Eyes wide shut

A big trend in economics these days is the Randomized Control Trial (RCT), often referred to by its enthusiasts as the "gold standard" of evidence. An intervention is tested by randomly assigning it across a chosen sample and computing the average treatment effect. An analogy is often made to clinical trials in medicine, but there is (at least) one important difference. Most drug trials are "double blind", where participants do not know if they are in the "control" group or the "treatment" group.  By contrast, most RCTs are not double blind. Participants know what group they are in.

And, as a fascinating new paper points out, this knowledge can produce "pseudo-placebo effects" in RCTs. That is to say, the expectation of receiving the treatment can cause people to modify their behaviors in a way that produces a significant "average treatment effect" even if the actual intervention in not particularly effective.

The paper illustrates the point by undertaking two different RCTs on cowpea seeds in Tanzania. One is a traditional study where the control group knows they are getting traditional seeds and the treatment group knows they are getting modern seeds. The second is double blind; neither group knows what seed it is getting.

The traditional RCT shows a significant  over 20% increase in yields from the modern seed. But the double blind RCT shows that virtually all of that improvement comes from changed behavior, not from any inherent effectiveness of the modern seed.

Specifically, the average treatment effect in the double blind RCT was zero! And when the harvests in the control groups across the two RCTs were compared, the blind control group showed a significant over 20% increase over the traditional RCT control group which knew they were getting the traditional seeds. This is the "pseudo-placebo" effect and it explains the entire average treatment effect in the traditional RCT.

Wow!

In other words, the significant effect found in the traditional RCT was not due to better seeds, it was due to actions taken by the farmers who thought they were getting better seeds (they planted them in larger plots with more space between the plants on better quality land). These farmers' expectations were wrong (in post experiment surveys, over 60% of them said they were disappointed in the yields), and the significant effect in the traditional RCT would not survive over time because the farmers, having adjusted their expectations downward would stop taking the actions that produced the "success".

People, can I get a "YIKES"?

Hat tip to Justin Sandefur.

Santiago de Chile

I'll be in Chile for more than a month. El otoño there in the southern cone.

My sincere thanks to JPC for setting this up.

Tied to the whippin' post

This is a pretty amazing table:

Let's break it down:

1. I guess Mustafa Kemal really did have some influence.

2. Pakistan and Egypt are seriously messed up places.

3. Those numbers do not conform to the pleasant image of Jordan that I have in my head.

Hat tip to Roving Bandit.

David Stern is a TERRIBLE GM

"The way it looks now, the Hornets will have traded their franchise point guard (Chris Paul) for a player who’s leaving (Kaman), a guard who’s played only two games and also could leave in the summer (Eric Gordon), underachieving forward Al-Farouq Aminu and a 2012 first-round pick that might not end up in the lottery.


Imagine how different it would be if NBA commissioner David Stern hadn’t vetoed a trade that would have given the Hornets guard Kevin Martin, forward Luis Scola, forward Lamar Odom and guard Goran Dragic."

~Marc Spears

Excellent Point: US Becoming More Like Russia

So, an excellent point:

"Polls tell us that the teenagers who in the 1990s dreamed of becoming rich in business now aspire to be public servants. Many view public service as a source of fast and easy cash. As long as this incentive exists, purges will be useless — unmasked thieves will only be replaced by others."

Strangely, this claim was made, not in the WS Journal, but in the Washington Post.

Even more strangely, the claim was made by one V. Putin. Who ought to know how profitable public office is. (Note: I changed "oligarchs" to "rich in business," so as not to give it away...)

The layers of hypocrisy here almost cover the long sharp prickles of irony.
The disturbing thing is that in a crony capitalist system, it is the "businessmen" who make the most from "public service." Check this article on Warren Buffet, who has made a fortune by telling President Obama to invest in companies Buffet himself owns.

Excerpt: Consider Warren Buffett. Often seen as a grandfatherly figure above the rough-and-tumble of politics, Buffett appears to be immune to the folly and excess of finance as well. He lives in Omaha, Nebraska, in a house he purchased in 1958 for $31,000. He made a fortune for himself and his investors at the business conglomerate Berkshire Hathaway through the humble-sounding approach of value-based investing. He uses folksy expressions: “You don’t know who’s swimming naked,” he said during the height of the financial crisis, “until the tide goes out.” He frequently takes to the nation’s op-ed pages with populist-sounding arguments, such as his August 2010 plea in The New York Times for the government to stop “coddling” the “super-rich” and start raising their taxes.

But this image does not always reflect reality. Warren Buffett is very much a political entrepreneur; his best investments are often in political relationships. In recent years, Buffett has used taxpayer money as a vehicle to even greater profit and wealth. Indeed, the success of some of his biggest bets and the profitability of some of his largest investments rely on government largesse and “coddling” with taxpayer money.

The US is not in danger of becoming a socialist country like Russia WAS. The US is in danger of becoming a corrupt crony capitalist country like Russia IS. Warren Buffet, oligarch.

Links

Since on Monday, I'll be arriving in Santiago de Chile, and won't be in any shape to post, we'll just have to let Friday's child be full of links.

You are more awesome than a monkey wearing a tuxedo made out [of] bacon riding a cyborg unicorn

Tag Challenge

The quiz Dan Kahneman wants you to fail...

Peyton Manning gets a waiter fired, though it was the waiter's fault.

Sauce for the goose? In retaliation, female legislators try to regulate the gander's sauce, too. (Sorry about the "gander's sauce" thing. Ick.)

All of a sudden, Geithner and co. are Austrians? Markets are hard to regulate, and prices fluctuate because of uncertainty? Are we in bizarro world?

And, in an attempt to get the president to concentrate on being president, instead of just always campaigning:

Click on the image for an even more distracted image...

(Nod to SdM, Anonyman, Kevin Lewis, and the Blonde)

When Irish eyes are smiling

The Irish should love the Greeks. After all, it's got to be nice not being on the bottom of the heap of Euro-countries.

Yet they seem to enjoy screwing with them nonetheless.

Aer Lingus has been making folks with Greek passports take written language tests in Greek before letting them board flights to Ireland.

All good clean fun until they did it to this lady taking a flight from Barcelona to Ireland.

One of the many great parts of the story is that no one at the Aer Lingus desk in Barcelona could read Greek, nor did it appear they had an answer key on the premises.

I think I could have passed the test under those circumstances. Years of teaching econometrics has left me overly familiar with the Greek alphabet.

Hat tip to Mrs. Angus.

You Can Get the Computer to Write Political Science For You

I asked the computer for a randomly generated gibberish sentence in political science. I got this.

The emergence of praxis functions as the conceptual frame for the legitimation of the nation-state.

That's more than a little scary. I'm pretty sure that that was the main argument of Ari Kohen's PhD thesis. Now.... we know.

Heisenberg's links

I'm home today with a nasty bug, here's some links to keep the dream alive:

1. Sanctions on Iran are either working or not working.

2. Dwight Howard is either staying or going.

3. The lawyers are getting restless (the piece is great, the comments are even better)

4. Another economist gets taken to the woodshed.

Don Boudreaux Goes All Boudreaux

A classic "goin' all Boudreaux," from the master of the genre.

