Sunday 31 January 2010

Leading by example

Every time I drive by this bus shelter poster on my way to work, I laugh.

A subtle commentary on the relationship between Prime Ministers and taxpayers?

Saturday 30 January 2010

Tierney on conflicts

Zero skepticism about research results based on funding links: bad.

Total skepticism about all research results based on funding links: worse.

One-sided skepticism about any research you don't like because of funding links: worst of all.

Writes Tierney:
Conflict-of-interest accusations have historically been used selectively to marginalize dissenting opinions, as Gary Taubes nicely illustrates in his book, “Good Calories, Bad Calories.” Scientists who disagreed with the accepted wisdom on the evils of fat in the diet were accused of being corrupted by industry grants even if they had received most of their money from government agencies that were looking — unsuccessfully — for evidence to back the fat-is-bad theory. Meanwhile, scientists who went along with the conventional wisdom on fat weren’t criticized for the corporate money they’d received from food companies.

Mr. Taubes has also found some wonderful examples of selective journalism in the dispute over sugar’s health effect: An article stressing the harms of sugar would make dissenting scientists look bad by stressing their connections to the sugar industry, whereas an article exonerating sugar would make the other side’s scientists look bad by stressing the money they received from companies making sugar substitutes.

Meanwhile, Mr. Taubes writes, journalists have paid too little attention to the scientific questions or to other types of bias: “Scientists were believed to be free of conflicts if their only source of funding was a federal agency, but all nutritionists knew that if their research failed to support the government position on a particular subject, the funding would go instead to someone whose research did.” David Kritchevsky, a a member of the federal advisory board that issued dietary guidelines in the 1980s, summed up the pressure on researchers: “The U.S. government is as big a pusher as industry. If you say what the government says, then it’s okay. If you say something that isn’t what the government says, or that may be parallel to what industry says, that makes you suspect.”

Anther journalistic blind spot, Mr. Taubes argues, concerns not-for-profit advocacy groups like the Center for Science in the Public Interest, which campaigned for more regulation of the food industry and denounced scientists who accepted money from it. Such advocacy groups, Mr. Taubes writes, “are rarely if ever accused of conflicts of interest, even though their entire reason for existence is to argue one side of a controversy as though it were indisputable. Should that viewpoint turn out to be incorrect, it would negate any justification for the existence of the advocacy group and, with it, the paychecks of its employees.”
When Matt and I were writing on alcohol, we'd often be accused (woefully incorrectly) of having been funded by the alcohol lobby; by contrast, nobody much worried about the money paid to the consultancy firm that seemed to have been directed to come up with a very large number on the costs of alcohol.

The sad state of affairs is that anybody suggesting that alcohol or tobacco is anything less than completely evil will have all of his work entirely discounted if he's funded by industry, government won't fund anything that isn't likely to show alcohol and tobacco as being completely evil, and folks funded by government agencies or NGOs that demand findings of "EVIL EVIL EVIL!" are never thought to have anything but the most benign and non-pecuniary of motivations. Guess what that does to the level of debate over time when researchers also have to pay their bills?

Aim for two-sided moderate skepticism. If you're worried about the corrupting influence of big oil on some climate scientists, worry also about the corrupting influence of competing for research grants from pro-warming governments. Put more faith in results where the authors set things up for easy replication and less where they bury the data.

Friday 29 January 2010

Manitoba potato monopoly...update [updated]

What do you expect when you set up a producer monopoly where the big players get to call the shots and the little guys have to play by their rules or have the government force them to destroy their crops?  Me, I don't expect good things for the little guys.  Turns out, I'm not wrong.  I'd noted last year the problems with the Manitoba potato monopoly (see here here and here).  The Manitoba Co-Operator (one of the main ag newspapers in Manitoba) is now onto the story.  Some excerpts:
They allege the provincially regulated marketing board has an unspoken, long-term strategy to squeeze out small growers and concentrate the $33-million table potato industry in the hands of a few large commercial operations.

“Nobody has ever said, eliminate small growers,” said an inside source who spoke on condition of anonymity. “But their actions show it. There’s a master plan here. The master plan is for five growers.”

That’s hard to prove or disprove because Peak operates behind a veil of secrecy.


While small, unregistered growers garner media attention, a less-known and much larger dispute occurs below the radar. It’s between Peak and its own commercial growers.

Producers are retiring their quota and leaving the industry, alleging discrimination against smaller operations and favouritism for large ones.

Dutka cited a case in recent years in which a large, southern Manitoba potato farm was caught illegally using herbicides to artificially enhance the col-our of red potatoes. Although the required $10,000 penalty was paid, Dutka says it was recorded on the marketing board’s records as a donation, not as a fine. The affair was hushed up and he never did learn what happened to the potatoes.

Dutka believes the penalty would have been different for a small grower. “He would have had to destroy his whole crop. He would have been tied to the wall.”

In other examples, Peak doubled the minimum quota for new growers from 3,000 bags to 6,000 several years ago. This pressured some smaller producers to either double their storage or drop out and grow under the former fouracre allowance.

Peak in 2007 increased a producer’s maximum allowable quota from 60,000 bags to 100,000 bags.


While small, unregistered growers garner media attention, a less-known and much larger dispute occurs below the radar. It’s between Peak and its own commercial growers.

Producers are retiring their quota and leaving the industry, alleging discrimination against smaller operations and favouritism for large ones.

Dutka cited a case in recent years in which a large, southern Manitoba potato farm was caught illegally using herbicides to artificially enhance the col-our of red potatoes. Although the required $10,000 penalty was paid, Dutka says it was recorded on the marketing board’s records as a donation, not as a fine. The affair was hushed up and he never did learn what happened to the potatoes.

Dutka believes the penalty would have been different for a small grower. “He would have had to destroy his whole crop. He would have been tied to the wall.”

In other examples, Peak doubled the minimum quota for new growers from 3,000 bags to 6,000 several years ago. This pressured some smaller producers to either double their storage or drop out and grow under the former fouracre allowance.

Peak in 2007 increased a producer’s maximum allowable quota from 60,000 bags to 100,000 bags.


“You just know you’re basically being disadvantaged every step of the way,” said one [small grower]. But few are willing to speak on the record for fear of being penalized.

“I know if I were to speak up and my name were made public, they’d be right on me,” said a grower who did not want his name used.

The climate of fear is real, said Erin Crampton, a Winnipeg green grocer. It’s confirmed that Peak recently hired a compliance officer to inspect shipments, decide who’s bypassing Peak and pass the information on to the board.

“There have been numerous occasions of strong-arming by Peak and inspectors coming in. There’s a lot of feeling that they’re a great big bully when it comes to the potato-marketing side of it. They’re scared that Peak will retaliate further,” said Crampton.
It is illegal to grow and sell a potato in Manitoba without getting permission. And it's your potential competition who'd have to give you that permission. And if you complain, there's no chance of getting permission. Ridiculous.

Update: See Laura Rance's column as well. She asks whether Peak is a marketing board or a private club. I think the word is "cartel".

Augmented by regulation

Australia remains a strange strange place.
The [Classification] Board has also started to ban depictions of small-breasted women in adult publications and films. This is in response to a campaign led by Kids Free 2 B Kids and promoted by Barnaby Joyce and Guy Barnett in Senate Estimates late last year. Mainstream companies such as Larry Flint’s Hustler produce some of the publications that have been banned. These companies are regulated by the FBI to ensure that only adult performers are featured in their publications. “We are starting to see depictions of women in their late 20s being banned because they have an A cup size”, she said. “It may be an unintended consequence of the Senator’s actions but they are largely responsible for the sharp increase in breast size in Australian adult magazines of late”.
From a press release from one of the less prominent, but certainly more interesting, Australian political parties: the Sex Party.

The results of this kind of regulation are fairly predictable and don't need ... explicit detailing here. But I am reminded of the old (ca 1993) Saturday Night Live sketch where Bill Clinton promises that, as part of his proposed national health plan, breast augmentation surgery would be covered while breast reduction surgery would not be. Can we infer that Jones and Barnett's preferences follow Clinton's?

Australia's also set to wreck internet access by running all browsing through a firewall blocking access to a secret list of verboten websites. I'll be curious to see how much the firewall increases latency on normal browsing.

