters to both councils.

Muriel Newman today links to a couple of nice Canadian case studies of amalgamation. In Winnipeg, where I did my undergraduate studies, amalgamation led not to efficiencies but rather to a leveling-up of union contract salaries to match those paid in the highest-paid prior city, a deterioration of service quality, and stagnation. Winnipeg community activist Nick Ternette is even giving a talk tomorrow at the Frontier Centre on the failures of Unicity!

I hope that local government minister Rodney Hide, who has lectured in economics and ought to know Tiebout, has thought this one through. I've not yet seen the case made where any serious weight is put on the loss of Tiebout competition. The Royal Commission Report makes no mention whatsoever of Tiebout. A search on "competition" finds lots of references to how well a unified Auckland could compete with other "global cities", but nothing on the loss of interdistrict competition. There's one mention at page 348 of how competition among vestigal local bodies post-Amalgamation ought be stifled. None of this fills me with confidence. Note, however, that I do not purport to have read through the Royal Commission Report in any great depth.

Update: Ilya Somin here talks about the importance of Tiebout competition among US States.

Stressing out about poverty

An article in the most recent PNAS by Gary Evans and Michelle Schamberg, "Childhood poverty, chronic stress, and adult working memory", argues that intergenerational transmission of poverty might be due to debilitating effects of childhood stress. The Economist provides a decent summary for those without PNAS subscriptions. The article finds that kids from low socioeconomic status backgrounds have shorter working memories than do their more affluent counterparts, and that childhood stress levels seem to do more in explaining working memory at age 17 than does duration of childhood poverty. Children with a higher allostatic loading have worse working memory when older than do others. Once allostatic load is taken into account, income no longer has explanatory power.

Nowhere does the study seem to correct for parental IQ. We have reasonable evidence that IQ and working memory correlate, though there is some debate. We also have reasonable evidence that IQ is highly heritable. Finally, we have good evidence that IQ correlates with health outcomes. Let's put that all together then. Low parental IQ transmits directly to children. At the same time, low parental IQ generates lower income households and poorer health outcomes. These health outcomes get measured as allostatic loading. Blood pressure and BMI are half of the allostatic loading measure, with the other half being stress-related hormone levels. The Gottfredson paper linked above shows that IQ correlates with physical fitness, preference for low-fat low-sugar diets, and (negatively with) obesity; it also predicts psychological resilience in high stress environments. So everything in the allostatic loading measure is dependent on g.

The current study finds kids with high childhood allostatic loadings have poorer working memories as adults, but both could be driven primarily by differences in parental IQ. If parental IQ has a stronger effect on kids' allostatic loadings than does parental income, but both are correlated with IQ, then we'd expect allostatic loadings to explain more than income. That's how omitted variable bias works: whatever's most closely related to the omitted variable picks up the variance that ought to be attributed to the missing variable.

I'm sure the actual causal mechanism is pretty complicated. Low parental IQ will simultaneously provide kids with genes predisposing them to low IQ and with environments to which they're least likely to show resilience. Leaving parental IQ out of the mix doesn't seem a great start to an answer though. Without it, there's no way of disentangling the separate and (likely) augmentative effects of genetically-transmitted IQ and low status/higher stress childhood environments.

Friday 3 April 2009

Assorted updates

I warned that crises are fuel for both poles. Richard Metzger at BoingBoing cries Marx was right!.

I see this as a test between Naiomi Klein and Bob Higgs. Klein says economic crisis is exactly what the elites need to help push us to further deregulation, weakening the state in favour of markets. Higgs warns rather that crisis is the health of the state. He provides a wealth of historical evidence making his case. The only real world case that might fit a Klein story is New Zealand in 1984; of course, she has the sign wrong on the normative aspect. Higgs is right today. Why a banking insolvency crisis turns into crackdowns on tax havens makes sense in a Higgs story. Think the G-20 Cartel is worried about the productive squirreling off their resources onces the bill comes round to pay for the the cartel's profligacy? For more on international tax competition, read Veronique de Rugy's work on the topic (at Cato and Mercatus).

If we're in an Atlas moment, Wesley Mooch and Fred Kinnan are winning. And there is no John Galt. If Sergei Brin and Larry Page disappear and later emerge on some Seastead built by Patri Friedman and protected by some Google-developed missile-defense system, I'll re-evaluate.

In other news, I'd recently discussed the economics of ticket scalping. James Swofford points me to a recent article in which he discusses how the scalping equilibrium may be optimal from the artist's perspective when a dynamic revenue function is considered. That argument corresponds to some of the arguments in the comments section about bands being able to maintain fan base by pricing concerts below market clearing.

A reply to Swofford by Spindler notes that scalpers may make artists better off by facilitating closer to perfect price discrimination where the artist is constrained against doing so, even where there aren't side-payments from scalper to artist (which Reznor discusses). Swofford's rejoinder argues that the artists still suffer a reputational loss from the existence of scalpers, which then hits their dynamic revenue function, and consequently the artists and ticket agencies lobby for anti-scalping rules.

This remains inconsistent with that scalping could be eliminated at relatively low cost by requiring photo ID and named tickets. It seems more likely to me that the artists and ticket agents lobby for anti-scalping laws to maintain the veneer of being against scalping while ensuring that they can profit from this side-market and its side-payments without suffering a hit to the dynamic revenue function.