The Primaries of Tuesday

My good friend Bill LuMaye is on at 6 am now, and I went down to the studio to provide moral support. And they put it on the radio. Always fun to talk to Bill about politics. Here's 40 minutes of it...

My favorite part is the bit just after 31:45. Gaia, the Earth Mother.

The World Belongs to the Boomer Sooners; The Rest of Us Just LIve here

So, walking in the Crystal City mall, in a deep sub-basement. And come across this extremely frightening doorway:

What fresh hell is this? U of OK has lobbyists in DC? Or, rather, lobbyists hidden deep below the Crystal City Metro? Is this a "Phantom of the Prairie" thing?

Yikes!

NC's Amendment One

In the May primary, NC will also vote on a Constitutional Amendment:

Constitutional amendment to provide that marriage between one man and one woman is the only domestic legal union that shall be valid or recognized in this State.

And my view on the Amendment.

Guilt by association

OK, so my idea of song title book reviews is gonna be slow to catch on.

Well, what about this: If NBA players were musicians?

Let's start with two of my favorite players

James Harden -- Isaac Hayes.  Always cool, never in a hurry. Hot buttered soul.

Russell Westbrook -- Lil Wayne.  Incredible highs, huge variance. always wondering what he'll do next.

Get the idea? Here's a few more:

Rajon Rondo -- Soulja Boy
Kevin Love -- Justin Timberlake
Derrick Rose -- Tupac
Kobe -- Miles Davis
Ricky Rubio -- Bieber (duh!)
Josh Smith -- Chamilionaire
Lebron, Wade & Bosh -- Wu Tang!!

and finally,

Kevin Garnett -- Kenny G.

Got any good ones?

Only in Academia

An MA student at UCSB, Christopher Todd Brown, wrote his thesis and got it approved. After the committee approved it, he added a "Dis-acknowledgements" section which started like this:

"I would like to offer special F**k You's to the following degenerates for of being an ever-present hindrance during my graduate career...."

Only there weren't any ** in there and it continued to rail at some length against various bureaucrats, politicians and institutions with which Chris had beef.

Unsurprisingly, the university refused to accept the thesis in that form, requiring him to drop the ex post additions he'd made.

Somewhat surprisingly, Chris chose to sue instead. And then to appeal when he lost.

And thanks to the internet and Paul Gowder, we get to read about it!

I actually think the student is right. They shouldn't stop you from getting your degree because you let off a little steam in the acknowledgements. My only issue with Chris T. Brown is that he didn't have the onions to let his committee see his handiwork ex-ante, and just tried to weasel it in ex-post.

Winning Bracket

As a special bonus for KPC readers, I am able to reveal the winning bracket for the NCAA tournament.

It's right here.

No, don't thank me, it's all part of the service.

Sentence of the day

People it comes from Joe Stiglitz and it's a doozy:

"If my Cassandra forecast turns out to be wrong, stimulus can be cut."

The source is the FT, but I've already hit my quota there so here's a link from Mark Thoma.


Is he saying there already is stimulus in place now that we have the option of cutting?

Is he implicitly proposing some vague new conditional stimulus?

Is he an expert at putting toothpaste back into the tube?

If you put a stimulus in place and things started going well, wouldn't you shy away from cutting back on the announced stimulus for fear of mucking up the recovery?


UPDATE: this post was edited to remedy my severe lack of reading comprehension this morning. Thanks to Mark Thoma for setting me straight.

Why In the World Hire an "Investment Broker"?

Craig Newmark discovers the answer to one of life's most difficult questions: why would anyone hire an "investment broker"?

Brokers, after all, make people.... broker. They sell products they don't understand to yokels they don't care about.

But, as Craig notes, now there is an answer.

Got a call from an investment broker the other day myself. I made two claims, rather loudly.

1. No one can make predictions about the stock market, or super normal returns in assets, unless they inside information. And if they had same, they would TRADE on that information, borrowing all the money they can scoop up. They wouldn't call an idiot like me and GIVE me the information over the phone.

2. Idiot or not, I went 100% cash and short bonds in August 2007. And went back about 50% into stocks in April 2009. How many of your clients did you advise to do THAT, Mr. Investment Broker?

We didn't talk long after that.

El Mercurio, and News - Observer

In which I go all Boudreaux on news people on two continents.

1. El Mercurio, in Santiago, Chile: Por otra parte, a ocho meses de las presidenciales, esta indecisión republicana podría tener consecuencias. "A medida que Romney avanza hacia la victoria en las primarias, está perdiendo piso en la elección general", advirtió The Washington Post, que resaltó que se le ve "en peor forma en este punto de la campaña" en relación con los últimos aspirantes presidenciales republicanos. Y es que, bajo el argumento de que no ha sido capaz de "noquear" a sus rivales, varios comentaristas han puesto en duda su competitividad ante Obama.

¿Por qué tanta prisa?

Sin embargo, también hay quienes llaman a la calma. "Yo no entiendo por qué los medios dicen que 'Romney no puede cerrar el trato'. Si se compara con 2008, la nominación demócrata no terminó hasta mayo. Romney tiene, en este punto, más delegados de los que tenía Obama en marzo de 2008, pero nadie preguntó entonces '¿por qué Obama no convence al electorado?", indicó Michael Munger, analista de la Duke University.

En términos de estilo, Munger compara el caso de Romney con el del Presidente Sebastián Piñera, "que hace que las cosas funcionen, pero no es muy ideológico". "Esto es una desventaja en las primarias republicanas, donde los extremistas quieren ideología extrema. Pero podría ser una ventaja en la elección general. Quizás tenga problemas para que la gente se entusiasme, pero el desempleo es alto y hay insatisfacción con la actual gestión. Así que podría ser como en Chile, donde Piñera ganó no porque entusiasmara, sino porque a la gente le preocupaba la dirección del país".

Los republicanos vamos a unirnos, porque realmente creemos que Obama debe ser reemplazado.

2. Same theme, letter to News-Observer. Steve Ford must have miss-typed, right? ("Drilling into Democrats' do-over," Jan. 29 column.) He actually said that if Republicans "were comfortable with the current pack of candidates, one would already [be] the nominee-apparent."

In 2008, the Democrats knew nothing about who would be their nominee by January's end. In fact, the primaries of February through April just muddied the waters. Barack Obama was not clearly selected until May. Today, Jan. 31, Mitt Romney is far ahead of Obama in 2008, in terms of elected delegates.

But the Democratic Party showed little "discomfort" in 2008, uniting behind their candidate. Nobody but media types and college professors think primaries should be decided fast and clean. Democracy is messy.

Now you have no excuse

A little over a year ago, I recommended the book "Red Plenty". At that time it was not released in the US (I got it via Amazon UK). Now it's out in paperback and kindle at the "regular" Amazon store.

Here is a recent review from the NY Times.

The book is amazing. Check it out, people.