HT: Puddlecote

Explaining the cross-sectional variation

Sinclair Davidson is a bit puzzled by cross sectional variation in the paper I noted a few days ago. The paper suggests that stigmatization of pre-marital sex had a lot to do with the costs of raising children out of wedlock and the incidence of those costs; since churches are no longer largely liable for the costs of the orphanarium, mainline protestant church prohibitions on premarital sex have declined over time. Davidson then is puzzled by the current cross sectional variation, where the incidence of premarital sex and out of wedlock births are higher for the lower deciles, who potentially have to pay a greater proportion of income to raise an out-of-wedlock child.

I'd argue to the contrary. Think of the game as follows. At time t, you choose whether to engage in premarital sex. If so, there's probability p of an unwanted pregnancy. The female bears those costs with certainty; the male, only probabilistically. At time t+1, you marry, and there's a chance of getting a high quality or a low quality spouse. If you're in a high decile, you're more likely to get a high quality spouse. If you have a prior child (or child support payment encumbrances) from time t, you're less likely to get a high quality spouse. If your chances of getting a high quality spouse at time t+1 are sufficiently low (because you're low decile), then the lifetime costs of having an out of wedlock birth at time t are lower. Cross-sectional variation explained!

Hadley - off on a technicality

The British Information Commissioner's Office confirms that the University of East Anglia broke the British Freedom of Information Act, but a six month statue of limitations means they get off.
A British university whose scientists are accused of manipulating climate data broke the law by refusing to show the raw data for review, a British agency said.

The University of East Anglia violated Britain's Freedom of Information Act by refusing to fulfill requests for data supporting claims by university scientists that human-made emissions were causing global warming, Britain's Information Commissioner's Office said.

But while the public research university in Norwich, England, may have broken the law, it will not be prosecuted because a six-month time limit for prosecutions elapsed, The Times of London reported the independent regulatory office under the justice ministry as saying.

Breaches of the act are punishable by an unlimited fine, the Times said.
There won't be a prosecution, but it does put paid to folks who claimed that nobody hid data.

Thursday 28 January 2010

Smoking bans and offsetting effects

Ban smoking in restaurants and bars and children wind up being more exposed to second hand smoke.

We evaluate the effect of smoking bans and excise taxes on the exposure to tobacco smoke of nonsmokers, and we show their unintended consequences on children. Smoking bans perversely increase nonsmokers' exposure by displacing smokers to private places where they contaminate nonsmokers. We exploit data on bio-samples of cotinine, time use, and smoking cessation, as well as state and time variation in anti-smoking policies across US states. We find that higher taxes are an efficient way to decrease exposure to tobacco smoke.
Except, of course, that smokers pay far more in tobacco taxes than they ever cost the health system; efficiency isn't the healthists' goal.

HT: Modeled Behavior, who also notes that the ideal citizen (who produces large positive externalities) will be a smoker...

Google Campaigns

Josh Gans tweeted from Boston a while back:
The MA Senate candidates must have maxed out bidding on Google. Ads all over my Australian newspapers!
He was right! Writes the Google Policy Blog today:
We're excited to welcome Google's Elections and Issue Advocacy Team to the Public Policy Blog. Since 2007, they've worked with political candidates, consultants and advocates to build online advertising campaigns and fully integrate digital media into political strategy. This post marks the beginning of what we hope will be a regular series from the team.
On Google's Elections and Issue Advocacy team, we work with political campaigns of all stripes to help them use Google's online advertising platforms to build momentum, capture voter interest, steer debate and mobilize supporters. We've worked alongside candidates and issue groups on some of the top issues of the day—from health care reform and the Republican victories in November, to Scott Brown's upset in Massachusetts.

Today's electorate is hungry for political news and is eager to voice opinions online. This requires campaigns to adopt thoughtful and integrated strategies. And so as campaigns gear up for the November midterm elections over the coming months, we'll be sharing our thoughts on how they can take advantage of opportunities to do so. Today we are highlighting our top five strategies for using digital media to win:

1. Use search advertising to build your email list and raise money.
Everyone has seen the "Sponsored Links" on Google search results. These simple text ads, called AdWords, have been compared to direct mail because of their precise targeting and cost-effectiveness—you only pay when someone clicks on your ad. At the start of the campaign and throughout, running ads in your district on the names of your candidate and opponents, and on some of the key issues, can be a great way to capture voter interest. But rather than seeking a donation right away, put the email signup form front and center. It can help you build a bigger list, with greater potential for donations and engagement in the long run.

2. "Blast" the Google Network when you need to make a big splash.
The Google Content Network is made up of over a million websites that run Google ads as a way to make money, through a program we call AdSense. These ads can be simple text links, or video and image ads ("display" ads in industry lingo), tailored to your campaign's personal brand. When you want to dramatically raise the buzz level or increase momentum for your campaign—such as when you announce, or before Election Day—you can use a technique called the Google Network blast to blanket the Internet in your district or state with ads. Just about every election since 2008 has seen one or more Google Network blasts, including in Virginia and Massachusetts, and it's a great way to grab attention at crucial moments.
(emphasis added)
Go read the whole thing.

At Thanksgiving in 2008, I chatted with my wife's uncle who was a local Obama organizer. His description of their online campaign was mindblowing. The changes since the campaign I worked on in '97...we were working with steam engines by comparison. And it's still ramping up.

Running the tech/stats end of a decently funded campaign today would be insanely fun work for a politics-minded techie. Heck, even for a poorly funded campaign: lots of the stuff highlighted on the Google list is free.

I kinda like that Google's in the middle, selling arms to both sides. Bookmark the pub policy blog and watch for their future entries. This is going to be interesting.

Anonymous browsing? Yeah right.

The Panopticlick checks how many bits of information are revealed by your browser's fingerprint: what time zone you're in, which plugins are installed, which system fonts are enabled, screen size and so on.

It turns out that, from their sample thus far, my plugins and my system fonts each independently and uniquely identifies my browser. My browser's fingerprint conveys 13.93 bits of identifying information. Switching to Google Chrome's incognito mode reduces that to 13.92 bits of identifying information. Switching to IE: increases to 14.97 bits.

Fortunately, I have nothing to hide. But for everyone else, you might want to use some browser other than your main one for your ... dodgy surfing ... so it doesn't link to other parts of your online identity. And you might want to mess with the plugins every now and again to mix things up. Or, encourage your programmer friends to write a Chrome/Ffx plugin that standardizes plugins and font lists and user agent while in private browsing mode.

HT: BoingBoing

Pachauri to resign?

New market up at iPredict:
Rajendra Pachauri to be stood down or removed as chair of IPCC before 1 May 2010

Long Description

This contract pays $1 if Rajendra K. Pachauri is stood down or permanently removed as chair of the Intergovernmental Panel on Climate Change (IPCC) before 1 May 2010. Otherwise this contract pays $0.

Judging Criteria

The purpose of this contract is to measure the likelihood that Dr Pachauri is stood down or permanently removed from his position as chair of the IPCC.

This contract will pay $1 in the event Dr Pachauri is stood down or permanently removed as chair of the IPCC. This includes but is not limited to his dismissal, resignation, suspension, or him taking indefinite or extended leave from that position for any reason.

This contract will not close and pay out in the event of Dr Pachauri taking a vacation or temporary time away from work due to minor sickness. If after two weeks of sickness leave, and in iPredict's sole judgment, there is no credible timeframe for Dr Pachauri's return, then this contract will close at pay $1. In this instance, iPredict reserves the right to wait for new information about Dr Pachauri's status if it appears new information will be imminently available.

Dr Pachauri's standing down or permanent removal must take effect before 1 May 2010 NZ standard time for this contract to pay $1.
I had figured $0.20 a fair price on this; I'm revising up to about $0.45 with today's calls for his resignation from folks within the climate research establishment (see here and here).

Wednesday 27 January 2010

A tale of two spending freezes

It's the end of the world.

It affects a small portion of the budget that Obama had already ratcheted up to unprecedented heights, freezing it at those heights.

Hopefully, the end result of Krugman's disappointments with politics will be his going back to the kind of economics he was really really good at.

Bernanke markets at iPredict

Admin (presumably Matt) at iPredict has a few thoughts on the Bernanke conjunct contracts. Some of the problems noted here continue. At some points, US.NOTBNKE.DOW was trading at prices, given the probability of reappointment, beyond the capped payout level for the contract.

I continue to think the biggest problem is liquidity. If I could deposit $500 into my account, the pricing anomaly would quickly be gone. But the regulatory constraints under which iPredict operates ($1000 max deposit per 6-month period) mean that I can't deposit anything 'till March.

