Saturday, July 14, 2007

France....Always France

From DW-World:

The 13 EU members of the euro zone agreed in April to balance their account books by 2010. Though Sarkozy voiced his commitment towards that goal in Brussels, he also stressed it could only be achieved if France's economic growth was higher than it has been so far.

In other words, he gave himself the go-ahead to violate the EU's budgetary rules that lay down that the budget deficits of member states should not exceed 3 percent of GDP.

Does anyone but me wonder why "grow really fast" and "have huge domestic fiscal deficit" are synonyms in the minds of politicians?


Friday, July 13, 2007

Money by Fiat, Razors by Choice

Interesting post by Tyler, on the rupee/razor blade black market "exchange rate."

Even the comments are interesting and pretty well informed.

Money is usually a very cool but dangerous topic. It is easy to say dumb things about it. One of my favorite things to do is just listen other people talking about monetary theory or policy. The things that pass for knowledge, I just dont' understand.

Not Surprising, And Yet....

Interesting finding.....

"This paper studies the influence of mass media on U.S. government response
to approximately 5,000 natural disasters occurring between 1968 and 2002.
These disasters took nearly 63,000 lives and affected 125 million people per
year. We show that U. S. relief depends on whether the disaster occurs at
the same time as other newsworthy events, such as the Olympic Games, which
are obviously unrelated to need. We argue that the only plausible
explanation of this is that relief decisions are driven by news coverage of
disasters and that the other newsworthy material crowds out this news
coverage...News biases relief in favor of certain disaster types and
regions: For every person killed in a volcano disaster, 40,000 people must
die in a drought to reach the same probability of media coverage. Similarly,
it requires forty times as many killed in an African disaster to achieve the
same expected media coverage as for a disaster in Eastern Europe of similar
type and have the same chance of receiving relief, the
disaster occurring during the highest news pressure must have six times as
many casualties as the disaster occurring when news pressure is at its
lowest, all else equal. Similarly, a disaster occurring during the Olympics
must have three times as many casualties as a disaster on an ordinary day
have the same chance of receiving relief." [News Floods, News Droughts, and U.S. Disaster Relief, (Thomas Eisensee and David Stromberg), Quarterly Journal of Economics, 122(2), 2007.]


From the paper:

In May 1999, a storm struck India, reportedly killing 278 people and affecting
40,000. On the same day, a 15-year-old sophomore shot and wounded six classmates at the Heritage High School in suburban Atlanta. The two events competed for news time. Since this was just a month after the Columbine high school tragedy, the events at the Heritage High School were extensively covered by the U.S. television network news, while the Indian storm was not covered. About one year earlier, a storm of similar size struck India (killing 250 and affecting 40,000 people). At that time, there was less other breaking news around, and the storm was covered by the television network news. Two days later, the U.S. Ambassador in India, Richard F. Celeste, declared this storm a disaster, and its victims consequently received U.S. relief. He did not issue a disaster declaration for the first mentioned storm and its victims received no U.S. government relief.

Question: Is this supply driven, or demand driven? As Russ Roberts at CH noted, Adam Smith's thoughts on this are instructive.

(Nod to KL, who covers everything)

Thursday, July 12, 2007

Barbara Rohde's new site

A good friend, Barbara Rohde, a very talented artist and painter, has just put up her new web site.

I love her watercolors, and have one hanging in my living room. Here are some examples:

She is not interested primarily in big, sweeping views of things. Barb focuses on the beautiful details, in her life and in her art.

Words from the Front Lines

From an email, from a friend who works for a large important organization.

"I was recently rebuked for actually calling someone instead of using email. Appearently if someone wants to be important, then they can't bother answering the phone, they need to type."

Emailing, and AntiTrust

As an old FTC guy, I do appreciate the problem here:

I used to tell clients that they had a mistaken image of FTC lawyers as impartial regulators interested in nothing more than truth and justice; in fact they were eager and ambitious litigator/prosecutors looking to put notches on their holsters. These notches would lead to advancement in the agency or to lateral partnerships at Wall Street firms. Some of my best friends advanced this way. So that when you gilded the lily by overstating or misstating the reasons for an acquisition in some ill-chosen memorandum (usually written by the investment bankers), you were creating good old-fashioned understandable evidence.