Good but not great

BLS reports that non-farm jobs increased by 227,000 in February and January's number was revised upward from plus 243,000 to 284,000.

The unemployment rate was unchanged at 8.3%

These are decent numbers, but, at this pace, a "normal" overall unemployment rate of say 6% is still a spec on the far horizon.

Among people 25 and older, those with less than a high school diploma have a 12.9% unemployment rate, those with a BA or greater have a 4.2% unemployment rate.

Of course these are average numbers, not marginal, and should not be used for any wagering!

Unicorns & Rainbows

Ezra Klein has identified why the government didn't "fix" the great recession; Politics:

The compromise was clean and obvious: Investments and tax cuts now, coupled with a much-larger deficit reduction package that would kick in once unemployment fell below, say, 7 percent. 


 What doomed this package wasn’t a theoretical divide. I spoke with many freshwater economists who thought a package like this would be sensible. Rather, it was politics wot (sic) done it. 

 This type of storyline refuses to recognize the simple brutal fact that current politicians cannot commit future politicians to a specific course of action. The proposed "package" was simply not credible because the back loaded pain is unenforceable.

Advocates of deficit reduction (I'm not saying that it's the right policy) could clearly see that the only policy that would actually happen for sure was a big increase in the deficit and were completely rational in opposing such a plan.

Absent a credible commitment mechanism, promises of future actions are basically worthless. This is an example of the "asynchronous exchange" issue Oliver Williamson has elucidated. Some call it the "St. Augustine problem" ("Lord grant me chastity, but not just yet")

The phenomenon doesn't rely on there being different politicians in place when the deficit reduction is supposed to kick in. The exact same politicians can simply decline to enforce their previous agreement.

Let's see what happens to the "automatic" sequestration.

If you really want deficit reduction (again, I'm not saying that it's the right policy), all you can do is try to get it done NOW.

Predictions

I have predicted that predictions by ecoomists will be wrong.

Interesting article, with a similar point.

The Culture that is Pakistan

In a written submission, the Ministry of Law and Justice said that under Sharia law, children become adults at the onset of puberty which varied under a range of factors making it impossible to increase the age for criminal responsibility:

 "It can be well understood that attainment of maturity of understanding depends on social, economic, climatic, dietary and environmental factors, that's why a child in our subcontinent starts understanding nature and consequences of his/her conduct much earlier than a child in the west specially because of general poverty, hot climate, exotic and spicy food which contribute towards speedy physical and mental growth of the child," it said. 

This remarkable statement was issued to explain why the ministry was against raising the age of criminal responsibility in the country from 7 (where it currently stands) to 12.

 The source article is here and the hat tip goes to Roving Bandit.

Now I know whats wrong with the youth of America. Not enough hot sauce!!

Maybe Bosses WILL Wear Bunny Slippers?

A while ago I wrote this article, about the nature of the firm. A boss decides it would be cheaper to "fire everybody" and just run the firm from home, in his bunny slippers.

Well...no.

But with reduced transactions costs, one would predict that the optimal size of the firm should shrink. Here is an interesting discussion of just that phenomenon.

Coase himself was agnostic. As he put it:

“A firm will tend to expand until the costs of organising an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market or the costs of organising in another firm” (Coase, 1937, p.395).

All you have to do is add "or contract" and you've got it. If transactions costs of buying ptp fall, firm size should fall, cet. par., because there are other costs of organizing within the firm.

(Nod to Robert Eaton, for finding the AVC example)

Okay, Now I'm Some Lefty Nutjob?

When I'm reading THE NATION, and thinking, "Yup, yup, that's right, yup," then something is messed up.

And what is messed up is...the police state we are becoming. I have claimed that the strange thing is the left won't face this.

Well, that article in the Nation faced it. Well done.

Two things need to happen.

1. The left needs to admit that the state=coercion, which can metastasize into violence, and does so metastasize.
2. Libertarians need to admit that Karl Marx was right about concentrated corporate power. It's every bit as dangerous, and in fact in most important ways it's no different from, the worst aspects of the state. So, ipso facto, concentrated corporate power=coercion (see above about metastasis).

We have all been complicit. It's tempting to want to support something. But the two state sponsored parties have hoodwinked us. The third term of the Bush Presidency going on under Mr. Obama is just a continuation of the same ghastly trends. Gitmo. Patrio Act abuses. Unlimited detention. State murder of American citizens without any kind of due process. Oi. All of a sudden I want to see if Alexander Cockburn wants to have lunch.

When cannons are outlawed....

From the LA Times:

"Authorities said the cannonball that struck and killed a 33-year-old woman in San Diego County was homemade and that alcohol was involved in the incident.


 The woman's husband and another man were working on a cannon shortly after midnight outside the couple's mobile home when it exploded, according to a Cal-Fire spokesman. One of the two men was sent to the hospital with minor injuries.


The incident is being investigated by the San Diego County Sheriff's Department.


Few details were immediately available, and it's unclear exactly what killed the woman. The incident occurred in a mobile home park in Potrero on the Mexican border."

Here I go people, I just can't help myself:

1. A "homemade cannonball"? Really?

2. I don't think alcohol was the only problem.

3. There is a really severe contradiction in the first and last 'grafs of the article: "cannonball struck and killed" vs. "unclear exactly what killed". Get a grip, LA Times

4. This incident reminded me of one of my favorite songs and videos of all time:






Hat tip to RKG

Public Choice Papers

My two papers for Public Choice. What a long strange trip it's been. We submitted the papers to the PC Society, but they just disappeared. At last check, after submitting the paper more than three weeks ago, they STILL have not been put up on the PCS web site. So, here they are:

William Keech, Michael Munger, and Carl Simon: Market Failure and Government Failure

Abstract: We distinguish two settings for market processes: The first is the "invisible hand" world of private goods, decreasing returns, and full information where general equilibrium and the fundamental theorems of welfare economics are well defined. The second is the "pin factory" world of increasing returns and creative destruction arising from innovation, technological change, and entrepreneurship. Then we note the differences in the application of "market failure" in these two settings. Building on the well-known "anatomy" of market failure in welfare economics, we develop an anatomy of government failure, confronting government with the more realistic and dynamic world of pin-factory type market processes. This anatomy distinguishes passive and active government failure, and it links market and government failure with the core functions of aggregation, incentives, and information, and with problems of agency, rent-seeking and time consistency.

John Aldrich, Michael Munger, and Jason Reifler: Institutions, Information, and Faction: An Experimental Test of Riker’s Federalism Thesis for Political Parties

Prepared for Special Issue of Public Choice, “Empirical Issues in Public Choice,” edited by Peter Kurrild-Klitgaard. In this thirtieth anniversary year of the publication of LAP, we are glad to take the opportunity to look back at some of the questions and insights that had shaped Prof. Riker’s interests in institutions. In particular, we will examine some of Riker’s earlier work on federalism, and the political bargaining that resulted in a federal system for the U.S. This bargain still has important implications today, especially for party organizations, which operate at the national, state, and local levels with goals that sometimes coincide and sometimes conflict. We then test a Rikerian thesis about an implication of the “federal bargain.” Having power shared by states and federal governments also means that party organizations are obliged to serve multiple masters with conflicting goals. To put it differently, federalism is a bargain between national and local interests. Any party system must likewise constantly negotiate conflicts between national and local interests. In a number of his early writings (Riker, 1955; Riker and Schaps, 1957; Riker, 1964), William Riker explored the stresses and cracks in partisan institutional structures. Focusing on the American system, and to a greater extent under the Constitution than under the Articles, Riker concluded that the decentralization of the party system effectively blocks presidents from being able to control partisans, using either ideology or organizational tools.