Given the liquidity problem, traders don't find continuous stocks terribly interesting. If you think the true value of the DOW stock is consistent with the contract being at $0.06 rather than $0.08, you have to tie up a lot of capital shorting (naked shorts prohibited) to make the play. Greater rewards are often possible in the binary stocks.

Finally, conjunct contracts are a bit confusing. I posted (at my prior post, linked above) an Excel table that handily converts market prices into conditional DOW prices, but having a facility like this built into the interface for these kinds of joint contracts would be pretty helpful.

The confusion wouldn't be a problem if big traders were more interested in these contracts. But because they're liquidity constrained and because they can usually get better returns in the binary stocks than getting a small sure thing, they're not keeping the prices sensible. That said, I'm not entirely satisfied with the explanation: somebody is buying my sure thing asks on the 2009 global warming contracts where I'm trying to get back some liquidity by selling at $0.998 some contracts guaranteed to pay out at $1 when Hadley finally posts its final 2009 data (or by March when iPredict reverts to NASA data if Hadley's still slow).

Finally, Matt notes that there's no serious price difference currently between the conditional markets. The Dow on 2 February will not vary substantially if Bernanke is or isn't appointed by then. I think this is because the markets are giving about a 98% chance of a Bernanke appointment, unconstrained by the 2 Feb deadline. So they're reckoning that if he's not confirmed by then, he will be soon, so who cares. If, on the other hand, we saw a Senate vote scheduled for Friday, I'd expect the two contracts to start moving apart considerably: failure to be confirmed by 2 Feb would then mean he's been voted down rather than that the vote's been postponed.

Asset forfeiture

Radley Balko shows what's wrong with the American civil asset forfeiture regime in a feature piece at Reason:
Police gradually came to view asset forfeiture as not just a way to minimize drug profits, or even to fill their own coffers, but as a tool to enforce maximum compliance on non-criminals. In one highly publicized example from the 1990s, Jason Brice nearly lost the motel he had bought and renovated in a high-crime area of Houston. At the request of local authorities, Brice hired private security, allowed police to patrol his property (at some cost to his business), and spent tens of thousands of dollars in other measures to prevent drug activity on the premises. But when local police asked Brice to raise his rates to deter criminals, he refused, saying it would put him out of business. Stepped up police harassment of his customers caused Brice to eventually terminate the agreement that had allowed them latitude on his property. In less than a month, local and federal officials tried to seize Brice’s motel on the grounds that he was aware of drug dealing taking place there. Brice eventually won, but only after an expensive, drawn-out legal battle.

By the late 1990s, stories such as Brice’s finally moved Congress to act. After a series of emotional hearings in 2000, Congress passed the Civil Asset Forfeiture Reform Act (CAFRA), authored by Rep. Henry Hyde (R-Ill.). The bill raised the federal government’s burden of proof in forfeiture cases from probable cause to a preponderance of the evidence, the same standard as in other civil cases. It barred the government from using hearsay and allowed owners who won forfeiture challenges to obtain reimbursement for legal expenses.

The bill wasn’t perfect. Seizures made by customs agents, as opposed to the DEA or FBI, would still be governed by the old rules. Hyde (who died in 2007) wanted an even heavier burden of proof for the government, the “beyond a reasonable doubt” standard used in criminal cases. That didn’t pass. Under CAFRA, the federal government could still take your property without proving beyond a reasonable doubt that any crime was committed, much less that you yourself had committed one. But at least the reforms made the process a bit more difficult.

Problem was, the 1984 law had already spawned dozens of imitators on the state level, and CAFRA applied only to the feds. Forfeiture had been sending money to police departments and prosecutors’ offices for 16 years, so even in the few states that passed laws to make the process more fair, officials found ways around them. Once the authorities have a license to steal, it turns out to be very difficult to revoke.
The effects on police allocation of time and resources are predictable:
In addition to raising questions of fairness, forfeiture has warped the priorities of law enforcement agencies. In 2008 the Bureau of Alcohol, Tobacco, Firearms, and Explosives asked for bids from private contractors on 2,000 Leatherman pocket knives for its agents, to be inscribed with the phrase “Always Think Forfeiture,” a play on the agency’s traditional “ATF” initials. The agency rescinded the order after it was reported in the Idaho Statesman, but critics said it betrayed the ethic of an organization more interested in taking people’s property than in fighting crime.

Some police agencies come to view forfeiture not just as an occasional windfall for buying guns, police cars, or better equipment, but as a source of funding for basic operations. This is especially true with multijurisdictional drug task forces, some of which have become financially independent of the states, counties, and cities in which they operate, thanks to forfeiture and federal anti-drug grants.

In a 2001 study published in the Journal of Criminal Justice, the University of Texas at Dallas criminologist John Worral surveyed 1,400 police departments around the country on their use of forfeiture and the way they incorporated seized assets into their budgets. Worral, who describes himself as agnostic on the issue, concluded that “a substantial proportion of law enforcement agencies are dependent on civil asset forfeiture” and that “forfeiture is coming to be viewed not only as a budgetary supplement, but as a necessary source of income.” Almost half of surveyed police departments with more than 100 law enforcement personnel said forfeiture proceeds were “necessary as a budget supplement” for department operations.


Tiny Tenaha, Texas, population 1,046, made national news in 2008 after a series of reports alleged that the town’s police force was targeting black and Latino motorists along Highway 84, a busy regional artery that connects Houston to Louisiana’s casinos, ensuring a reliable harvest of cash-heavy motorists. The Chicago Tribune reported that in just the three years between 2006 and 2008, Tenaha police stopped 140 drivers and asked them to sign waivers agreeing to hand over their cash, cars, jewelry, and other property to avoid arrest and prosecution on drug charges. If the drivers agreed, police took their property and waved them down the highway. If they refused, even innocent motorists faced months of legal hassles and thousands of dollars in attorney fees, usually amounting to far more than the value of the amount seized. One local attorney found court records of 200 cases in which Tenaha police had seized assets from drivers; only 50 were ever criminally charged.

National Public Radio reported in 2008 that in Kingsville, Texas, a town of 25,000, “Police officers drive high-performance Dodge Chargers and use $40,000 digital ticket writers. They’ll soon carry military-style assault rifles, and the SWAT team recently acquired sniper rifles.” All this equipment was funded with proceeds from highway forfeitures.
Think it can't happen here in New Zealand? Think again. The Greens (especially the admirable Nandor Tanczos) and Maori were about the only outspoken Parliamentary opponents of civil asset forfeiture legislation introduced by the prior Labour government and passed by the current National government; ACT favoured it.

The NZ legislation isn't as bad as the American version, but give it time.

Tuesday 26 January 2010

How economists deal with premarital sex

"From Shame to Game in One Hundred Years: An Economic Model of the Rise in Premarital Sex and its De-Stigmatization". Jesús Fernández-Villaverde, Jeremy Greenwood, and Nezih Guner

Societies socialize children about many things, including sex. Socialization is costly. It uses scarce resources, such as time and effort. Parents weigh the marginal gains from socialization against its costs. Those at the lower end of the socioeconomic scale indoctrinate their daughters less than others about the perils of premarital sex, because the latter will lose less from an out-of-wedlock birth. Modern contraceptives have profoundly affected the calculus for instilling sexual mores, leading to a de-stigmatization of sex. As contraception has become more effective there is less need for parents, churches and states to inculcate sexual mores. Technology affects culture.
Lemma One is called "Lustful males": as women bear the costs of unwanted pregnancy, males will have a lower libido threshold for engaging in premarital activities.

They also suggest that church prohibitions on pre-marital sex loosened as churches became less likely to bear the costs of raising abandoned babies.

Times change

My parents sent over some of my old books for Ira to enjoy. Kids books...they've changed a bit. Not sure that the current edition of Richard Scarry would have this page...


Battling corruption

The World Bank's CommGAP blog notes a neat anti-corruption campaign in India: withdrawing the consent of the victim.
According to Anand, the idea was first conceived by an Indian physics professor at the University of Maryland, who, in his travels around India, realized how widespread bribery was and wanted to do something about it. He came up with the idea of printing zero-denomination notes and handing them out to officials whenever he was asked for kickbacks as a way to show his resistance. Anand took this idea further: to print them en masse, widely publicize them, and give them out to the Indian people. He thought these notes would be a way to get people to show their disapproval of public service delivery dependent on bribes. The notes did just that. The first batch of 25,000 notes were met with such demand that 5th Pillar has ended up distributing one million zero-rupee notes to date since it began this initiative. Along the way, the organization has collected many stories from people using them to successfully resist engaging in bribery.