In this case, the Whole Foods CEO sent an e-mail to the board listing as the top two reasons for the acquisition: "Elimination of an acquisition opportunity for a conventional supermarket" and "Elimination of a rival." Two reactions: (1) Damn! You can do all the training and prophylactic work you want with your business people, but CEOs still write these damn e-mails (which constitute 4(c) documents) without showing them to you, the general counsel; and (2) I could re-write the two reasons to say almost the same thing without the incendiary effect: "Enhance our ability to compete against the more powerful and resource-laden supermarket chains who are bound, in view of the low barriers to entry, to provide the kinds of natural and organic products we do" and "Achieve cost, marketing, and sales synergies through rationalization of locations, more efficient advertising budgets, and other efficiency moves."

General Counseling 101: If the CEO had sent the draft e-mail to me, we would have had the following conversation:

Lipshaw: "The e-mail is fine if that's what you really mean, but I think you are using loose language and it comes out contrary to your intent."

CEO: "Huh?"

Lipshaw: "You have made it sound like you are trying to eliminate competition, when in fact you know that Kroger, Safeway, Meijer, and Winn-Dixie could crush us tomorrow in one fell swoop. Marsh in Indianapolis is already taking share from us with their organic and natural section. So "eliminating" Wild Oats wouldn't do a damn thing."

CEO: "That's true."

Lipshaw: "So why write it that way? It's red meat to the FTC carnivore! You don't need this puffing to persuade the board it's a good deal."

CEO: "How would you do it?"

Lipshaw: "Doesn't this sound more like why we are REALLY doing this deal?" [Reads bullet points from above].

CEO: "Yeah! That's good. Read again to me slowly so I can get it down."

Absolutely right, on the "notches on the holster" bit. It may be "notches on the lipstick case," but still. In 1984, at the FTC, I was an economist, and my (at that point, future) wife was an attorney.

I spent my time thinking of reasons why mergers enhanced competition. And she and her lawyer pals spent their time thinking of ways to kill all the economists. You only get experience litigating by...litigating. FTC lawyers did NOT take that pay cut so they could sit around and serve the public.

(Nod to Mr. Zorro, who knows a lot of stuff he can't say)

Is It Okay to Ask Questions?

From yesterday's NYT:

For many economists, questioning free-market orthodoxy is akin to expressing a belief in intelligent design at a Darwin convention: Those who doubt the naturally beneficial workings of the market are considered either deluded or crazy.

But in recent months, economists have engaged in an impassioned debate over the way their specialty is taught in universities around the country, and practiced in Washington, questioning the profession’s most cherished ideas about not interfering in the economy.

“There is much too much ideology,” said Alan S. Blinder, a professor at Princeton and a former vice chairman of the Federal Reserve Board. Economics, he added, is “often a triumph of theory over fact.” Mr. Blinder helped kindle the discussion by publicly warning in speeches and articles this year that as many as 30 million to 40 million Americans could lose their jobs to lower-paid workers abroad. Just by raising doubts about the unmitigated benefits of free trade, he made headlines and had colleagues rubbing their eyes in astonishment.

“What I’ve learned is anyone who says anything even obliquely that sounds hostile to free trade is treated as an apostate,” Mr. Blinder said.

And free trade is not the only sacred subject, Mr. Blinder and other like-minded economists say. Most efforts to intervene in the markets — like setting a minimum wage, instituting industrial policy or regulating prices — are viewed askance by mainstream economists, as are analyses that do not rely on mathematical modeling.


Blinder makes two claims: economists oppose all government regulation, and the economics profession hates words, favoring equations.

I just don't think the first claim holds up at all. Redistribution is quite an intrusive form of regulation, and far and away most economists I know favor it strongly. (and, yes, I know a LOT of economists.) Most economists are registered Democrat (although it is true that the Republicans are hardly free market, either).

But it is clearly true that the profession scorns qualitative or "imprecise" analysis for published work. The harder to understand, the better. The less connected to real applications, the more "fundamental" the work.

Which may explain why I have been in Poli Sci for 21 years, yes?

(Nod to NeanderBill, who questions EVERYTHING)

Wednesday, July 11, 2007

Designated Hitter: A Disease With No Cure

Interesting paper, showing the endless diversity of academic interests.

(nod to Tofe, who actually prefers the Junior Circuit, with the DH pathology)

Indian Food, Hold the Growth!

From Business Week, a review of B.M. Friedman's THE MOREAL CONSEQUENCES OF GROWTH

The title of Harvard University economist Benjamin M. Friedman's new book, The Moral Consequences of Economic Growth, might seem a bit off-key. After all, politicians and economists typically focus on the material benefits of growth -- more and better jobs, higher gross domestic product, larger incomes, and more money available for government programs. And companies such as Wal-Mart Stores Inc. () typically point to economic benefits, such as low prices for consumers and jobs for workers, when they want to justify their business policies.