Lord, He Was Born a Travelling Man!

Apparently, if your dad coaches in the NBA, you get to play under the nearly nonexistent NBA traveling rules.



Some of these are close, could see a no call. But some of them are just feet shuffling embarrassments. Karl Hess may have been too busy looking for NC State fans in the stands, hoping to throw them out.

Lord Volt A More

Chevy Volt - Building a Better Tomorrow from Ben Howe on Vimeo.

(Nod to John-O Donato)

Say Cheese

That pretty much says it all right there, no?

For a less concise, but no less heartfelt, critique, click here.

The Cotton Club

India, the second largest cotton producer in the world has banned all exports of cotton "until further notice".

Why?

Because China, the largest cotton producer in the world is importing and hoarding a lot of cotton, and because Indian cotton exports had already "exceeded government targets".

I am not making any of this up.


These are two huge countries that just seem to have no clue when it comes to trade. Casual arrogant protectionism and the enshrinement of inefficiency seem to be policy goals.

Words of wisdom

"The righter we do the wrong thing, the wronger we become. When we make a mistake doing the wrong thing and correct it, we become wronger. When we make a mistake doing the right thing and correct it, we become righter. Therefore, it is better to do the right thing wrong than the wrong thing right. This is very significant because almost every problem confronting our society is a result of the fact that our public policy makers are doing the wrong things and are trying to do them righter."

~Russell Ackoff

Hat tip to Ben Ramalingam

Angus impossibility theorem

Here it is:

There is no such thing as a purely micro-founded macro model that is actually useful for forecasting.

The original RBC models were, more or less, purely micro-founded models. But, they didn't track anything. They could match some unconditional moments, but couldn't replicate realistic dynamics.

People, we don't even have very good micro foundations for money! We just put it in the utility function or arbitrarily assume a "cash in advance" constraint. That's one reason why the original RBC models didn't even contain money.

Amazingly to me, Central Banks in the Western world have spent a lot of money and economist-hours trying to construct dynamic stochastic general equilibrium (DSGE) models that are actually useful for forecasting.

This effort has largely led to the de facto abandonment of micro-foundations. In the quest to make the models "work" we often either choose whatever micro-foundation that gives the best forecast regardless of micro evidence about whether or not it is accurate, or we just add ad hoc, non-micro-founded "frictions" to create more inertia. Or we just add more and more "shocks" to the model and say things like, "much of the variation in X is caused by shocks to the markup".

So macro has to live in this weird world where, to correctly evaluate policy changes and welfare, we need to use fully micro-founded models that we know do not track reality, and to track reality, we need to come perilously close to giving up on micro-foundations altogether.

No wonder we are so often in a bad mood!

The most dangerous name

LeBron's rumination on middle initials got me to thinking about triple named murderers. Lee Harvey Oswald, John Wilkes Booth, John Wayne Gacy, James Earl Ray....

First I wondered why people like Sirhan Sirhan and Jeffrey Dahmer got short shrift.

Maybe Sirhan Sirhan was distinctive enough that using Bishara in the middle was gilding the lily?

 But why not Jeffrey Lionel Dahmer?

Maybe it's only mellifluous if the middle name is a single syllable?

But see Lee Harvey above.

Then I wondered if there was a specific middle name particularly associated with mayhem and found this amazing article.

If your middle name is Wayne and you live in Texas, you probably are a murderer!

Welcome to the woodshed

They do the work, so I don't have to!

 Let's start off this new KPC feature with a double-header.

 First, Clive Crook takes Jon Chait to the woodshed.

Then, in the mother of all beatdowns, Bob Kuttner takes Tim Geithner to the woodshed and just wails away on him.

People Aren't Smart Enough for Democracy

It is interesting that progressives think citizens are much too stupid to make their own choices in the grocery store.  But somehow, people get a lot smarter when they enter the voting booth.    Um....no, they don't, actually. 
The problem, as I argued in a recent paper about "self interest," is that people have pretty good incentives to learn about which apples taste good. But Santorum vs Perry? Ooooh, I like his tie. Here is an excerpt from my paper:

There are three parts to the Public Choice Theory “citizen as private actor” story. First, the citizen is motivated to seek his own self-interest. Second, the citizen has limited information. Third, political elites know this, and use advertising and simple slogans to attract votes.

The evidence that Lewin (1991) offers bears only on the first step. But if we change the motivational assumption to its most extreme form, “Citizens only want to act in the public interest,” the cost of information and the value of simple political messages as persuasion are unchanged. From Marx to Downs to Buchanan and Tullock, the costliness of information and of collective action has been a constant theme. Motivational assumptions are nearly inconsequential for the PCTist. What matters is the aggregate consequences of individual action.

Do voters have the information they need to make accurate decisions? The very literature to which Lewin refers provides a resounding “no” answer. Very few citizens are aware of even the most basic political facts, and they have only cursory knowledge of how government works (Page and Shapiro 1992, Table 1.2; Somin 1998). Less than half can name their congressional representative, much less identify her voting record or issue positions. Even fewer can give a coherent attribution of their own political ideology in terms of its specific policy implications (Converse 1964; Feldman and Conover 1986, 1984, 1982, and 1982). The rationally ignorant public-interest voter is essentially indistinguishable from the rationally ignorant self-interest voter. Rationality need not imply self-interest, but it clearly does, as an empirical matter, imply that voters have very little idea of how policy works and what candidates will do once they are in office.

For reasons I cannot understand, Lewin (1991, 107) denies this in terms that can only be called naïve:

While proponents of the self-interest hypothesis centre their hopes on setting satisfactory prices through market mechanisms, the representatives of the public-interest hypothesis believe in cooperation as a method to escape the “prisoner’s dilemma.” Both camps maintain that their particular world—the market and politics, respectively—is the more transparent, i.e. the one characterized by a minimum of unintended consequences. Although this may be true of the way the market functions ideally as a model, however, faulty information, limits on competition, and other imperfections are quite evident in real-life economies. Politics, by contrast, because of its combination of collective organizations and public debate, is probably easier to predict even in reality.
Yet Public Choice scholars have never claimed that politics is unpredictable. In fact, it is all too predictable, precisely because people can be counted upon to act in their self-interest. A legislative séance of the sort Prof. Lewin envisions for the public sector, groping toward some seraphic group wisdom, would indeed be unpredictable, and (by his lights) not transparent. But the Public Choice argument is that one can project the decisions of a group with high precision if one knows the goals of each individual and the decision rule that will be used by the group.

