Ben Muse

This looks like an interesting

This looks like an interesting book

The The Literary Book of Economics, by Michael Watts, got a good review from William McGurn in Wednesday's Wall Street Journal. Watts has culled the world's literature for selections that illustrate economic ideas and combined them with his own commentary.

"The result is a gem of a book, with nice little asides...I had not known that Goethe served as a finance minister, which adds bite to the section in "Faust" where the emperor sees that issuing paper money is no answer to the underlying behavior of his people: "Well do I see, though treasures on ye pour / Ye still are, after, what ye were before."

Here's the link to the Amazon.com page for this: The Literary Book of Economics page at Amazon This 450 page book was published by the Intercollegiate Studies Institute this past July, and costs about $20 through Amazon.

Watts is a professor of economics at Purdue and Director of the Center for Economic Education there. His home page is here: "Michael W. Watts". He had an article in the fall 2002 Journal of Economic Education (JEE, available online) on "How Economists Use Literature and Drama. While I'm in the JEE's website, let me also draw your attention to Bradley Hansen's "The Fable of the Allegory: The Wizard of Oz in Economics", where he argues that the Wizard of Oz was not a populist monetary allegory, Donna M. Kish-Goodling's "Using The Merchant of Venice in Teaching Monetary Economics", and Edward M. Scahill's "A Connecticut Yankee in Estonia", and James Hartley's "The Great Books and Economics" where

"The author describes an introductory economics course in which all of the reading material is drawn from the Great Books of Western Civilization. He explains the rationale and mechanics of the course. An annotated course syllabus details how the reading material relates to the lecture material."

Another book along these lines is The Oxford Book of Money edited by Kevin Jackson (Oxford University Press, 1995), a 474 page collection of selections on money from western literature. These are less about economics or monetary policy than about the cultural experience of money - especially having it or not having it.

Good News from Africa I

Good News from Africa

I posted last month on research by Elsa Artadi and Xavier Sala-i-Martin into African growth (or lack of it), here: "African Economic Tragedy".

The August 14th Economist reports on three African nations that are currently doing well (Mozambique, Rwanda and Uganda), here: "Lion cubs on a wire"

"All three governments have indeed done many things right. All three are broadly business-friendly, and all have tried to strengthen property rights and the rule of law—both rare in the world's poorest continent. All three have also pursued sensible fiscal and monetary policies, liberalised their economies to varying degrees and welcomed foreign direct investment (FDI). Mozambique managed to attract an impressive $518m in FDI in 2001, equivalent to a seventh of GDP."

The Economist reports on other aspects of growth in these countries as well: (1) government expenditures are heavily financed with foreign aid; (2) the countries all had civil wars that cut GDP during the last 30 years [although the wars in Mozambique and Uganda were some time ago- Ben]; (3) and there are regional and ethnic disparities in the distribution of the benefits from growth.

What happened to Jane Galt

What happened to Jane Galt during the blackout?

Nothing striking, but something special? "Back online".

Alaska gets $1.91 back for every $1.00 in Federal taxes

The Juneau Empire carries an Associated Press story this morning reporting that Alaska receives $1.91 in federal expenditures for every $1.00 that is collected here in federal taxes.  New Mexico receives the most federal money per tax dollar, $2.37, while New Jersey receives the least, $0.62.  The story reports on a study by the Tax Foundation:

"Scott Moody, the foundation's senior economist, said Alaska ranks near the list's top because of a proportionately large number of federal employees and an unusually high number of dollars granted to the state and local governments.

"A large number of federal employees usually reflects large military bases, Moody said. That's a characteristic Alaska shares with New Mexico.

"The abundant grants to Alaska's state and local governments are harder to explain, Moody noted, but Sen. Ted Stevens is likely one reason. The Republican senator is chairman of the Senate Appropriations Committee, a post he first gained in 1997."

The report itself is on the Tax Foundation's web site, here: "Federal Tax Burdens and Expenditures by State"

The origin of patents Patent

The origin of patents

Patent protection is a key element in the ongoing debates over the high cost of prescription drugs. I came across the following paragraph on the origins of patents today, in The Lever of Riches by Joel Mokyr. Mokyr's book is a history of technological innovation. The paragraph is in a chapter on technological advance during the Western European Renaissance. He's talking about the impact of the emerging modern nation-states on innovation:

"Some European governments discovered that protecting the property rights of the inventor encouraged technological change. The idea of granting an inventor a temporary monopoly position through a patent to reward inventive activity emerged from customs in mining activity. Mining contractors were awarded monopoly rights over discoveries of new mineral resources. These arrangements were subsequently adopted in other activities, such as grain milling, and eventually applied to new inventions. This custom appears in northern Italy in the first quarter of the fifteenth century. In 1460, the Republic of Venice granted two inventors a privilege stating that no one could reproduce their inventions without their permission. In 1474 a formal patent system was enacted in Venice, the preamble of which noted that if "provisions were made for the works and devices discovered by men of great genius, so that others who may see them could not build them and take the inventor's honor away, more men would apply their genius...and build devices of great utility to out commonwealth (Kaufer, 1989, p. 5). Although few patents were actually awarded in Venice, its example was followed widely and by the middle of the sixteenth century the idea had penetrated much of Europe. The most effective and famous patent law was the Statute of Monopolies, in England, passed in 1624..."

(Mokyr, page 79).

The history of Mevacor Gary

The history of Mevacor

Gary Taxali tells the story of the Merck cholesterol drug Mevacor, here "Too Much of A Good Thing Can Be Bad. The Pros and Cons of Pharmaceutical patents". Taxali follows Mevacor through 31 years of development, 20 years under patent, and the years following patent expiration. The tradeoff at the center of the story:

"The cost and uncertainty of the drug development process mean that pharmaceutical firms need to receive large returns on any successful drug in order to counterbalance the failures along the way. Yet the products they make, once discovered, are extremely easy for other firms to copy. Without some kind of legal right to the economic returns from their research findings, pharmaceutical companies would have no incentive to develop new drugs, and society would miss out on the new and improved treatments for disease and illness that the companies would discover. To solve this problem, the government grants drug manufacturers patents, short-term monopolies that limit competition and thus help ensure that companies receive a return on their research. But this benefit to inventors comes at a social cost. The shield from competition that patents provide gives manufacturers the economic power to set prices higher than competitive markets would allow, on the very goods that society regards as critically important to make available.

There is no doubt that patents foster innovation, especially for pharmaceuticals. But it is harder to know whether their current structure has struck the right balance between their costs and benefits for society. With drug patents, as with cholesterol, too much of a good thing may be bad."

Mevacor may have been protected by patent, but it wasn't protected from competition. Other firms introduced similar drugs and by the time its patent expired Mevacor only accounted for about one percent of new prescriptions in its drug class (statins).

Taxali's article is in the Boston Federal Reserve Bank magazine, Regional Review.

Jane Galt on institutional accountability

Jane Galt on institutional accountability

Jane Galt (at Asymmetrical Information) contrasts the BBC's response to its current scandal with the response of the New York Times, here: BBC Blowing It. Her argument: The BBC doesn't face market discipline. It is funded by taxes, it has captured its regulatory board, its charter renewal is a long way off, it can afford to stonewall. The Times, facing market discipline, had to clean house.

I learned about this from Pejmanesque.

P.S. (8-15-03): The Economist summarizes the details of the BBC reporting scandal, here: "The BBC on trial".

"On May 29th, Andrew Gilligan, defence correspondent of “Today”, the BBC's morning radio current affairs programme (above, on his way into the inquiry), reported, in a live, unscripted, interview at 6am, that Downing Street dishonestly “sexed up” a dossier published last September. He said that it inserted, against the wishes of the intelligence services, the claim that Iraq could deploy weapons of mass destruction within 45 minutes."

The story was important and should have been documented carefuly, but was not.

"...Like many investigative reporters, he [Gilligan - Ben] works odd hours and has a reputation as an eccentric, if interesting, loner. He gets original stories but his methods are unusual. He took no pen to his meeting with Mr Kelly at the Charing Cross Hotel on May 22nd, and neither wrote notes during it nor recorded the conversation. Instead, he tapped out bits of Mr Kelly's comments on to his personal organiser, later wrote out a longer transcript and then lost the transcript. He did not bother to check his explosive story with Downing Street to get its reaction."

The BBC defended the story in public, but not as strongly in internal documents. The Economist's verdict:

"But if the BBC has been sloppy, the blame should fall not on Mr Gilligan but on his bosses. To allow a reporter to broadcast such an explosive story, live and unscripted from his home, was foolhardy. No quality newspaper would print such a story, from a single anonymous source, without further checks. Investigative reporters need to be kept on a tight rein. Mr Gilligan—who was hired by the previous editor of “Today” to “make trouble”—was not. Mr Marsh acknowledged in his e-mail that the story was “a result of the loose and in some ways distant relationship he's been allowed to have with ‘Today'”. "

Steve Antler points to Clinton's

Steve Antler points to Clinton's "phallopriatic" surplus

Steve Antler asks if the Clinton era federal budget surplus was really a good thing, here: "Time for a little vacation..."