One such story was our earlier case about the old lady and her troubles with the Revenue Department official over a land title. Fed up with requests for bribes and equipped with a zero rupee note, the old lady handed the note to the official. He was stunned. Remarkably, the official stood up from his seat, offered her a chair, offered her tea and gave her the title she had been seeking for the last year and a half to obtain without success. Had the zero rupee note reached the old lady sooner, her granddaughter could have started college on schedule and avoided the consequence of delaying her education for two years. In another experience, a corrupt official in a district in Tamil Nadu was so frightened on seeing the zero rupee note that he returned all the bribe money he had collected for establishing a new electricity connection back to the no longer compliant citizen.
The victim of corruption signals that he or she is the type that will report the corrupt official, and the official backs down. Why didn't this work without the note? The note signals that the bearer knows how to report the corrupt official:
Anand believes that the success of the notes lies in the willingness of the people to use them. People are willing to stand up against the practice that has become so commonplace because they are no longer afraid: first, they have nothing to lose, and secondly, they know that this initiative is being backed up by an organization—that is, they are not alone in this fight.

This last point—people knowing that they are not alone in the fight—seems to be the biggest hurdle when it comes to transforming norms vis-à-vis corruption. For people to speak up against corruption that has become institutionalized within society, they must know that there are others who are just as fed up and frustrated with the system. Once they realize that they are not alone, they also realize that this battle is not unbeatable. Then, a path opens up—a path that can pave the way for relatively simple ideas like the zero rupee notes to turn into a powerful social statement against petty corruption.
The notes are distributed by 5th Pillar, who print their contact details on the notes.

HT: Oxfam

Bernanke Dow inversion

Or at least those were the prices before I started shorting Dow if Bernanke not reappointed.

Come on, traders. It's dead simple to put these prices into a little excel spreadsheet that spits out the conditional prices for the Dow. Looks like somebody bid up the price of US.BNKE.2FEB without making the simultaneous play against US.NOTBNKE.DOW . Time for me to short Bernanke's reappointment before 2 Feb while shorting the Dow in the case that he isn't reappointed. If he's reappointed, I take money from the Dow short; if he's not reappointed, I take money from the Bernanke short.

Monday 25 January 2010

Beattie on Closeup [updated]

Kiwi viewers should tune in tomorrow night (Tuesday) to Close Up on TV1 for a piece on Roger Beattie's weka farming and, I'm told, a debate between Roger and a DoC staffer on the merits of the commercial farming of endangered species. I'm guessing the clip will wind up on the Close Up site sometime after broadcast.

For more on Roger's work in saving the weka (for tasty eating sometime down the track), check my prior post here; for more on saving endangered species by farming and eating them, here and here.

Update: it looks like DoC has pulled out, so it's delayed for now....

Minimum wage - empirics

Not that empirics matter for much in minimum wage debates, but here are some of the ones I used when I included a week on labour markets in my Econ 224 course.
  • Deere, Murphy and Welch, American Economic Review May 1995. The 1990-1991 minimum wage increases hurt employment outcomes for younger workers, blacks, and high school drop-outs. The increase in minimum wage from $3.35 to $3.80 reduced teenage male employment by 4.8%, female teen employment by 6.6%, black teen employment by 7.5%. For adult high school dropouts, employment dropped by 1.5%, 2.5% and 4.4% for men, women and blacks, respectively. A second hike to $4.25/hr further reduced employment for marginal groups.
  • Neumark and Nizalova find that exposure to higher minimum wages while young has long term detrimental effects on worker wages, and that these effects are worst for black workers. They do things like comparing employment outcomes for low-education black youths in states with low minimum wages with kids in states with high minimum wages. You might think that worse employment outcomes for youths aren't all that bad - who cares if some college kids can't find summer jobs, right? Except that this really hits the low education inner city youths who never are able to make up for the work experience forgone.
    The evidence points quite clearly to more adverse longer-run effects of minimum wages for blacks. Focusing again on the estimates for 25-29 year-olds, we find that, for blacks, exposure to a higher minimum wage during ages 16-19 or 20-24 is associated with significant negative reductions in wages, employment, hours, and earnings. The estimates for whites are often about one-quarter to one-third as large, although still generally statistically significant.
  • Tim Leonard surveys some of the economic controversies around the minimum wage
  • Leonard also goes through the not-so-secret secret history of the minimum wage: progressives in the US largely favoured the minimum wage because it would cause unemployment among groups they didn't want working. Women and minorities, absent the minimum wage, would undercut wages for white male heads of households and so had to be made unemployable by use of the minimum wage. It was specifically sexist and racist. Go read the whole thing.
Economists don't oppose minimum wages because we're tools of the capitalists or because our hourly rates are well above minimum wage. We oppose them because they, on average, hurt the people they're intended to help. Some folks get a higher wage (though potentially coupled with lower on-the-job training or lower non-pecuniary benefits); other folks get no job at all.

I'd love to see iPredict open markets on Maori youth employment rates, then open some joint markets on those rates conjunct with the different minimum wage contracts. Then I'd like to see the folks at the Standard put up or shut up. In their world, there are no disemployment effects from minimum wages. I'd like to know how committed they are to those beliefs.

Bernanke contracts

iPredict's contracts on Bernanke and the Dow suggest, currently:
The DOW currently sits at 10,170.

I take the small gap between the two conditional contracts as indicating folks reckon the DOW will have priced in an eventual Bernanke reappointment, even if it's not by the end of his current term.

There must be an arbitrage play somewhere between Dow futures and iPredict's estimate of the unconditional value of the DOW, but the fixed costs of working it out seem high relative to the stakes.

Nobel lie?

From the Daily Mail:
The scientist behind the bogus claim in a Nobel Prize-winning UN report that Himalayan glaciers will have melted by 2035 last night admitted it was included purely to put political pressure on world leaders.

Dr Murari Lal also said he was well aware the statement, in the 2007 report by the Intergovernmental Panel on Climate Change (IPCC), did not rest on peer-reviewed scientific research.
Option One: They lied about this, so they've likely lied about other stuff in a lengthy opaque technical document that cannot be independently replicated because much of the data is not in the public domain.

Option Two: They're truth seekers, they're convinced that warming is going to be awful, and they know that only outrageous claims will work in mobilizing political support for change.

If you lean towards option two... Did I remember to tell you that that free markets cure cancer and cause ponies to miraculously appear in your back yard, just waiting to be patted and fed apples? Just look at Singapore and Hong Kong - top two in the economic freedom indices. Free ponies and no cancer - all the time. In fact, ponies are now the biggest export of both countries since ponies on the balconies of small apartments tend to be inconvenient.

Now, do you think I'm just a liar, or does my lying strengthen your confidence in other claims I might make about the merits of markets given that I've demonstrated the strength of my beliefs by my willingness to lie?

Nobels oughtn't be awarded for noble lies.

Friday 22 January 2010

Minimum wage [Updated 2]

Despite the numerous arguments against raising the minimum wage, and especially during a recession (see AntiDismal, for example), trading at iPredict suggests that Key is likely to raise the minimum wage this year. 87% chance of an increase of at least twenty-five cents; 40% chance of at least seventy-five cents. Only a 14% chance of no increase, and no chance of an increase of $1.25 or greater.

I started long on no change and short on the various increases.

But I've since switched to short no change, long 25 cent, short all other increases. The best bet is to expect Key not to do something completely stupid (increase > 75 cents) but not to do the right thing either.

Come on, Key, make me lose my shirt shorting MINWAGE.2010.NC. This is money I want to lose. Make it happen.

Update: The NBR calls out Kiwi economic illiteracy:
When the 2025 Taskforce made its controversial list of proposals for increasing New Zealand’s economic performance to catch up to Australia’s, it missed an obvious one.

The only way to really lift New Zealand’s woeful economic performance is to smack every New Zealander over the head with a textbook of “Economics 101”.

This nation-wide lack of financial common sense was reflected in a poll by the NZ Herald that found 61% of respondents want the minimum wage lifted to $15 an hour.

Of course, the Herald didn’t ask the follow-up question- “do you support higher unemployment, particularly among groups vulnerable to labour market changes such as young people and Maori, as well as the possible collapse of many businesses already burdened by ever-increasing government-imposed costs?”