Lewin argues for the superior competitiveness and informational abundance of the public sector. The information problem I have already discussed: buying a car is a private good, and I have solid reasons to learn about cars. Voting for a candidate is a public good, and information about it will be underprovided by private action. The fact that voters have public-interest intentions at the first stage, the motivation stage, is essentially irrelevant, since they have private interest reasons to free ride and can thus be influenced by operatives whom Downs called “persuaders,” who have their own reasons to distort information. 

As always, happy to send a PDF if you are interested. Just contact me at munger at duke dot edu

Can you smell what the Angus is cookin'?

Over at MR, LeBron asks for your most surprising prediction.

Here's mine:

Within the next 10 years we will (at least de facto if not de jure) have very close to open borders in the USA.

Restated in English: within the next 10 years immigration into the USA will rise dramatically.

The WMOE, On CVs and Job Interviews

The Dub-MOE, for all you grad students out there.

What Should You Include On Your CV? from Kosmos on Vimeo.

It would have been better if they could have taken the bucket off from atop the microphone. But good advice.

j'accuse!

Wow, these two dogs turn on their buddy right away. Who did this?

J'accuse!

Sentences are for sissies

As part of his plan to conquer the universe, LeBron has been writing a "very short reviews" sidebar for the NY Times Sunday magazine, where he reviews a book in one sentence.

But a sentence is just so prolix!

I propose reviewing a book with a song title!

Some examples:

The Glass Castle: Ain't that America, 

Coming Apart: The Bi*ch is Back, 

Poor Economics: Love the One You're With

The Steve Jobs Bio: Yonder Stands the Sinner

The Great Stagnation: Eve of Destruction

White Man's Burden: Whippin' Post

The Rent is too Damn High: Wishing Well

Biggest Environmental Heretic Gets Pounds!

From KPC friend Matt Ridley.

Read all about it.

Thanks to Tommy the Tenured Brit

Con-man commandments

1. Be a patient listener (it is this, not fast talking, that gets a con-man his coups).

 2. Never look bored.

3. Wait for the other person to reveal any political opinions, then agree with them.

 4. Let the other person reveal religious views, then have the same ones.

5. Hint at sex talk, but don’t follow it up unless the other fellow shows a strong interest.

6. Never discuss illness, unless some special concern is shown.

 7. Never pry into a person’s personal circumstances (they’ll tell you all eventually).

 8. Never boast. Just let your importance be quietly obvious.

 9. Never be untidy.

10. Never get drunk.

 Source is here.

twisted sister

People, I don't believe that we receive the privilege of being Americans from our government. I believe that government officials receive the privilege of their jobs from us Americans. Nor am I a big fan of Tim Geithner and his curious inability to practice what he preaches.

However, Lawrence Lindsey really pulled a fast one on Geithner in the WSJ editorial page today.

Here's Lindsey's version of what Geithner said:

Last week Treasury Secretary Tim Geithner said that the "most fortunate Americans" should pay more in taxes for the "privilege of being an American."

Here's what Geithner actually said:


"That’s the kind of balance you need," said Geithner. "Why is that the case? Because if you don't try to generate more revenues through tax reform, if you don't ask, you know, the most fortunate Americans to bear a slightly larger burden of the privilege of being an American, then you have to -- the only way to achieve fiscal sustainability is through unacceptably deep cuts in benefits for middle class seniors, or unacceptably deep cuts in national security."

Umm, that's not all that close.

"Slightly larger burden of the privilege OF being an American" does NOT equate to Lindsay's paraphrase of "should pay more in taxes FOR the privilege of being an American.

I disagree with Geithner. But Lindsey's column is a hatchet job.

I actually like how Tim apparently inadvertently lays out a preferable alternative. Why are "middle class seniors" a protected benefit class? Why is the military a protected benefit class?

If we can attain fiscal sustainability by deep cuts to middle class seniors' benefits and the military, then let's do it!

Here's the video:



This post was updated to correct a spelling error.

edging upward

The BEA announced an upward revision of real GDP growth in the fourth quarter of 2011 from 2.8% to 3.0%.

Sign of the times

The Death of the Peak Oil Idiocy

Oil production is skyrocketing, and the only reason it is not going up even more is that we have stopped drilling.

I'm fine with that, there's no hurry. But the point is there is PLENTY of oil. Peak oil is peak idiocy.

Zombie Mohammad Attack Sanctioned by Law?

Zombie Mohammad attack okay? Fighting words, perhaps? I would doubt it's real, but Jonathan Turley is legit.

Zombie Pope in same parade raises no issues.

NSFW: Tit Thinks It's People

I'd tell you about it, but the name is pretty descriptive.

Tit Thinks It's People: Buppetry.

(Nod to the Blonde)

Institutions Similar Because Brains Similar?

The naturalness of (many) social institutions: Evolved cognition as their foundation

Pascal Boyer & Michael Bang Petersen
Journal of Institutional Economics, March 2012, Pages 1-25

Abstract: Most standard social science accounts only offer limited explanations of institutional design, i.e. why institutions have common features observed in many different human groups. Here we suggest that these features are best explained as the outcome of evolved human cognition, in such domains as mating, moral judgment and social exchange. As empirical illustrations, we show how this evolved psychology makes marriage systems, legal norms and commons management systems intuitively obvious and compelling, thereby ensuring their occurrence and cultural stability. We extend this to propose under what conditions institutions can become ‘natural’, compelling and legitimate, and outline probable paths for institutional change given human cognitive dispositions. Explaining institutions in terms of these exogenous factors also suggests that a general theory of institutions as such is neither necessary nor in fact possible. What are required are domain-specific accounts of institutional design in different domains of evolved cognition.

Hmmm. That's not my first, or second, intuition. Why do steam engines all look the same? Because form follows function, and the rules of physics are universal, at least in the domain where steam engines are possible and useful. That's a kind of determinism, but it is an optimized determinism: the best form for a steam engine doesn't depend on who is designing it.

The thesis in this paper is that limits on human cognition shape institutions. No reason to expect ANY institutions, anywhere, to be optimal. No optimality in common law, no evolutionary process toward efficiency. Because our brains all have the same limits, and we all come up with the same screwed up institutions. In linear programming terms, the binding constraint is not functionality, but cognition. Hmmm....

Nod to Kevin Lewis

One step closer to sending in the gunboats

Germany is sending over 150 volunteer tax collection experts to Greece to "help" them clamp down on tax evasion.

Really.

Story is here.

What could possibly go wrong?

The participation puzzle is worse that I thought!

In an interesting paper recently published in the Journal of Finance (and discussed by Bob Shiller in today's NYT), GRINBLATT, KELOHARJU, and LINNAINMAA investigate the effects of IQ on stock market participation in Finland (ungated version of the paper is here).

 As they point out, "Only about 50% of U.S. households invest in stocks, either directly or indirectly (via mutual funds in retirement and nonretirement accounts), and participation in Europe is even lower. Traditional models in financial economics, which prescribe universal participation, cannot easily explain these stylized facts, viewing them as a “participation puzzle.”"

