Entries Tagged 'EconLog' ↓

Heard of Riptopia? It's a CD-to-mp3 conversion service - just what every iPod junkie needs.

Good news: I've tried it, and it works. Here's how:

You buy it on Amazon, and they send you some CD spindles. You fill the spindles with CDs and leave the box with pre-paid postage at your nearest UPS drop-off. Two weeks later, you get a box back with your original CDs, plus a couple DVDs stuffed with mp3 files. The cost is $20 + $.99/CD. If your time's worth more than $10/hour, it's a good deal.

...was riding the Hasenhorn in the the Black Forest town of Todtnau. Fifteen minutes in a skilift to the top of a mighty mountain in the middle of nowhere, followed by a three kilometer toboggan track back down to the beautiful valley below. This was probably the funnest ride I've ever been on; Disneyland doesn't have anything close.

If you're curious, there are a few ride movies on Youtube.

I've often heard Robin Hanson called a "space cadet" or even a "replicant." So it's pretty dramatic to see him throw cold water on his fellow cadets:

Sigh. The US government spends more on space research than on NIH and NSF combined, which most scientists consider far out of proportion to its science value. Most any ambitious tech project, like floating cities, 3DTV, or robot mules, gives similar indirect tech spinoffs per dollar spent, and surely we can find other projects with larger direct payoffs. Sure the Chinese might have colonized the Americas, but we can see now there are no similarly lush gardens accessible in space - we'll colonize Antarctica and the Earth oceans long before, as these are far less harsh environments with plenty of the sunlight and materials which are mainly what space has to offer.

Technophiles, I beg of you - don't throw Robin out the airlock! :-)

How would people's preferences change if they knew more? Political scientists usually attack this question using the so-called "Enlightened Preference" method. (See Scott Althaus' Collective Preferences in Democratic Politics for a fantastic survey of this large literature).

The gist of the method:

You start by administering a two-part survey.

Part 1 is a test of objective political knowledge. (How many senators does each state have? Name as many Supreme Court justices as possible. Etc.) Think of it as a "Political IQ" test.

Part 2 asks respondents about their policy preferences. (Should we rely more on the market or government? Should we invade Iran? Etc.)

The survey also collects standard information about respondents' income, gender, party i.d., race, etc.

Once you've got all this information, you're ready to discover the public's "Enlightened Preferences." In essence, you estimate policy preferences (from part 2) as a function of Political IQ (from part 1), plus a bunch of control variables that you think might influence political preferences holding knowledge constant. If you're finicky, you can even allow Political IQ to have a separate coefficient (and sign) for various subgroups of the population. (Perhaps knowledge makes the rich more pro-market, but makes the poor more pro-government).

The final step is to use these results to simulate what public opinion would look like if you raised Political IQ up to the stratosphere but kept all other characteristics the same. The resulting distribution of opinion is what we call the public's Enlightened Preferences. It's what people would want, if everyone knew a lot more.

Overall, I am a big fan of the Enlightened Preference literature, and I won't conceal the fact that Enlightened Preferences are generally more socially liberal and economically conservative (in short, more libertarian) than the actual distribution of opinion.

Still, this approach has some potentially awkward implications for me. You could just as easily use it for consumers or workers as you could for voters, right? Just estimate consumer demand as a function of people's score on a "Consumer IQ" test, plus a bunch of control variables you think might influence consumer preferences holding knowledge constant.

For example, I strongly suspect that this approach would reveal that if people knew more about financial markets, they would be far more likely to invest in index funds that they actually are. It wouldn't surprise me if we found parallel results for health care.

I have no principled objection to this, but if we're going to generalize the Enlightened Preference approach, we should proceed with caution for at least two reasons.

First, in politics, you're generally picking a policy that everyone's got to live with. As a result, you really only need to understand how greater knowledge would change the distribution of preferences. In contrast, in the market, purchases are individually customized. Knowing that the average person would change his consumer behavior if he knew more doesn't mean that many consumers wouldn't change no matter how much he knew (or change in the opposite direction). From a slightly different perspective, what statisticians call "the error term" might be better-described as "person-specific preferences."

Second, in the market, there is a much bigger role for reverse causation. People who know a lot about reptiles buy more reptiles, but it's probably not knowledge changing preferences. It's preferences changing knowledge. In contrast, people rarely learn a lot about international trade purely because they think that "trade is fun." The best counter-example I can think of is that people who know a lot about politics might be more supportive of things like PBS because PBS shows programs that political junkies enjoy.

Thoughts? Examples? Counter-examples?

Megan McArdle writes,

Certainly, the long-term economic outlook is extremely uncertain, but I’m not sure what “who knows!” is a better answer to cumulatively worsening climate problems than to cumulatively worsening fiscal problems.