While it may be tempting just to tut-tut at the stupidity of our fellow Kiwis and forget about it, this survey could be a sign of even worse to come.

The Unite Union is circulating a petition to get the minimum wage increased to $15 an hour and by the looks of the Herald survey, it has a good chance of getting the required number of signatures (10% of enrolled voters) to force a Citizens Initiated Referendum.

Fortunately the National government will probably ignore it like all the other CIRs this country has had.
Hit the Economic Thinking tag for correlates of economic thinking in New Zealand....

Update: Turned out to be a 25 cent increase. Not the right thing, but not a completely stupid thing either. About what I expected.

Business degrees

Inside Higher Ed reports a substantial drop in freshmen choosing business majors: a one year decline from 16.8% to 14.4%.

Alas, it's not due to freshmen recognizing that business degrees are often heavily constrained by AACSB regs.

Rather, they're chalking it up to general antipathy about business:
Also, in one year, the percentage of freshmen who listed their "probable career" as one in business dropped from 14.1 percent to 12.1 percent. This is an all-time low for the survey; the previous low was in 2003, when 13.8 percent reported that their goal was a career in business.

“I think that a business career doesn’t look as appealing as it once did, nor does it come with a guarantee of being well-off financially as in the past,” said Linda DeAngelo, co-author of the accompanying report and assistant director of research for the Cooperative Institutional Research Program at HERI. “Some of that can definitely be attributed to the general sense that we spent a lot of time over the past year raking business executives and people in high finance over the coals. There’s certainly a trickle down, and I don’t think high school students are immune to that overall feeling about business.”
From the report:

As best I'm aware, we haven't seen any such shift in enrollments at Canterbury, but I certainly wouldn't mind at all if more of our Econ majors did it through Arts or Science.

Thursday 21 January 2010

Reasons not to live in Australia

Josh Gans says that experiencing American integrated TV-internet services makes him reluctant to go home to Oz.

Compared to this reason not to go back to Australia, crappy tv and internet are second order small.
Forget sharks and crocodiles: the real menace at this time of year, at least for surburban Sydneysiders, is a backyard spider whose bite can kill you in the space of two hours.

Insect experts have warned that the city is being invaded by funnel-webs, considered one of the world's most aggressive and poisonous spiders.

A reptile park north of Sydney where people can drop off captured specimens, and where they are milked of their venom to make antidote, has received more than 40 males in recent weeks. Males are deadlier than females.
Unlike most spiders, which scuttle away when disturbed, funnel-webs - which can grow to up to two inches long - may rear up and bare their fangs. They make burrows in moist, dark places, such as garden sheds, outdoor laundries and shrubberies.
One species, the paperbark funnel-web, has a bite so lethal that one victim required 17 ampoules of anti-venom.
Found mainly in eastern Australia, they are said to be able to leap 18 inches, and their fangs can penetrate soft shoes and fingernails.
Young Ira loves poking around in exactly the kinds of places that these evil critters would live. Fortunately, poisonous spiders are pretty rare in NZ. A few Redbacks in central Otago who've migrated in from Oz, and very rare and timid Katipos that hide in driftwood. Nobody's died of funnel-web bites in Oz for some time, but I've not seen the numbers on how many folks have had to get antivenom.


iPredict's first conditional stocks event derivatives

Matt just launched iPredict's first conditional stocks event derivatives (Happy Chris?).

First, we have a contract, US.BNKE.2FEB, that pays off at $1 if Ben Bernanke is reappointed as Chairman of the Federal Reserve on or before 11:59 PM 2 February. That contract is now at $0.57: a 57% chance that Bernanke is reappointed.

Next, we have two conditional stocks event derivatives on the DOW.

US.NOTBNKE.DOW pays out at 1 cent for each 20 points the Dow closes above 9500 on 2 February if and only if Bernanke is NOT reappointed.

US.BNKE.DOW pays out as above, but only if Bernanke IS reappointed.

The current prices [updated 9:30] are $0.39 for Dow | Confirmation and $0.18 for Dow |~Confirmation. Since p(Confirmation) is 0.57, the prices are reckoning on a Dow at 10,868 if he's confirmed and 10,337 if he's not. The Dow's now at 10,603. So, the market's not figuring on much of a move either way.

Good job Matt on getting these out! I'd love to see some on housing prices conditional on a land tax and unemployment rates conditional on the various minimum wage stocks.

Game theory at the aquarium

Via Schneier, we learn a bit more about cleaner fish. I'd heard of these before: little fish that eat parasites off of bigger fish, with both parties being made better off for the exchange. But it's far more interesting than I'd thought.

The cleaner fishes get to choose cooperate (clean parasites) or defect (eat the client fish's tasty skin mucous) for each client. The client fish often leaves if the cleaner chooses defect.

When working alone, male and female cleaners defect against clients about equally. But when cleaner fish work in pairs (male/female), female defection rates drop considerably. If the client leaves because the female defects, the male punishes her by chasing her aggressively, reducing her likelihood of defecting for the next client. Presumably the (smaller) female isn't as able to punish the male for defection. On the whole, average defection rates are lower for partnered cleaners, and clients seek out cleaners that work in pairs.

Here's the rather nice Nature article, October 2008.

And of course recall that Gordon Tullock invented the field of bioeconomics back in 1971.

Wednesday 20 January 2010

A good strike

Back in September, I warned against a three-strikes law that eliminated marginal deterrence. It looks like ACT and National have come up with a compromise that sounds pretty sensible. There's a list of serious "strikeable" offenses. On the first strike, the offender is warned that it's his first strike, with sentencing as normal. On the second strike, "truth in sentencing": no parole period applies, so the offender serves the full sentence. On the third strike, the judge must assign the maximum sentence, again with no parole. Since the only penalty for murder is life in prison, murder as a second strike gets the same treatment as murder on a third strike.

This makes much more sense than ACT's initially proposed "twenty five years for a third strike" rule, which of course eliminated marginal deterrence across third strike offences. There may still be a bit of a severity shift within categories: offences within the same category can be more or less serious, but the losses from this kind of shift are pretty small relative to the losses from a blanket "25 years" policy. They also ought to be small relative to the deterrent effect achieved.

Recall that California's three-strikes law deters even first offences on the strike list. The NZ law seems to avoid the biggest problems of the California legislation: there won't be any serious severity shift the way it's written, and the increase in prison costs will be rather smaller than that experienced in California where any third strike draws a fixed and long sentence rather than one proportionate to the offence committed.

Note that strikes only count going forward; this also is pretty reasonable.

Good job ACT and National. I'll be interested in seeing the full list of strikeable offences and the rest of the details, but this gets a big provisional thumbs up.

Tuesday 19 January 2010

Caught in the stone age - Australia too

I'd wept a couple months ago seeing the gap between the US and NZ widening.

Josh Gans is on sabbatical at Harvard and is having the same experience:
In Australia, TV is dictated at the behest of four networks and one cable provider. There is nothing reliable on the internet and paid for services like iTunes are crippled. In contrast, in the US, I subscribe to a single provider, Comcast, for all television, internet and phone requirements at the home. The television comes over a DVR that runs Tivo and so can be programmed from anywhere. But who cares about programming? They actually have an ‘On demand’ service that has all of the main programs you may have missed. And, of course, all of this is in real 1080i HD. And you can use the same service to watch and pay for new release movies so we don’t even own a DVD (that technology lasted less than a decade in our household).

But wait, there’s more. Not satisfied with that and you can watch much of the stuff online anyway. Hulu is a well designed service that really works. Of course, you can’t skip through ads but who cares. There is just one per break and they tell you how long it will last! And add to that that I face no download caps and you have all you want. (Oh yes, if you think I am stuck with US programming and that is a minus — not from my perspective but others might think so — then think again. I got to see Doctor Who the day it aired in the UK.)

Finally, the phone on top of this costs pretty much nothing. I can call anywhere in the US and Canada for the cost of a local call — which turns out to be $0 per minute. The voice mail is accessible online so I don’t have to be at home to pick up. In any case, I use Google Voice which calls all my phones and so I don’t really have to be worried about receiving calls at home. In any case, if I’m watching TV and there is a call it will tell me who is calling on the TV. Now that is a benefit of an integrated communications service.