 But IQ is not solving this puzzle at all (at least in Finland)!

 The two highest stanines of IQ in their sample have stock market participation rates of around 42% and 46% respectively. Sure, that is significantly higher than the lower IQ groups, but their research shows that, even among the most sophisticated citizens, stock market participation is very low.

 The paper is very well done and highly recommended, but I was amazed that participation among even the elites was so low.

Food Aid Causes Civil War

Aiding Conflict: The Impact of U.S. Food Aid on Civil War

Nathan Nunn & Nancy Qian, NBER Working Paper, January 2012

Abstract: This paper examines the effect of U.S. food aid on conflict in recipient countries. To establish a causal relationship, we exploit time variation in food aid caused by fluctuations in U.S. wheat production together with cross-sectional variation in a country's tendency to receive any food aid from the United States. Our estimates show that an increase in U.S. food aid
increases the incidence, onset and duration of civil conflicts in recipient countries. Our results suggest that the effects are larger for smaller scale civil conflicts. No effect is found on interstate warfare.

I've had so many conversations with sensitive people where their entire argument is, "People are hurting. We should DO something.!"

The fact is that most things we can "do" make things worse. But that's okay. Because all that matters is that American leftists get to feel good about themselves, because they DID something.

Once you understand this, it makes a lot of other opinions of leftists easier to understand. For example, why not have market systems in developing countries, since those would actually have good consequences?

Because the left doesn't care at all about good consequences. "Open up markets" (including in the US, which would really help developing nations, like if we opened the US market to Caribbean sugar growers)? No, that's not a feel good, good intentions policy. All it would do is have really good consequences. And how does that help Albie Volvo, with his Chardonnay and NPR tote, feel better about himself? Better to change out some more light bulbs for CFs, and give food aid to the needy. Sure, it will start civil wars, but why would Albie Volvo care? There's no war in his neighborhood.

(Nod to Kevin Lewis, for the article, certainly not the interpretation)

Pauline Kael syndrom

Mr. Overwater sends this interesting historical note, from Charles Murray's blog:

Those famous words of Pauline Kael, “How can Nixon have won? No one I knew voted for him” weren’t quite what she said. Prof. John Pitney at Claremont McKenna sent me the actual quote, from the New York Times of 28 December 1972: “I live in a rather special world. I only know one person who voted for Nixon. Where they are I don’t know. They’re outside my ken. But sometimes when I’m in a theater I can feel them.” Sort of the same thing, I know, but then I got another email from someone who wrote, “Pauline was a good friend, and was the farthest thing from a smug, unself-aware adherent of dumb liberal cant as you could imagine . . . She undoubtedly viewed Nixon as a sick puppy. But she was no insular, snobbish Margaret Dumont.” I take his assessment at face value, and will henceforth strike “Pauline Kael Syndrome” from my rhetorical arsenal.

Charles is right. That's different enough. Thanks to Mr. Overwater, well played.

But I had the direct experience of what "Pauline Kael syndrome" is taken to mean, at UT-Austin, in 1988.

Look out Hillary, another hat has hit the ring

Apparently top-down development would work just fine if we only had the right leader at the World Bank, and Jeff Sachs has someone in mind.....

Jeff Sachs!

People, did you know that the WB's "central mission is to reduce global poverty and ensure that global development is environmentally sound and socially inclusive."

Shall we take a Python break?

"NOBODY expects the Spanish Inquisition! Our chief weapon is surprise...surprise and fear...fear and surprise.... Our two weapons are fear and surprise...and ruthless efficiency.... Our *three* weapons are fear, surprise, and ruthless efficiency...and an almost fanatical devotion to the Pope.... Our *four*...no... *Amongst* our weapons.... Amongst our weaponry...are such elements as fear, surprise...."

Don't get me wrong, Jeff has a good point that the US has not exactly covered itself in glory with the folks we've put in charge of the World Bank or with our use of the institution to promote cold war goals. But the "all we need are the right people in charge" argument is just so incredibly superficial and lame, whether applied to political systems or vast bureaucracies.

Jeff concludes by offering his vision of where the Bank would go under a Sachs-ocracy:

Its priorities should include agricultural productivity; mobilization of information technologies for sustainable development; deployment of low-carbon energy systems; and quality education for all, with greater reliance on new forms of communication to reach hundreds of millions of under-served students.

Oh, my.

With all due respect, can we not just put Barber Conable's ghost back in charge?

Promises, promises

As we know, the Fed has announced an inflation ceiling of 2% AND that it will keep short term rates close to zero at least until the later part of 2014.

I believe these two commitments are contradictory if we manage to achieve a decent economic recovery, and it is looking more and more like we are finally getting exactly that.

Here is a chart of the implied 2 year ahead level of inflation expectations derived using yields on inflation protected securities (TIPS):

The red line is the Fed's 2% ceiling.

People, can I get a YIKES?

The source for this chart is here, the hat tip goes to LeBron, and the source also argues that markets are strongly pricing in a Fed rate increase in 2013.

At this point, unless the recovery falters, I don't think the Fed will keep EITHER of its two promises

Matt Y commits the infra-marginal fallacy

Man oh man. Can't anybody on these interwebs play this game?

People, the fact that the average wage in manufacturing is higher than the average wage in non-manufacturing is SIMPLY UNINFORMATIVE about whether new hires in manufacturing enjoy a wage premium vs. new hires in non-manufacturing.
Economic analysis is MARGINAL ANALYSIS.

We know that new hires in manufacturing nowadays often come with wages and benefits significantly below historical averages.

This is a basic economic point, but people just keep getting it wrong.

Venezuelan politics is so awesome

The president of the Venezuelan congress and likely replacement for Hugo Chavez if Hugo's health does not permit him to run is Diosdado Cabello!

Yes, you read that right and no, it's not a nickname. The man's first name is "God-given" and the man's last name is "hair".

"Mitt" Romney has to be kicking himself at this point, thinking "that should be MY name".

If Mitt is the real Diosdado Cabello (and he is, just look at Diosdado's actual cabello, it's pathetic), what are some good Spanish names for the rest of our politicians?

Tell me in the comments!

Why Expat Aid Workers like rebel militias

"When colleagues at the “Regional Conference on the Use of RCTs to Define and Shape Sustainable Mainstreaming of Successful Good Practice Related to Local Ownership and Crosscutting Holistic Gender Empowerment for Excluded Adolescent Girls based on Positive Deviance Methodology” think they are being all badass by casually dropping in news about their latest vacation in one dodgy place or another, as someone actually living there, it’s your EAW (expat aid worker) duty to trump them by reminding them that life in Militiaville is no cake walk, thus putting them in their place."

Full post is here. The entire blog is tremendous.

DSK part Deux

DSK offers a defense of his latest...um... adventure.

A lawyer for Mr. Strauss-Kahn appeared to confirm that he had attended the events [orgies], saying that his client would not have been aware if the women who entertained him were prostitutes.