Her point is that ignoring climate change because of model uncertainty is like ignoring the entitlement outlook because of model uncertainty. This is part of a theme of hers, which is that it is odd to worry about climate change and not about entitlements, or vice-versa. They are similar problems in that they involve the long term and uncertainty.

However, I would argue that there are differences. Perhaps the least important difference is that I have more confidence in the models that project trouble ahead for Medicare than in climate models.

The most important difference is that we can improve the entitlement outlook costlessly. The problem with entitlements is that we are promising more than we can deliver (at least if the economic projections are reasonably correct). Suppose that we raise the age of eligibility for Social Security and Medicare for people under 50 to something like 72, and then we index that age for longevity. This will change what we promise. We still have the option, down the road, of delivering more benefits to people now under 50. But lowering what we promise them helps forestall the situation in which we either renege on our promise or we raise tax rates ginormously to try to keep our promises.

To appease the economic models of entitlements, we don't have to make any sacrifices today--we just have to make more conservative promises going forward. To appease the global warming models, we have to make rather large sacrifices of output.

Suppose it were the other way around, and that there were a global warming policy that cost nothing if it subsequently turns out that the models are incorrect, while fixing entitlements would cause irreversible losses in output. In that case, I would be all for taking steps to deal with global warming and strongly against taking steps to curb entitlements.

I like the first two weeks of Growthology, the new blog by Tim Kane and Bob Litan. Highlights from what is perhaps its best post so far:

After 12 years, Peter Carlson is leaving his job as a journalist covering magazine culture, and taking the buyout offer from the Washington Post... Peter's farewell article, with some self-referential irony, describes creative destruction in the industry:

... During the past 12 years, Life died. So did Civilization, My Generation, Spy, George, Talk, Brill's Content, Punk Planet, Doubletake and Mademoiselle, plus Lingua Franca, a smart, funny magazine about academia, Gadfly, a lively pop culture magazine and recently, the music magazines Harp and No Depression.

Replacing the dead on newsstands was a crop of newborns -- Maxim, Portfolio, Real Simple, the Week, Blender, the American Conservative, Hallmark, Found, Mental Floss and a fine literary mag called the Believer...

Tim Kane then raises an interesting question about early retirement buy-outs:

Is a company downsizing via early-retirement the best way to handle financial distress? Would you rather lose your least productive 100 employees or your 100 employees who have the best outside options? Yes, RIFs are better for morale than layoffs. Or are they? When the Air Force had a RIF, my morale was hurt by the departure of the top mentors and role models. I submit that it hurts any organization deeply when it reduces staff by effectively carroting out its most entrepreneurial people...

The silver lining, perhaps, is that lost entrepreneurs may be lost to the organization, but not to society! The fact that they leave and start new businesses is a net plus, right? Indeed, Kurz points to Politico.com, founded by ex-WaPo staffers.

If you're not sold on Growthology yet, let me add that I really like it despite this misguided remark:

...I dislike the snarky "we get the media we deserve" whine that "the next generation blew us off in favor of Xbox and Wii and full-length movies on their iPods." It's anecdotal. Sure, you can point to some youngster who watches YouTube and scoffs at newspapers, but that person is an idiot.

Hey, as a non-newspaper reader who watched four movies on his iPod during the last two weeks, I resemble that remark! :-)

I like the first post on the new blog, The Rational Optimist:

Some say we need pessimists, to see what’s wrong with how things are, and push for positive change. Yet pessimism and cynicism actually foster resignation, despair, and a sense of powerlessness—a “why bother?” mentality. And, while modern social alienation is a staple of the pessimist litany, much of that is traceable to the psychology of pessimism itself. After all, you won’t likely feel a compassionate connection to your fellow man if you see him as basically selfish, violent, and guilty of making a terrible doomed world.

And here's the rational optimist qua parent:

We need hope to find life worth living and face the future. We do that most obviously by creating the next generation. Nowadays, many question whether it’s right to bring a child into “such a troubled world.” My wife and I actually had that conversation. But, convinced that in fact people today have it far better than any past generation, we went ahead and put the condoms aside. We are very glad we did — and so is our teenage daughter, who understands what a blessing it is to be alive — especially in today’s world, which, for all its troubles, she keenly appreciates as the best ever. (Kids sometimes do listen to their parents.)

Rational Optimist, I'm glad that you're glad that your daughter is glad.

Reader Bruce Charlton points me to a post by Half Sigma.

Unskilled low-IQ immigrants who come to the U.S. contribute slightly to higher total GDP, but they lower the GDP per capita.

Letting in a low-skilled immigrant to mow my lawn will indeed lower average productivity in this country. But I will be better off.

To the extent that low-skilled immigrants are significant, standard productivity indicators can be misleading. For example, suppose that France lets in a bunch of low-skilled immigrants and puts them on welfare, while we let in a bunch of low-skilled immigrants and put them to work. Then our GDP per capita will be higher, but France's GDP per worker will be higher and their GDP per hour of work will be higher. If you use the latter as a measure of productivity, you would say that France is following a brilliant strategy, and we should copy it.