But the narrowness of the public discussion is exactly what Friedman wants to address. "Our conventional thinking about economic growth fails to reflect the breadth of what growth, or its absence, means for a society," he writes. "Growth is valuable not only for our material improvement but also for how it affects our social attitudes and our political institutions -- in other words, our society's moral character."

The real benefit of growth, Friedman argues, is that it encourages a wide range of social virtues, including dedication to democracy, tolerance of diversity, social mobility, and commitment to fairness. By contrast, he writes, "when living standards stagnate or decline, most societies make little if any progress toward any of these goals, and in all too many instances they plainly retrogress."

...Friedman has scored a dead-center hit on the critical question: Why do we value economic growth? The usual argument is that a bigger GDP -- more goods and services -- leads to happier, more satisfied citizens. But that apparently simple proposition turns out to be far more complicated. As Friedman notes, there is plenty of evidence that people judge their well-being by comparing themselves to others. As the average income in a country goes up, so do expectations. As a result, the level of GDP per person in a country, taken alone, doesn't necessarily say much about the level of happiness....

[But] Friedman argues that economic growth has a key additional benefit: As long as people see their own income rising, they worry less about doing better than others. And that in turn creates a more favorable environment for political and social advances. To demonstrate this point, he draws on economic studies and historical examples, both American and global. In the 1700s, he points out, it became accepted that the rise of commercial and trading activity was a force for positive legal and institutional change. Adam Smith, for one, believed that moral progress went hand in hand with economic progress, as voluntary exchange replaced the use of force.

Friedman points to the the Ku Klux Klan in the U.S. and the Nazis in Germany as examples of what can happen when growth vanishes. And he worries that "rising intolerance and incivility and the eroding generosity and openness...have been, in significant part, a consequence of the stagnation of American middle class living standards during much of the last quarter of the twentieth century."

Friedman is forthright about admitting that the New Deal doesn't fit his argument. He says the hard times of the Great Depression brought forth a virtue: a generous public response. But the New Deal was "exceptional," says Friedman, arguing that rising incomes in general make people more willing to help others.

The link between economic growth and democracy also works on a global level. The movement toward civil liberties and open societies, says Friedman, has been most successful in countries with rising incomes: He predicts China will take this same path...

I don't see why the New Deal doesn't fit. FALLING incomes, and prices, might well elicit a sympathetic response. And most "New Deal" programs were payoffs to specific interest groups, as Tom Ferguson documented in his "Normalcy to New Deal" paper in International Organization. (link for JStor subscribing institutions only)


The downside of the possibilities of integrating music videos and movies.
Middle Earth Metal

Add to My Profile | More Videos
This is the worst. The worst video in all of history. Ever.

That's the problem with innovation. You can get videos like this.

UPDATE: John Q. Public nominates the Hoff as competition for worst video ever.

And, on watching....okay, he's right.

So, Dragonforce gets "Worst Video, Amateur Division."

The Hoff wins "Worst Video, Professional Awfulness."


Monday, July 09, 2007 you a bigger winkie!

Mea culpa! Should have put this link up before, so loyal fans can do what loyal fans SHOULD do. (Podcast here, for the listening public)

A bonus: one kind reader, the fine folk at Am Econ & Curmud, linked the podcast and the essay. Thanks!

But, thanks even more for having Google Ads on your site.

Since the post was about (as far as Google could tell) recycling, the ad they put up was about recycling! And if you click through, it contains this gem:

Clean Up the Way You Recycle
With an ecopod in your home or office, you will change the way you recycle. Place aluminum cans and plastic bottles into the top and step on the easy-step compaction system to store 50 or more containers. Place glass and other recyclables inside the top bins and you'lll benefit from clean effective recycling that your friends will admire. Order your ecopod today!

Presumably, this kind of exchange takes place, daily:

"Say, Alfred, isn't your penis bigger since you started recycling? I really ADMIRE that!"

"Why, yes, Trip, it is. Thanks for noticing! It's all due to my new ecopod!"

Notice the reason you should get an ecopod. It doesn't say you can make money, save space. It just say, "your friends will admire" you. Wow. Just wow.

To Find Monopoly, Count the Number of Firms

Preach, Don. Preach it.

As an old FTC hand myself, I find most antitrust "policy" remarkable.

The Sherman Act is just fine, if interpreted narrowly. But interpreting the Sherman Act narrowly requires interpreting the definition of "industry" broadly.

When I was at the FTC, my old friend Mike Smirlock proposed to me a definition of monopoly, or monopolize, as used in the Sherman Act.