“He could easily not have known, because as you can imagine, at these kinds of parties you’re not always dressed, and I challenge you to distinguish a naked prostitute from any other naked woman,” the lawyer, Henri Leclerc, told a French radio station, Europe 1, in December.

Research! DSK was doing research! "Hmmm....prostitute? Non, no cigarette stains on her fingers. It must be a woman who is so overcome by my beautiful pasty white 70 year old body that she just wants me! She didn't need to be paid!"

I have a dispositive test, to answer the lawyer's challenge: any woman under 60 who willingly gets naked and gets in the same room with a naked DSK, MIGHT JUST be a prostitute. 'Cause ain't no woman gonna do that for free.

Question: why is that socialists are so convinced that they deserve such special treatment? Rich capitalists expect special treatment, but they pay for it. DSK wants other people to pay some poor woman to touch his winkie, and then he denies that she was paid, because he is so attractive that women WANT to touch his winkie, out of admiration.

Life imitates Art?

American wrestling fans will undoubtably remember Kamala the "Ugandan Giant"

(aka James Harris from Mississippi)

However, there is an amazing wrestling scene "next door" to Uganda in the Congo.

Check out this amazing photo essay of Congolese wrestlers. Just tremendous. Here is one example:

Hat tip to Roving Bandit!

Correlation is Causation?

Why are professors liberal?

Neil Gross & Ethan Fosse
Theory and Society, March 2012, Pages 127-168

Abstract: The political liberalism of professors - an important occupational group and anomaly according to traditional theories of class politics - has long puzzled sociologists. This article sheds new light on the subject by employing a two-step analytic procedure. In the first step, we assess the explanatory power of the main hypotheses proposed over the last half century
to account for professors' liberal views. To do so, we examine hypothesized predictors of the political gap between professors and other Americans using General Social Survey data pooled from 1974-2008. Results indicate that professors are more liberal than other Americans because a higher proportion possess advanced educational credentials, exhibit a disparity between their levels of education and income, identify as Jewish, non-religious, or non-theologically conservative Protestant, and express greater tolerance for controversial ideas. In the second step of our article, we develop a new theory of professors' politics on the basis of these findings (though not directly testable with our data) that we think holds more explanatory promise than existing approaches and that sets an agenda for future research.

Do you know what has long puzzled me? How someone can get a paper published simply by running a bunch of regressions of ideology on demographic characteristics, and then saying things like "Jewish causes liberal beliefs." This "two stage" thing described above...if the Onion published empirical papers, this might be a candidate.

Antitrust Paradox?

Look: It's simple. The job of government is protect large corporations. Not consumers, not new entrants into the marketplace. Existing large corporations.

I know, you can IMAGINE a government that does something else. I can imagine unicorns. Neither your fantasy nor mine actually exist.

Fortunately, for once Big Gov and the Boyz got their big sweaty hands slapped.

Aleynikov goes free--Posted By Felix Salmon On February 17, 2012 (10:27 pm).

Count me in, with Choire Sicha, as being very happy that Sergey Aleynikov is once again a free man. To cut a long story short, Aleynikov used to work in high-frequency trading for Goldman Sachs, earning $400,000 a year. He then got offered a job in Chicago, earning three times that amount. So he accepted the new job. On his last day at Goldman, he uploaded to an external server various bits of code that he had worked with at Goldman. He claimed that the code was benign open-source material; Goldman claimed that it could be used to “mani! pulate markets”.

Goldman’s claim backfired in one respect, in that it sparked a thousand semi-informed articles about high-frequency trading and how dangerous it is: articles which did Goldman’s reputation no good at all.

On the other hand, the claim did have its chief intended effect — it got U.S. authorities extremely excited, to the point at which they charged Aleynikov with criminal activity under the Economic Espionage Act.

Now the EEA was designed — and was initially used — to prosecute very different behavior, chiefly employees at defense contractors taking top-secret information and giving it straight to the Chinese government. The kind of thing which can absolutely be considered espionage.

The secrets at defense contractors, of course, are secret for reasons of national security. The secrets at investment banks and hedge funds, by contrast, are secret purely for reasons of profit: they reckon that if they have some clever algorithm which nobody else has, then that makes it easier for them to profit from it. Which is why it was always a stretch for the government to use the EEA to prosecute Aleynikov — indeed, it is why it was always a stretch for Aleynikov to be criminally prosecuted at all. Goldman could have brought a civil case against him, but instead they got their wholly-owned subsidiary, the U.S. government, to come down on him so hard that he ended up with an eight-year sentence. Violent felons frequently get less.

The forthcoming decision from the Second Circuit is likely to be a doozy; I’m told that the judges shredded the prosecutors during the oral hearing. And certainly their decision to enter a judgment of acquittal, rather than any kind of retrial, is a strong indication that they handed down this order with extreme prejudice against prosecutorial overreach.

Is it the government’s job to expend enormous prosecutorial resources protecting Goldman Sachs from competition? The Second Circuit certainly doesn’t seem to think so, and neither do I. Aleynikov’s actions were certainly stupid, and quite possibly illegal. But the way that Goldman managed to sic New York prosecutors on him bearing the sledgehammer of the EEA was far from edifying. And I’m glad that both Goldman and the Manhattan U.S. Attorney are surely feeling very chastened right now.

Nod to Joel R.

Rage against the machine

When moving pictures became "talkies", the practice of having a group of live musicians at theatres to play during the movie started to die out.

The movie-theatre musicians didn't like it.

So they started a fascinating but ultimately futile ad campaign against recorded music!

Talking pictures were described as a "monstrous offspring of modern industrialism

 Hat tip to Mrs. Angus

Two Cheers for "Windfall"

New movie on wind power. It seems that the left has finally discovered that the alternative energy "industry" (sic) is "all about the money."

Folks, there IS no alternative energy industry. There is a rent-seeking, subsidy-sucking-down industry, and the people who work in that industry are smart, hard-working, and relentless. In 2007, they were mortgage loan originators. Now, they are windfarm contractors.

In this trailer for the movie (two cheers for the movie; not three cheers, but two cheers) you will see the problem documented.
They get a lot right, but the problem is that the problem has to be "it's all about the money." Um, no. The problem is that this was NEVER about the money, in the sense of real cost per KWHr. It's about the subsidies.

If it were about the money, the only reason we would have solar, or wind, or whatever, "alternative energy" is if those technologies actually produced power at competitive rates.

Instead, all of the "alternative energy" pirates were just after the subsidies. Everybody in the industry knows that the negative externalities of wind power, combined with its operating costs (at least twice, and ofter as much as FOUR times, the cost of electricity now generated through conventional means), make wind energy uneconomical. So the corporations that are acting this way are fooling people into accepting a pittance to put a turbine on their land, taking the enormous subsidy from Mr. Obama and Mr. Reid, and then skedaddling. There was never any hope of this being a viable energy source, at least not with existing technology. It's too expensive, dangerous, and noisy.

That's where "the money" comes in, or where it SHOULD come in. Suppose you have two technologies, C and W. C uses certain resources, produces certain externalities, and produces a certain amount of power. W uses quite different resources, produces externalities, and produces a certain amount of power. Which one is "better"?