Australia puts up with continual crap on this front. None of the technology here is monopolised and non-transferable to Australia. I fear we will get a shiny new NBN with none of this and wonder why consumers don’t want to pay much to use it. It is like strapping a jet engine on to a horse buggy. Our persistent lagging on this suggests that we need government review to understand what is holding Australia back. At the moment, I don’t want to come home.
I still say it's mostly a problem of fixed costs. Getting the rights to air each separate item in the Hulu library outside of the US? Fixed cost. Getting the rights to distribute movies outside the US (for Netflix)? Fixed cost. Population in NZ isn't high enough to justify it; apparently it isn't for Australia either.

Monday 18 January 2010

Vowles on the 2008 NZ General Election

Liberation points to a chapter by Jack Vowles on the 2008 New Zealand election.
In the 2008 general election, half of voters (51%) thought there were only ‘minor differences’ between the parties during the campaign, while only 38% thought there were actually major differences between the parties. Furthermore, when survey respondents were asked to place the parties on the left-right spectrum, ‘A third could not place Labour or National’. These findings from the New Zealand Election Survey surely reflects the policy convergence of the parties, and are detailed in Jack Vowles’ new academic chapter about the election.
But in the 2005 NZES, 18.9% of respondents said "don't know" when asked National's ideology (with a further 6.7% leaving the question blank); similar proportions had problems identifying Labour's ideology. 23% of respondents either answered "don't know" or left the question blank for both of National and Labour. A further 11 percent of the sample placed National to the left of Labour (among those who did not answer either "don't know" or leave a blank for either National or Labour). So, a third of the 2005 sample could not place National relative to Labour. I wonder what proportion of the 2008 respondents placed National left of Labour....

He goes on to argue that the shifting of the parties to the center opened up room for valence issues. I certainly agree that 2008 was far less ideologically charged than 2005. For 2008, Vowles reports (on a left-right spectrum where 0 is left and 10 is right) that voters placed Labour at 3.7 and National at 6.7. But those registering an answer in 2005 didn't answer that much differently: Labour scored a 3.6 and National a 7.1. So the average gap closed from 3.5 points to 3 points. But if we look at individual respondents' reported distance between National and Labour in 2005 (for those registering an answer), the standard deviation of that difference variable is 4.8. Is a half point closing of the ideological gap really then significant?

The war on 'P'

Nick Smith at the Sunday Star Times (HT: Gonzo) writes coherently on the likely outcome of the government's current push against methamphetamine.
The government is, says Key, winning "the fight against P".

But if "we" are winning the fight, what will success entail? An exhaustive account of the global cocaine trade (The Candy Machine, How Cocaine Took Over the World, by Tom Feiling) suggests all of the efforts by government and its agencies will make not a jot of difference and may even generate a worse social outcome.

It will not mean an end to drug-related crime – when costs become prohibitive, crime rates usually soar as users resort to desperate measures to acquire cash to feed their dependency, as Feiling shows. Look to the burglary and robbery figures for the March 2010 quarter. Nor will success strangle an important revenue stream for gangs, many of which are major suppliers of methamphetamine.

What usually happens is consolidation into larger, more sophisticated operations. Merger and acquisition is just as much a feature of illegal drug businesses as the world of Proctor & Gamble or Merck Sharp & Dohme.

Large organised criminal organisations, after all, are the only entities with sufficient market heft to handle the rising financial and human costs associated with drug dealing, whether in New Zealand or the US.

The scarcity and rising cost of P doesn't mean an end to drug use – history shows other drugs, potentially more harmful, become available, such as cocaine. Anecdotal reports suggest cocaine in New Zealand, traditionally the drug of the corporate and entertainment elite, is becoming more widely available and cheaper, per gram, than P.
Smith could also note some recent work from the American Economic Review where Dobkin and Nicosia find that a big meth bust in the US (similar to the one we've just had here) had the short term effect of tripling the price of methamphetamine but had no effect on property or violent crime; moreover, prices returned to normal within four months as suppliers worked out alternative arrangements. I'd expect it might take a bit longer for price to return here to normal (as we are an isolated island), but the overall effects should be little different. Dobkin and Nicosia's abstract, below:
In mid-1995, a government effort to reduce the supply of methamphetamine precursors successfully disrupted the methamphetamine market and interrupted a trajectory of increasing usage. The price of methamphetamine tripled and purity declined from 90 percent to 20 percent. Simultaneously, amphetamine-related hospital and treatment admissions dropped 50 percent and 35 percent, respectively. Methamphetamine use among arrestees declined 55 percent. Although felony methamphetamine arrests fell 50 percent, there is no evidence of substantial reductions in property or violent crime. The impact was largely temporary. The price returned to its original level within four months; purity, hospital admissions, treatment admissions, and arrests approached preinter-vention levels within eighteen months.
New Zealand's drug warriors should be forced to watch The Wire, and especially the third season...

Medical Hypotheses

I've often read published work I've thought less than stellar. But it's never occurred to me to ask the press that publishes the journal to shut the journal down. Writes Times Higher Education (HT Mangan's, via Patri Friedman)
It has published papers on everything from ejaculation as a treatment for nasal congestion to why modern scientists are so dull, but the future of Medical Hypotheses is hanging in the balance after a host of complaints from high-profile researchers.

The irreverent publication is the only Elsevier journal not to subject its submissions to peer review. Instead, its editor decides what to publish on the basis of how interesting or radical a paper is, and how well expressed the arguments are.

But its future is in doubt after editor-in-chief Bruce Charlton, professor of theoretical medicine at the University of Buckingham, published a paper from a well-known HIV/Aids denier.

The paper, "HIV-Aids hypothesis out of touch with South African Aids - A new perspective", was published online last July. It was written by Peter Duesberg, professor of molecular and cell biology at the University of California, Berkeley, and colleagues.

It argues that there is "as yet no proof that HIV causes Aids" and says the claim that the virus has killed millions is "unconfirmed".

Prominent Aids researchers contacted Elsevier to object to the article and wrote to the US National Library of Medicine requesting that Medical Hypotheses be removed from the Medline citation database - an act that would exclude it from the mainstream scientific-communication network.
The Medical Hypotheses Blog responds:
MEDICAL HYPOTHESES, however, was founded nearly thirty-five years ago in an attempt to provide an outlet for medical research that runs contrary to received opinion and is too controversial to be published in peer-reviewed medical journals. David Horrobin, our founding editor, believed that the peer-review system can impede the growth of science by systematically rejecting articles that fall outside the consensus of scientific belief.
I used to think that it would be too ironic, given the history of MEDICAL HYPOTHESES, if Elsevier were to subject our policy on peer review to peer review. But that is just the tip of the iceberg. The panel of experts that Elsevier enlisted to investigate how we came to accept Duesberg’s article for publication has now completed its report. It does, indeed, recommend that articles submitted to the journal be subject to peer review. It also recommends that Elsevier impose a list of forbidden topics of a controversial or politically-incorrect nature to be excluded from the journal.
Peer review is important, but there is no reason that each and every journal in existence must be peer reviewed. Everyone knows or ought to know that Medical Hypotheses exists to publish controversial work that would have a hard time getting through the conformity pressures of peer review; it's more a journal of interesting and dissenting voices than "settled science".

I don't know whether Bruce Charlton owns Medical Hypotheses or if Elsevier owns it. But if he does own it, he ought perhaps be shopping for a better publisher.

At the current margin, there should be more, not fewer, journals that publish papers based on editorial rather than peer review. Those journals should be strongly identified with the editor to align reputational incentives.

In a way, we're moving towards that kind of a system already: trusted blogs point to endorsed working papers prior to their publication or acceptance. I'd put even odds that a Marginal Revolution link to an unpublished working paper does more for that paper's citation count than acceptance at most journals. At what point do particular trustworthy individual become more important as imprimatur than journal acceptance processes?

We have better choice of filters now than we did twenty years ago. I'll pick Charlton as filter for interesting over a committee process any day.

Thursday 14 January 2010

Costs of alcohol in New Zealand's antipodes

Chris Snowdon over at Velvet Glove points to a new Scottish study of the social costs of alcohol, reported on by Alex Massie of the Spectator.