Too many economists When I

Too many economists

When I was young man I thought that that anyone who spent as much time thinking about money as an economist did would eventually and inevitably end up with lots of it. I was wrong. On the other hand, I haven't regretted my career choice.

The August 7 Economist reports on job prospects in the U.S. and Britain, here:"Jobs for economists. Unemployment forecast"

"“Economics”, observed J.K. Galbraith, “is extremely useful as a form of employment for economists.” In the United States, plenty hope so. Applications to the PhD programmes of many leading American universities have risen sharply: those at MIT were up by 15% for 2002-03; those for the coming academic year at New York University, which has energetically been recruiting star professors, are 70% higher than for 2000-01...

"...But for Americans now gaining doctorates, prospects are bleak. In 2002, the number of job openings for economists tallied by the American Economic Association (AEA) fell by 10%, the second decline running. Graduate-student membership of the AEA, a measure of the future supply of economists, rose by 14% (see chart)..."

Spam and the tragedy of

Spam and the tragedy of the commons

Jonathan Rauch applies common property analysis to the problem of spamming.

The spam problem is a new instance of a very old and familiar dilemma, which economists call the tragedy of the commons. When any resource is both valuable and freely available, people will tend to overuse it [in this case, Rauch says, the resource is the email recipient's attention - Ben]. Moreover, everyone anticipates that everyone else will overuse it, so everyone tries all the harder to get while the getting is good. The result is a run on the resource. The tragedy is that everyone's least-favored outcome—the depletion or exhaustion of the resource—is assured."

The solution is institutional, not technical. Read the whole thing on Slate, here: "Make Money Fast!!!! If you owned your inbox, spammers would pay to get inside."

I'd never realized Seabiscuit was

I'd never realized Seabiscuit was such a big deal in the 30's.

Neither had Donald Sensing who saw the movie last week and recommends it, here: "Seabiscuit on NPT or NFL on ESPN?"

"...Did you know that in 1938, stories about Seabiscuit totaled more column inches of print than President Roosevelt? Or Adolf Hitler? Or any other figure, human or not, in the entire world?..."

P.S. 8-13-03. Seabiscuit may have been big, but not this big. See the comment from "npm" with its link.

The problem with developed world

The problem with developed world agricultural subsidies

Jacob Levy at The Volokh Conspiracy points to what looks like a good series of New York Times editorials and stories on this the damage these subsidies (in the U.S., the European Union, and Japan) do to developing country agriculture, here:"Bitter Harvest

"It's hard to devote as much attention, as constantly, as is warranted to the issue of rich-country agricultural subsidies and protectionism. On any decent moral accounting, this is literally one of the most important public policy issues in the world. The policies destroy a fair amount of wealth in the rich countries, and destroy an appalling amount of wealth and potential wealth in the developing world..."

Money doesn't buy happiness? The

Money doesn't buy happiness?

The "Economics Focus" column in the August 7 Economist reports on some of the implications of recent research on the relationship between income and self-reported happiness, here:
"Chasing the Dream"

"...In recent years the study of “happiness”—as opposed to more conventional economic measures, such as GDP per head—has attracted increased attention from economists. In a series of lectures* earlier this year, Richard Layard, an economics professor at the London School of Economics, reviewed the various evidence from psychology, sociology and his own discipline to try to solve this paradox. One explanation is “habituation”: people adjust quickly to changes in living standards. So although improvements make them happier for a while, the effect fades rapidly. For instance, 30 years ago central heating was considered a luxury; today it is viewed as essential..."

Externalities associated with one more

Externalities associated with one more driver

Stuart Buck draws attention to a new paper estimating the impact of an additional driver on the insurance costs of other drivers, here: "A Tax on Driving?"

"...in traffic dense states: in California, for example, we find that a typical additional driver increases the total of other people's insurance costs by $2231 per year..."

Democracy vs. social choice theory

In a large number of very plausible voting scenarios, the results of voting by a group of people depend on the ways in which their votes are aggregated.  A group of people can be led to vote to do "A" and not "B", or to do "B" and not "A" depending on which rules of the game govern the decision process.  The "rules of the game" are referred to as the "agenda."  Different agendas produce different outcomes, even if the participants, and their preferences, remain unchanged.

This is a disturbing result.  What is the significance of the will of the people, expressed through voting, if that "will" is dependent on the rules used to aggregate the votes, and will change with a change in the agenda. 