2. Define the industry. Include close substitutes in the defintion of "industry."
3. Now, rank the firms in the industry (post-merger) from largest to smallest.
4. Starting with the largest, count the number of firms in the industry.
5. If the number is "1", the industry is a monopoly, and the merger should not be allowed.
6. If the number is "more than 1," the industry is NOT a monopoly, and the merger SHOULD be allowed.

The good Boudreaux makes a persuasive argument for why THIS merger should go through. ATSRTWT, please.

But I think the Smirlock test is the one we should use. The considerations raised by Don B only arise because we are doing something else.

For enthusiasts, I give you the Sherman Act, the only anti-monopoly legislation you will ever need:

Section 1. Trusts, etc., in restraint of trade illegal; penalty
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

Section 2. Monopolizing trade a felony; penalty
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

The other sections, which are either obselete, purely technical, or (IMHO) shaky, can be found here.

(I should note that my own view is quite centrist, compared to that of my good friend Gary Hull. Check this out!)

Sunday, July 08, 2007

Solow on Growth: A Retrospective

From Robert Solow's Nobel Address, in Stockholm, 1987:

The "neoclassical model of economic growth" started a small industry. It stimulated hundreds of theoretical and empirical articles by other economists. It very quickly found its way into textbooks and into the fund of common knowledge of the profession. Indeed that is what allows me to think that I am a respectable person to be giving this lecture today. Nevertheless I must summarize the outcome in a couple of sentences, so that I can move on to the more interesting questions about what is still unknown or uncertain and remains to be found out.

Just allowing for a reasonable degree of technological flexibility accomplished two things. In the first place, the mere existence of a feasible path of steady growth turned out not to be a singular event. A range of steady states is possible, and the range may even be quite wide if the range of aggregative factor-intensities is wide. There are other ways in which an economy can adapt to the Harrod-Domar condition, but it still seems to me that variation in capital-intensity is probably the most important.

Secondly, it turned out to be an implication of diminishing returns that the equilibrium rate of growth is not only not proportional to the saving (investment) rate, but is independent of the saving (investment) rate. A developing economy that succeeds in permanently increasing its saving (investment) rate will have a higher level of output than if it had not done so, and must therefore grow faster for a while. But it will not achieve a permanently higher rate of growth of output. More precisely: the permanent rate of growth of output per unit of labor input is independent of the saving (investment) rate and depends entirely on the rate of technological progress in the broadest sense.
(emphasis mine)

Technological progress is a problem. They don't sell it in boxes. Policies designed to focus on saving, or consumption, don't accomplish much, except to keep politicians and pundits in business ("Vote for me, folks, and you'll soon be farting through silk!!")

Hard for politicians to admit, "The best thing we could do is create a setting where innovation flourishes, and is rewarded, and get the hell out of the way!" Even the word, "progress," has been stolen by those Luddites who call themselves "Progressives" but who in fact try to protect industry and hold back economic change. "Progress" is not building roads. Progress is individual humans thinking of new ways to use roads, and new products to move along those roads.

I am excerpting Solow, of course. Much of his real view has to do with stimulating effective demand, Malinvaud's famous theory of disequilibrium. But I do have to give Solow some credit for the way he concluded. A nearly Austrian riff, though he seems to approve:

When I read Robert Frost's lines from "The Black Cottage":

Most of the change we think we see in life
is due to truths being in and out of favor

it occurred to me at once that they sound altogether too much like economics. Some of that feeling is inevitable, and not necessarily to be regretted. The permanent substructure of applicable economics can not be too very large because social institutions and social norms evolve, and the characteristics of economic behavior will surely evolve with them. I believe also that part of the changeability of economic ideas on a shorter time-scale is our own doing. It comes from trying too hard, pushing too far, asking ever more refined questions of limited data, over-fitting our models and over-interpreting the results. This, too, is probably inevitable and not especially to be regretted. You never know if you have gone as far as you can until you try to go further.

Mahale Mountain Breakdown

If all has gone well on our OKC - Newark - Amsterdam - Kilimanjaro flights, today Robin and I will be in Mahale Mountains National Park in Tanzania, on the shore of lake Tanganyika. There are a few hundred wild chimps here that are habituated to humans and we are gonna go follow them around as best we can.

Also, lake Tanganyika is touted to be clean and good for snorkeling.

This area is fairly remote, the left hand photo shows an aerial view. Supposedly there are no roads in our out; the only access being by boat.

Here is a link to a video of chimps at Mahale (warning, video is pretty over the top pretentious). After this we are headed to the Serengeti to see the great migration.
(Transmitted remotely, from Angus in Tanzania)