A quick flip through the report suggests some pretty familiar problems: most prominently, counting as social costs a host of private costs. Where the Scottish piece suggests costs of about 3.5 billion pounds, it looks like an economic measure of external costs would be somewhere between a quarter and a third of that value. I'm not going to spend a month on it like I did with the BERL study (see here and here). But some cursory notes:
  • the costs of anti-alcohol initiatives are counted as a cost of alcohol: so if funding for alcohol treatment centres doubled, the cost of alcohol would increase
  • Costs of social care are based on the proportion of families where social workers think alcohol is a problem, not the cost reduction that could be achieved in the absence of alcohol (as alcohol is only one of many problems for many such families)
  • crime costs seem to be counted whenever survey suggests 'drunk as one of the reasons for crime', but we can never really tell what proportion of those would have occurred for the other reasons even if alcohol hadn't been there
  • it looks like they're counting all forgone wages as being social costs; they've made a passing note to that they're private costs if labour markets are "perfect", but then seem to go on to assume all costs can be counted as social because markets aren't "perfect" (rather than just counting a portion of them as social to reflect the degree to which markets aren't perfect; they also assume alcohol-affected workers are employed at average wage rates rather than being concentrated in the lower brackets.
Somebody who wanted to spend a month reverse-engineering their figures and applying sensible method could likely knock the costs back to somewhere south of a billion pounds as a rough estimate. We knocked the BERL study back by rather more than that, but the Scottish piece seems to have avoided some of BERL's sillier methods.

The bulk of the mortality costs would properly count as internal costs for drinkers (save for victims of crime or victims of drink drivers who weren't in the drink driver's vehicle), so that 1.46 billion would knock back to somewhere around 100m, most likely; productive capacity costs would likely knock back to about a tenth of the reported figure; crime costs for matters other than alcohol-specific offences should be knocked back by at least a third. A rough ballpark for an 'external cost" figure would be between a third and a quarter of what they're reporting. It could be lower than that, but I'm not going to spend a month on it.

I can't quickly find the Scottish excise tax take, but the take for the whole UK is 11.5 billion pounds as of 1999-2000 and Scotland is about 8% of the overall population, so ballpark excise tax revenues in excess of about a billion pounds (since they'll have risen in the last decade).(Updated, see below) So, again, external costs are roughly at the level of the excise tax take.

Of course, the Scottish government views the figures as plainly demonstrating the need for ever more stringent controls on alcohol.

Yet more cost reports whose function is agitprop.

Update: Chris (in comments) very usefully notes alcohol excise taxes of £768m (which I still think likely close to what a corrected figure on external costs would look like). I think that includes Scotland's proportionate share of excise duties collected on imported alcohol, but I'm not completely sure.

Wednesday 13 January 2010

Causality revisited

A while back I whinged that the press does a bad job of distinguishing correlation from causality. The latest headlines on correlations between TV-watching and mortality risk are no different: absent some kind of natural experiment or clever IV strategy, all we really know is that sedentary folks are more likely to die than folks who aren't.

For even more fun, check the shifting standards in the following paragraph:
Alcohol factors significantly in violent crime statistics: one third of all offences and half of all serious violent offences in NZ are committed by offenders who have been drinking (NZ Police); alcohol is associated with 46 percent of incidents of sexual violence (National Survey of Crime Victims, 2001). By contrast, nothing in the NZ Drug Statistics indicates cannabis use a cause of violent crime. Any association between cannabis and violence is linked to the black market and is therefore a direct result of prohibition itself.
So alcohol is bad because there may be correlations between drinking and criminal activity, but marijuana is good because nobody has established a causal relationship between weed and crime. As I'd previously noted:
...high proportions of arrests and crimes that are "related" to alcohol. But what I've never seen numbers on is what proportion those "alcohol related" crimes would have taken place in the absence of alcohol. You could just as easily say that 100% of crimes are "Oxygen related", 50% are mullet-related and 25% involve the wearing of t-shirts that say "No Fear". Ok, without the oxygen, none of those oxygen-related crimes would have taken place. But would a policy getting rid of No Fear t-shirts really prevent crime? Mightn't criminals switch to even riskier shirts? This is actually a reasonably serious point. If you ramp up the price of alcohol, how many criminals switch to P before going out to do nasty stuff? One of the country's more prominent criminologists suggests in informal chats that he reckons about 60% of these "alcohol-related" crimes would have taken place anyway even if alcohol disappeared; the actual crime-costs of alcohol are then about 60% lower than typically reported as alcohol in those cases is more like wearing a No Fear t-shirt: just something criminals like to do while offending but wouldn't stop them from offending in its absence.
I always find it depressing how folks like NORML think beating up on alcohol makes marijuana legalization more likely rather than just making for tighter regs. The hospitality industry lobbies for more restrictions on supermarket-bought alcohol to boost sales in bars; small brewers push for more punitive tax rates on big brewers... the only winners are the healthists who get support bit by bit for more regulations on everything. It's like a bunch of folks on the scaffolds complaining that the other guy's noose isn't quite tight enough. Y'all might instead direct your attention to the hangman sometime and try helping each other cut those ropes.

Better off stateless?

Ben Powell, Pete Leeson and others have done interesting work on the relative performance of Somalia and ex ante comparable African states. While Somalia would be a terrible place to live, folks there often are better off than folks in neighbouring countries.

Interesting case reported by the BBC in the Ivory Coast where the northern town of Bouake, formerly capital of the rebels' region, has been operating under near-anarchy for a few years.
It was perhaps that legacy and a relatively high education that gave people the courage to try to make the best of difficult situation.

When civil servants fled south, volunteer teachers, like Ali Ouattara, stepped forward to try to keep things going.

"We didn't want the kids to become child soldiers, so we tried to give them something. This is how we became teachers," says Mr Ouattara, who lost his job at the university at the start of the crisis.

Most of the volunteer teachers had limited qualifications and no experience of teaching.
At first they had almost no resources as the schools had been ransacked and the lawlessness meant they were scared to discipline their pupils, who were sometimes armed.

Gradually with contributions from parents, the ad-hoc schools helped save a generation of children, and in some years the rebel zone got better results in national exams than the government zone.

Other volunteers helped cover for the absence of the state in other ways: setting up an ad-hoc postal service; their own television stations and some basic policing.
As for prospects, the Ivory Coast is set for reunification:
For example, Bouake now has a booming business in motorbike taxis - illegal under Ivorian law.

But here it is a sector that has kept hundreds of young men off the streets.

The problem is they will not have a place in a reunified Ivory Coast, what with their untaxed scooters, unlicensed businesses and lack of driving licences.
UN observation points along the former ceasefire line have already been dismantled but the most delicate part of reunification - handing over guns and control of taxes - still seems a long way off.

And, seven years without traffic lights, taxes or utility bills develops habits that are hard to budge.

The BBC's podcast on life in Bouake is here. UPDATE: Having heard most of it, I strongly recommend...

HT: Radley Balko

Multiple exchange rates

The Financial Post reports that the upcoming Venezuelan devaluation is going to be somewhat...odd.
Items classified as nonessential now have an exchange rate of 4.3 bolivars per U.S. dollar, up from 2.15 and compared with a new rate of 2.6 for essential imports such as food and medicine.
This rather confused me until I remembered that
  1. This is the rate at which Venezuelans can buy and sell foreign currency from the Venezuelan government, who do not promise to always meet demand at the stated rates
  2. The official exchange rate remains inaccessible to most Venezuelans, who trade currency in the grey market at worse rates
  3. This is more an accounting device to boost the reported Venezuelan dollar profits of oil exporters (who can sell oil for US dollars then report income in Venezuelan dollars at the 4.3 rate while buying foreign-built equipment at the 2.6 rate)
See also the Wall Street Journal.

I'm told that in the bad old days in New Zealand, folks needed permission to get foreign currency; academics needed government permission for the foreign exchange to get a journal subscription. And that Muldoon wanted to devalue the NZ Dollar, but only against the Australian dollar (and got angry that Treasury/RBNZ told him it couldn't be done without...large problems). The dual exchange rate made me think of the Muldoon move....

Monday 11 January 2010

Controlling for culture

Economists like to control for various confounds in empirical work.

Here's a potential new one for the right hand side of your favourite regression: zip-code level data on Netflix rentals. Half Sigma points to a New York Times piece on neighbourhood patterns in movie rentals. For the top 100 movies rented overall in 2009, you can check zipcode level differences in movie rankings for a few different cities. So Half Sigma argues that you should never move to a neighbourhood where Paul Blart: Mall Cop was popular. Says Half Sigma:
Mad Men makes the list of top 50 rentals in very few zip codes, but it’s heavily rented in sophisticated urban areas, like Manhattan and especially western Brooklyn. In fact, it’s interesting to note that western Brooklyn, where Mad Men is in the top 10, has stronger preference for Mad Men than Manhattan.