Kieran Healy points to an upcoming paper that claims to resolve the dilemma, here:Kieran Healy's Weblog: Deliberative Democracy and Social Choice.

Revised 4-9-05

Caligula was as bad as

Caligula was as bad as they say

Cronaca reports on excavations at the Roman forum which confirm some of the bad things said about Caligula, here: "Caligula: Suetonius borne out by Forum excavations".

Wednesday's Aurora over Juneau

The Juneau Empire has a great shot of Wednesday morning's Aurora Borealis over Juneau.  Night light 08/07/03

Steven Landsburg asks, "Why do

Steven Landsburg asks, "Why do gays smoke so much?"

Here, at Slate: "Why Do Gays Smoke So Much?". This is a nice piece of economic speculation. He looks for the difference in smoking rates, not in differences in preferences or culture - a sociological or antropological approach - but in differences in income and relative prices.

George Akerlof, Economics Nobelist, disapproves

George Akerlof, Economics Nobelist, disapproves of the Administration's deficits (among other things)

The German magazine Der Spiegel has an English translation of an interview with 2001 economics Nobel prize winner George Akerlof on its website (Akerlof's wife, Janet Yellen, was chair of Clinton's Council of Economic Advisors). Link here "A form of looting"

"...A short-term tax benefit for the poor would actually be a reasonable stimulus. Then, the money would almost certainly be spent. But the current and future deficit is a lot less stimulatory than it could be. Our administration is just throwing the money away. First, we should have fiscal stimulus that is sharply aimed at the current downturn. But this deficit continues far into the future, as the bulk of the tax cuts can be expected to continue indefinitely. The Administration is giving us red ink as far as the eye can see, and these permanent aspects outweigh the short-term stimulatory effects..."

Towards the end of the interview, Akerlof indicates just how strongly he feels about the current administration:

"Akerlof: I think this is the worst government the US has ever had in its more than 200 years of history. It has engaged in extraordinarily irresponsible policies not only in foreign and economic but also in social and environmental policy. This is not normal government policy. Now is the time for people to engage in civil disobedience.

SPIEGEL ONLINE: Of what kind?

Akerlof: I don't know yet. But I think it's time to protest - as much as possible."

I learned about this from ArgMax.com

Steven Levitt Steven Levitt recently

Steven Levitt

Steven Levitt recently won the John Bates Clark award, given every two years to the U.S. economist under 40 who has made the most outstanding contributions to economics. Stephen Dubner gives him an entertaining profile in the New York Times, here: "The Probability That a Real-Estate Agent Is Cheating You (and Other Riddles of Modern Life)".

Levitt has a special interest in the economics of crime and corruption. He is most noted for a paper linking abortion rates and crime rates. Dubner's profile highlights several pieces of crime related research (for example, Levitt's algorithms for idenfying teachers who cheat on exams evaluting their students). The following examples gives some of the flavor (but read the whole thing before it disappears from the Times' web pages):

"Trying to get his mind off death [the death of his young son - Ben], Levitt took up a hobby: rehabbing and selling old houses... This experience has led to yet another paper, about the real-estate market...

"While negotiating to buy old houses, he found that the seller's agent often encouraged him, albeit cagily, to underbid. This seemed odd: didn't the agent represent the seller's best interest? Then he thought more about the agent's role. Like many other ''experts'' (auto mechanics and stockbrokers come to mind), a real-estate agent is thought to know his field far better than a lay person. A homeowner is encouraged to trust the agent's information. So if the agent brings in a low offer and says it might just be the best the homeowner can expect, the homeowner tends to believe him. But the key, Levitt determined, lay in the fact that agents ''receive only a small share of the incremental profit when a house sells for a higher value.'' Like a stockbroker churning commissions or a bookie grabbing his vig, an agent was simply looking to make a deal, any deal. So he would push homeowners to sell too fast and too cheap.

"Now if Levitt could only measure this effect. Once again, he found a clever mechanism. Using data from more than 50,000 home sales in Cook County, Ill., he compared the figures for homes owned by real-estate agents with those for homes for which they acted only as agents. The agents' homes stayed on the market about 10 days longer and sold for 2 percent more."

I learned about this at The Buck Stops Here.

How will we pay for

How will we pay for Medicare?

Upcoming demands on the Medicare program are by far the most serious fiscal challenge we face. Arnold Kling points to the importance of economic growth, fueled by technological advance and its application, in helping us meet the challenge in this Tech Central Station column:"The Great Race".