To get closer to a relevant measure of national economic performance, you might invent something like endowment-adjusted consumption per working-age adult. By adjusting for endowment, you correct for the lower skills of immigrants. By using consumption, you get a measure that is closer to the quality of life. And by using working-age adults, you don't treat high unemployment of low-skilled workers as a good thing.

But it's important to remember that you personally don't get to consume GDP per capita. You get to consume based on the purchasing power of what you produce. If immigrants lower the cost of goods and services for us, then bully for immigrants.

I like to catch up on the classics on vacation. Tyler recommended Gogol's Dead Souls. I normally despise blogs with big block quotes, but for the best passage so far in this very very good work, I'll make an exception:

Of course, there had been a time when he [the miser Pliushkin] had simply been a careful manager, when he had been a married family man, and when his neighbours had been in the habit of coming to dine with him, and listening to him, and taking lessons from him in wise economy. Everything then went on briskly: grain-mills and fulling-mills were in operation, cloth-mills were running, carpenter’s shops and spinning-rooms were at work; the searching glance of the master penetrated everywhere and into everything; and carefully, but assiduously, like an industrious spider, did he run about attending to domestic matters. In those times his courteous and talkative wife was renowned for her hospitality; two charming daughters, both fair and as fresh as roses, came to greet the guests: the son, a fine, vivacious little boy, ran out and kissed everybody. All the windows in the house were open then: there was a French tutor, who was a great sportsman, and who was always bringing home partridges or ducks for dinner. And there was also a governess for the little girls. But the good housewife died. Pliushkin became restless, and, like all widowers, suspicious and saving. He did not place full confidence in his eldest daughter, Alexandra Stepanovna, and he was right; for Alexandra Stepanovna soon eloped with a staff-captain, belonging to God knows what regiment of cavalry, and she married him in haste in some village church, although she knew that her father did not like officers on account of a strange, prejudiced belief of long standing, that they were all gamblers and spendthrifts. Her father sent his curse after her, and then the house grew more desolate, its owner became more and more miserly. The French tutor was dismissed, because the time had arrived for the son to enter the civil service; the governess was sent about her business, because it appeared that she was not free from guilt in the matter of Alexandra Stepanovna’s elopement; the son, on being despatched to the chief town of the government, in order to learn official routine, according to his father’s wish, enlisted in a regiment instead, and wrote to his father immediately afterwards, asking for some money. Very naturally, he received in reply what the common people call a shish. Finally, the last daughter, who had remained at home with the father, died, and the old man found himself the sole guardian, protector, and owner of his wealth.

His lonely life then made him yet more miserly, and as though for the express purpose of confirming him in his opinion of military men, his son ruined himself at cards: he sent him a hearty paternal curse, and never troubled himself afterwards to inquire whether he still existed in the world or not. More windows were shut up every year in the house, until at last only two remained to admit any light, one of which, as the reader has already seen, was pasted up with blue paper. As time went on he paid less and less attention to domestic management, busying himself more about the scraps of paper and feathers which he collected in his room; he became more and more crusty with the people who came to buy the products of his estate; the dealers grew disgusted with him, and finally abandoned him altogether, saying that he was a devil, and not a man; his hay and grain rotted; his ricks and stores of all sorts turned into manure, pure and simple, so that cabbages might have been grown upon them; the flour in his vaults turned to stone, and had to be chopped up: it was terrible to touch the linen, the cloth, and other materials of domestic manufacture; they turned to dust under the hand. He himself had already forgotten what he possessed of any given article. He only remembered the sideboard which contained his decanters of brandy, upon which he had made a mark, in order that no one might thievishly drink the liquor.

My God, it's almost as well-written as Dexter (the show, not the novel)!

From a web site put together by Congressman Paul Ryan,

It is a real plan, with real proposals, real numbers to back them, and real legislation to implement it. Based on the analysis of government actuaries, this plan is projected to make the Social Security and Medicare programs permanently solvent. It will lift the growing debt burden on future generations, and hold Federal taxes to 18.5% of GDP.

The plan makes Medicare and Medicaid more like vouchers, which plugs the big leak in future budgets. It includes some personal accounts for Social Security, but it also trims benefits and eventually raises the retirement age. It also includes some interesting tax reforms, including a simpler, flatter income tax, reduced taxes on capital, and replacing the corporate income tax with something called a "border-adjustable business consumption tax." I have no idea what that is.

Those of us who worry about fiscal sustainability should encourage these sorts of plans, rather than the audacity of hope being offered by the two parties' candidates for President.

One should not under-estimate the radical nature of these proposals. But if you want to take this country off the path of a fiscal train wreck, you have to propose real change.

Speaking of real change, the Wall Street Journal has editorials here and here that describe health insurance reforms at the state level that have more of a free-market flavor.