Last Chance Harvey is a movie that’s only enjoyed in wealthy suburbs like Scarsdale and Great Neck. It’s very much a non-prole movie, but there’s also very little appreciation for this movie in places where Mad Men is liked.

The vastly different rental patterns Mad Men vs. Last Chance Harvey demonstrates that there are two very different types of upper middle class.

Without knowing anything about the city of Chicago, for example, I can look at the Netflix map and tell you that zip code 60523, which includes West Chester and Oak Brook, is a wealthy family-oriented suburb because of the high number of rentals of Last Chance Harvey, and that the area along the lake, north of the downtown area, between McCormickville and Evanston, is where the hip intellectual child-free people live because they rent Mad Men, and that Addison is full of white proles because Paul Blart: Mall Cop is heavily rented but the Tyler Perry movies are not...
I wonder whether including rankings on a few roll-call movies of this sort might pick up some cultural effects that are missed in other measures. If you could get the cardinal differences within zip codes for the ordinal rankings, you could run a measure of cultural heterogeneity based on movie-watching patterns. The folks doing social capital work often want to check whether heterogeneity promotes or discourages trust; I think this kind of heterogeneity is more interesting than racial or income heterogeneity.

I wonder whether Netflix would make the raw data available.....

Update: See also Social Science Statistics Blog

Magical thinking?

I'm a fan of markets, but they aren't magical. Anti-Dismal points to the IEA blog which suggests the recent snow-clogged roads in Britain are another reason that roads ought to be privatized: private road owners would have a profit motive to keep the roads cleared.

I'm skeptical. Of course there's a profit motive to keep the roads cleared, but there's also the cost of maintaining the stock of equipment that would be necessary to deal with "once in twenty year" events. It's unclear to me that public agents have incentive to be undercapitalized relative to the private sector; think of the Bear Patrols in Springfield and whether the private sector would have had quite as many anti-bear helicopters.

I think this far more an example of "cold houses in warm climates" (or, snowy roads in warm climates) than of government failure. As a Manitoban in DC, I always laughed at how the town would shut down for the slightest hint of snow, but it would have been massively wasteful for DC and Virginia to have invested in the kind of snow clearing apparatus that was necessary for Winnipeg winters.

Thursday 7 January 2010

New Zealand legal bleg

Late last year, the University started attaching a disclaimer, copied below, to every outgoing email sent from a University account to a non-University account. I've not noticed it on email from any other university in New Zealand, and I can't recall ever having seen it on an academic email from outside of New Zealand. I have seen similar things attached to emails from some civil servants from various countries and on emails from some corporates.

I hate the email disclaimers. If you have an email exchange with somebody else who's stuck with a disclaimer, and it's a quick back and forth, the disclaimers take on an ever-increasing proportion of the sent mail (and shouldn't we be conserving electrons for our grandchildren to use?).

The questions: Has any company or agency in New Zealand ever gotten out of a legal mess by pointing out the existence of the disclaimer? Anywhere else? To what realistic legal risk is the University exposed in the absence of such a disclaimer? Does the law currently hold that any email sent from any random University employee can reasonably be held as constituting the official views of the University? That any employer, as an ISP for its employees, can be held liable if an email has a virus attached? Does the disclaimer's prohibition on dissemination by unintended recipients place any legal and enforceable obligation on them? If so, why can't I also demand that anyone reading an email from me owes me a fee of $1 for having read the email?

Here's the disclaimer:
All emails sent from the University of Canterbury may be confidential and subject to legal privilege. If you are not an intended recipient, you may not use, disseminate, distribute or reproduce such email, any attachments, or any part thereof. If you have received a message in error please notify the sender immediately and erase all copies of the message and any attachments. Any views expressed in any message are those of the individual sender and may not necessarily reflect the views of the University of Canterbury.

The University of Canterbury does not guarantee that any email or any attachments are free from computer viruses or other conditions which may damage or interfere with recipient data, hardware or software. The recipient relies on its own procedures and assumes all risk of use and of opening any attachments.
The second sentence says that, if I'm not the intended recipient of the email, I cannot do anything with the email. The third sentence says that I should notify the sender. But the second sentence says that I can't use the email. To reply to the email requires that I use the email, at least to manually transcribe the email address. All very perilous.

Disclaimer: Nothing in this blog posting should be read as bringing the University's reputation into disrepute. It is purely an academic question about the legal status of email disclaimers in New Zealand.

Wednesday 6 January 2010

Oh, I do love a good Prisoner's Dilemma game

Cattalaxy comments on this Telegraph piece by Delingpole, which says that a whistleblower under US law can claim a proportion of the total government funds that were misused. All the folks at the Earth System Science Center at Penn have apparently been emailed a note reminding them of the provisions of the legislation and inviting them to rat out their friends.

I'd put odds close to zero that this results in anything: I doubt that any court under the current administration would push anything or would deem any government funds to have been misused, and so the off-diagonals aren't all that lucrative in expected value terms.

I'd also expect the expected payouts to have to be pretty high: surely any one of them could have received several million from the oil companies by defecting earlier on. So if it's a PD game, it's one that's been going on for rather some time now.

Futarchy and its discontents

Chris Masse might well call me a Hanson fanboy for it, but I am a fan of Hanson's Futarchy idea. I like it so much, I usually lecture on it in the closing week of my public choice class.

The mechanism, in a nutshell:
  1. We vote democratically on some aggregate measure of social welfare, which Hanson calls GDP+. Take GDP and whatever else you think it part of "good stuff", assign all components a weight by democratic voting, and voila! You have an aggregate measure of whatever we're trying to maximize. Scale it to some sensible interval.
  2. Open sets of futures markets that pay out based on the value of GDP+ at future dates stretching far into the future.
  3. Open sets of policy markets that pay out based on whether particular policies are implemented. Anyone can propose a policy, though there'd be a charge for proposing a policy as setting up the sets of markets isn't free.
  4. Open sets of contingent contracts for future prices on GDP+ conditional on the policy being implemented or not being implemented.
  5. If a particular policy improves GDP+, as measured by price differences across enough of the futures markets for a long enough period of time, then that policy is implemented.
Hanson poses and answers a long series of objections in the original paper (linked to here), including the potential for market manipulation.

My main worry about futarchy has been the definition of GDP+. Right now, politicians can dissemble relatively easily about the amount of weight they put on various objectives. Many of these objectives are important political symbols to a lot of folks, but they only really want their symbols to be shown respect and attention; they pay little attention to whether effective policies are actually implemented. So protectionists and trade unionists can be bought off with a "Buy New Zealand Made" advertising campaign that's utterly ineffectual in doing anything but showing those groups that the government cares about them and values their views. If politicians don't want to completely kill the economy (and thereby reduce tax revenues), they're well advised to offer up cheap symbolic policies in lieu of growth-killers.

By contrast, GDP+ is completely transparent. There's no reason to expect that the same biases that plague regular voting wouldn't also plague voting on constitutional matters like the definition of GDP+. But it could well be worse because politicians would have far less slack to work around silly definitions of GDP+ than they have to work around silly pandering election promises.

That worry aside, I like Futarchy and I love the idea of contingent markets on the effects of policies as a useful input for policy evaluation.

Paul Hewitt is less keen. He winds up, in the comments, asking Robin three questions.

First and second are whether it's possible for long term markets to be accurate and whether traders would be able to understand GDP+, given that economists have a hard time forecasting simple GDP for medium horizons. I'll expect Robin to answer that so long as whatever inaccuracies there are in such forecasting are constant across the sets of markets for any period of time, then the price differences across such markets are going to be meaningful, and it's the price differences across markets that really matter. Suppose that we have a market on what the value of GDP will be in 20 years time. I have no clue what that number will be; at best I'd take the current value and assume a 2% real growth rate. But that doesn't matter. If there's one market that pays out on GDP in 20 years conditional on no change in policy and the other pays out conditional on adopting a $50/hr minimum wage, I'd short the latter if its price were high relative to the former.

Third, he asks whether the high market listing fee isn't anti-democratic. I'll here expect Robin to reply "relative to what?" I have a very very hard time imagining that it would ever be more expensive to get a policy listed on Hanson markets than it is under the current system to get a policy considered by Parliament.

I'll look forward to seeing Hanson's debate with Moldbug later this month on Futarchy...I trust there'll eventually be a webcast....

Update: Hanson discusses here.