Critique of Michael Moore's movies

Critique of Michael Moore's movies

Kay S. Hymowitz gives a pretty thorough critique of Michael Moore's work in the City Journal, here: "Michael Moore, Humbug". A systematic evaluation of purported lies ( the "bold faced lies," the "lies of omission," the "artistic lies," the "slanted, insinuating lies," and the "lies of exaggeration") only takes up part of the article.

"...Then there are lies of omission, a genre that reaches its apogee in the movie Bowling for Columbine. Prompted by the horrific murders by Dylan Klebold and Eric Harris at Columbine High School in Littleton, Colorado, in 1999, Bowling is Moore’s putative attempt to explore why America endures so much more gun violence than other industrialized countries. It seems to make sense when he interviews the punk singer Marilyn Manson, whose violent lyrics the Columbine killers favored. Yet Moore’s point is not what you’d expect. Objecting that to “scapegoat” Manson for the murders makes as much sense as blaming bowling, since the killers supposedly bowled on the morning of the murders, Moore listens with reverence to Manson’s theory—which happens to be Moore’s own—that Americans are violent because we live in a “culture of fear.” Never mind that the investigators at Columbine have concluded that the killers did not go bowling that morning; the larger point is that Marilyn Manson chose to name himself after Charles Manson, one of America’s most infamous mass murderers. Moore says no word about any of this.

"Then there are what we might call artistic lies. Bowling for Columbine opens in a branch of the North Country Bank, with Moore supposedly receiving a free gun in exchange for opening an account. At the end of the scene, he asks a bank employee, “Do you think it’s a little dangerous handing out guns in a bank?” before he runs out with the gun in his hand to the beat of a punk rock tune. It is a dazzling opening, full of energy and Dr. Strangelove absurdity. The only problem: it was staged. Commentators have been on Moore’s case about this, some even campaigning to revoke his Oscar, awarded for a genre supposed to be nonfiction. Anthony Zoubeck, a self-described “former Moore fan” who writes for the Illinois State University paper, the Daily Vidette, contacted Helen Steinman, the customer-service representative seen greeting Moore in the bank. “You can’t just come in here and get a gun,” Steinman explained. Moore “was only supposed to be coming in and pretending to open up a CD. What the girl who opened up the account really told him was that there would be a background check and that he wouldn’t get the gun for six weeks...” "

I learned about this at the Chicago Boyz blog.

Bad Employment Picture The workforce

Bad Employment Picture

The workforce unemployment rate fell to 6.2% in July, but only because a lot of people gave up looking for jobs and left the workforce. The number of jobs filled actually fell by 44,000. The recession ended in November, 2001, but the recovery has been slow. The EPI points out that

"Since the business cycle expansion began in November 2001, payrolls have contracted by one million (1.2 million in the private sector), making this the weakest recovery in terms of employment since the BLS began tracking monthly data in 1939..."

EPI illustrates the point with this graphic:

The source for this graph is: "Dip in jobless rate, yet hiring slump persists"

Corporations would like to shift

Corporations would like to shift "legacy costs" to the government

Daniel Gross, writing in Slate explores the sources of big business support for the pending Medicare benefit, here:Socialism, American-Style - Why American CEOs covet a massive European-style social-welfare state. By Daniel�Gross. Gross also points to the possibility that the pension liabilities of many companies may also be shifted to the public.

"...old companies with generous pension plans are sinking as pension liabilities keep climbing. Investors are reluctant to inject new cash into capital-starved industries such as steel and airlines if the new dough will only go to shore up shaky pension funds.

The answer, again, is a form of big government: the Pension Benefit Guaranty Corp. This federally chartered independent corporation insures some 32,500 old-fashioned private defined-benefit pension plans covering 44 million workers. When companies file for Chapter 11, they can essentially terminate their pension plans and shift responsibility to the PBGC.

The PBGC covers the costs of administering and shoring up pensions by selling insurance premiums to participants. But it has the makings of a massive obligation for taxpayers. In testimony last spring, PBGC Executive Director Steven Kandarian described how the restructuring in industries like steel, airlines, retailing, and textiles is taking a toll on his agency's balance sheet. From fiscal 2002 to fiscal 2003, the number of pensioners that the PBGC is directly responsible for will rise from 783,000 to 1 million, with the sum paid out increasing from $1.5 billion to $2.5 billion. The total underfunding in the kind of pensions covered by PBGC exceeds $300 billion. And with these pensions concentrated in what PBGC euphemistically calls "our most mature industries," it's likely the PBGC will require some form of public bailout."