For a command system, there is no way of knowing. The problem is that (1) there is no price information to help you know which system uses the fewest resources. (2) Given a decision to subsidize, that "price" swamps all the information that could have been inferred from people who actually know something about power generation technology.

Here's the thing. It's a theorem.

The system that costs least uses the fewest resources.

The only way, the ONLY way, to add up resources is to sum the opportunity costs that using them in one way precludes for other uses. The only way to sum opportunity costs is to use price. Now, it doesn't matter at all what UNITs the prices are stated in.  And it may be hard to account for externalities, because those often aren't priced. But if externalities are hard for markets to price, why do we think that governments, dominated by rent-seekers who want subsidies for useless crap like wind turbines, will do any better?  If anything governments are likely WORSE at pricing externalities accurately. There is no force on earth that can change the fact that the alternative that costs less uses fewer resources, or less valued resources, or produces more power.

The king of the tax / subsidy paradigm, A.C. Pigou, actually foresaw this in 1920. This is not Coase, or Stigler, or Tollison, mind you. This is PIGOU:
It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole.

Why would you think that the government can get prices right for externalities? Why do you think the government WANTS to get prices right, given how much money there is to be made from campaign contributions from rent-seekers?

Beef! They Got BEEF!

No holds barred questions from the Redditians. I especially like the "why they got beef?" questions, with the LvMI playing the role of Fitty Cent, and the Reason/GMU gang playing the role of "Game." (In case you missed 50 v. Game)

And John Papola? Well, he does what John Papola does. He answers.

Economics In One Lesson

Not very nice. But bidding wars are likely when property rights are poorly specified. And that's why property rights need to be clearly specified. In countries without property rights, EVERYTHING gets exchanged this way.

With a nod to Raoul

Krugman almost backs down on US "austerity"

Amazing.

The whole article is big fun, but I got a meeting with the dean this morning (I'm in TROUBLE!!!!!) so let's just focus on one bit:

"Meanwhile, countries that didn’t jump on the austerity train — most notably, Japan and the United States — continue to have very low borrowing costs.... "

But then he said this:

"That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level."

So close, Paul, so close. Just take out "full-fledged" and "big" and add "over the last 18 months" at the end.

Germany Gives Up on Solar...

I have several times mentioned how crazy it is for Germany, a country with very little sunshine, ever, to go solar. When I was first there, I was struck by how much they had wasted on solar panels. Astonishing.

It was never an attempt to save resources. It was a costly signal of how much the German left loves Gaia, the Earth Mother. On the BEST, sunniest day, Germany gets 0.3 percent of its power from solar energy. And it pays the highest costs for electricity in all of Europe, save for Denmark, which (I'm trying not to laugh) decided to "compete" by specializing in wind power.

But at some point even the German left has to admit that solar power is inefficient, expensive, impractical, and (this is my favorite part) actually quite dangerous to the environment because of the enormous amount of dangerous chemical waste that results from making, and later decommissioning, solar panels.

(A nice piece, with a lot more details, from Mary Theroux...)

Extremely disturbing stuff

Wow. Some really cool things have come out lately, for the those interested in disturbing coolness.

First, from my student Bill English (with whom I am well pleased!), a paper with Evan Charney on geneti-nonsense. I predict LeBron / A-Tab will like it.

Second, a swashing and martial outside, from EconTalk. William Black--the best way to rob a bank is to own one. Outstanding.

Third, California once again leads the way in idiocy. The only way to save money is to spend MUCH more money than you save. All last night sat on the levee and moaned, Thinkin' about me baby and my happy home. ...

Fourth, and scarily: Frontline on meth. An 18 minute "Chapter 1" from that Frontline.

Watch The Meth Epidemic on PBS. See more from FRONTLINE.

(A nod to Kevin Lewis)

Guaranteed Income: Mungowitz is Called "Chopped Liver"

wow, Angus, that stings.

Your list of people who favor a guaranteed income (also called "basic income" or "negative income tax") includes "Herbert Simon, Freddy Hayek, Bob Solow AND Milton Friedman."

I would add at least two others:

Charles Murray.

Michael Munger.

I didn't make Angus' list, though. Chopped liver, am I.

The paper might interest readers. I go so far as to argue that basic income is a LIBERTARIAN solution, because it would be (a) cheaper and (b) more consistent with individual autonomy and freedom than the current dog-vomit-after-eating-a-crayon-box mish-mash of programs, transfers, and subsidies. The core of my argument is that such a "guaranteed income" program is NOT consistent with the "destination libertarians" who want zero government. But it is quite consistent with the "directional libertarians" who will accept Pareto improvements, provided those moves ALSO improve liberty.

Happy to send a PDF to anyone who wants to read more.... email me at munger AT duke DOT edu, and I'll be happy to send it out. You might be able to get to the original through other library connections, but I don't think BIS is on JSTOR.

More on manufacturing (don't forget the "e")

People, I give you Robert Reich vs. Laura Tyson.

First, here's Tyson arguing that manufacturing jobs should be prioritized:

"...on average manufacturing jobs are high-productivity, high value-added jobs with good pay and benefits. Even though the premium on manufacturing wages has been declining over time, it remains significant. Between 2005 and 2010, average weekly earnings in manufacturing were about 21 percent higher than average weekly private non-agricultural earnings. In 2009, the average manufacturing worker earned $74,447 in annual pay and benefits compared with $63,122 for the average non-manufacturing worker." 

 As I've pointed out pointedly in the past, this is simply logically incorrect. You cannot use averages to represent what is happening on the margin. If the premium is falling, that clearly means that the marginal wage for new jobs is significantly lower than the average pay for all existing jobs. The correct comparison is between wages for new jobs across sectors (marginal analysis), NOT average wages for all jobs across sectors (infra-marginal garbage).

This point is magnificently made by Reich:

Even if we didn’t have to compete with lower-wage workers overseas, we’d still have fewer factory jobs because the old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech. Bringing back American manufacturing isn’t the real challenge, anyway. It’s creating good jobs for the majority of Americans who lack four-year college degrees. Manufacturing used to supply lots of these kind of jobs, but that was only because factory workers were represented by unions powerful enough to get high wages. That’s no longer the case. Even the once-mighty United Auto Workers has been forced to accept pay packages for new hires at the Big Three that provide half what new hires got a decade ago. At $14 an hour, new auto workers earn about the same as most of America’s service-sector workers. 

 Bravo, Roberto!

 Marginal wages in manufacturing are much lower than average wages, and many new jobs are ones that require a high degree of skills/education.

 Reich's solution to create jobs and raise wages for non-college Americans is to re-empower unions! This would certainly raise wages, but would in all likelihood not be a big boon for increasing the number of jobs.

 I think this issue of what to do about living standards of "unskilled" workers in America is going to continue to worsen and the only feasible long run solution is going to be a type of guaranteed basic income policy.

Hey if Herbert Simon, Freddy Hayek, Bob Solow AND Milton Friedman all agree on it, it must be worth considering, right?