Bedtime reading

Tag: Bedtime reading

Update: World Still Not Flat (at least not income distribution)

The New York Times reviews The Haves and the Have-Nots, what appears to be a fascinating new book from World Bank economist,  Branko Milanovic.   In addition to the review, the Economix blog features this extraordinary representation of world income distribution by country:

Milanovic has broken income (adjusted for purchasing power) by country down into twenty “ventiles.”  So the lowest five percent of income earners are in the first ventile and the richest five percent are in the top ventile.  What this piece shows is that the poorest of the poor in America are in the 70th percentile of world income.  Compared with India — the average American in that first ventile has as much income (adjusted for purchasing power) as the richest Indian ventile.

I find that astonishing.

I also note with interest that there is a very steep ascent of the American distribution, indicating the poor here are really, really poor in relative terms, but the rest of the country is in pretty good shape.  The median income in the US in comfortably in the top 10% of world income.

But are we any happier?

Well, I’m pretty happy, but maybe that’s just me.

The Principals are Your Pals

I’m a bit behind on both my reading and on updating this blog, so I wanted to point to a series of fascinating articles at David Warsh’s Economic Principals blog.  The first resulted from his trip to Denver for the American Economic Association meetings in early January, where he sensed a possible resurgence of interest in the history of economic ideas.  This possibly rings true for those of us plodding through Capitalism, Socialism, and Democracy this term.

Warsh followed up this dispatch from the AEA meetings with a most interesting piece on how the big brains of the profession are thinking about technological innovation and climate change. The piece starts with another dispatch from Denver, and traces its way back through the cold war to the RAND Corporation (and one of my heroes, Armen Alchian) and beyond.  The piece touches on the contributions of Kenneth Arrow and Richard Nelson, now are both familiar names to anyone interested in the economics of innovation.

And if that’s not enough, this week’s column looks at Paul Samuelson and hedge funds, another hat tip to the history of thought that includes David Ricardo’s Waterloo.  If nothing else, the blog seems to get its principals right.

I also continue to recommend Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery — an excellent pick for the summer reading list.

The New New Regulatory State

Earlier this week, President Obama penned an op-ed in the Wall Street Journal about his Administration’s plans for the regulatory state.  The executive branch, as its title suggests, is in charge of executing and administering the laws of the land, and the President expresses his desire to balance the free-market innovation machine while protecting public health and safety:

[C]reating a 21st-century regulatory system is about more than which rules to add and which rules to subtract. As the executive order I am signing makes clear, we are seeking more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs. This means writing rules with more input from experts, businesses and ordinary citizens. It means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices. And it means making sure the government does more of its work online, just like companies are doing.

As my students learn in 240, 280, and 271, the executive branch, through the Office of Management and Budget, (potentially) plays a central role in shaping regulations as they make their way through the rulemaking process.  Indeed, President Reagan issued the seminal executive order concerning benefit-cost analysis, and each President since has attempted to put his stamp on the process.

Of course, there is often a disconnect between what politicians say and what regulators actually do, here are a couple of other takes from a pair of scholars who spend more than their fair share of time thinking about administrative regulation: Stuart Shapiro and Lynne Kiesling.

Some Interest in Inequality

Although we economists tend to be a “size of the pie” crowd, the subject of the causes and consequences of income and wealth inequality does not completely escape our notice.  Certainly, this has large political and policy implications, especially as inequality and political polarization seem to be proceeding in lockstep.

With that said, I’ve been sitting on these links for a while, waiting to read and digest them so I can say something pithy about them.  But, alas, with Capitalism, Socialism, & Democracy in my lap and Where Good Ideas Come From next in my queue, I don’t see that happening anytime soon.

So, here it goes:

Cowen presents a very provocative thesis, one that we should perhaps discuss over tea?

My favorite political science blog, The Monkey Cage, had an interesting symposium on Larry Bartel’s Unequal Democracy.  Worth a look if this is something that interests you.

More on My Favorites

I was perusing Kottke.org — a “weblog about the liberal arts 2.0” — last night and noticed how much great stuff he has on innovation & entrepreneurship.

He gives us a taste of an upcoming movie about Linotype:

Linotype: The Film is a feature-length documentary film centered around the Linotype typecasting machine invented by Ottmar Mergenthaler. Called the “Eighth Wonder of the World” by Thomas Edison, the Linotype revolutionized printing and society, but very few people know about the inventor or his fascinating machine…. The Linotype completely transformed the communication of information similarly to how the internet is now changing it all again.

He also has a piece on how the U.S. Navy is developing antennae made of seawater. And he’s got a piece on the Hadron Collider generating a mini big bang:

The collisions obtained were able to generate the highest temperatures and densities ever produced in an experiment. “This process took place in a safe, controlled environment, generating incredibly hot and dense sub-atomic fireballs with temperatures of over ten trillion degrees, a million times hotter than the centre of the Sun.

That’s pretty hot.

This Side of The Atlantic

I Roomed with Zonker in College

Though the publishing industry is on the rocks, I’ve been getting The Atlantic Monthly for more than 20 years.  It’s a great general interest publication that has contained some of my all-time favorites, like “Why McDonalds French Fries Taste So Good,” “The Truth About Dogs,” and the extraordinary “Laws Concerning Food and Drink.” I often will send these to my former students in the Peace Corps, who are always happy to get something interesting. Actually, they are happy to get anything, period.

I was reminded of these when my renewal notice came along with my latest edition and I was wondering whether I should continue to support these guys.  The answer was a resounding yes.

Why?

Here are few sample sentences from this month’s issue to wet your beak:

Simpson is not yet selling his rum by the bottle—he serves it at his bar and trades it for other exotic liquors—but I had a chance to try it recently when a sample arrived in the mail. It came in Simpson’s standard packaging: a used whiskey bottle tightly wrapped in a brown paper bag, the cap sealed with duct tape.  “Gunpowder on the Rocks“

Then there is this strange and horrifying image:

Many of the visitors to the tin-roofed shrine labeled Pol Pot Cwmation site in Anlong Veng are local men who light incense in the hope that the spirit of the murderous Communist leader will provide them with money for prostitutes. “Dark Tourism“

And, finally, this bit of comedy of absurdity, also strange and horrifying in a different dimension:

“If you’re a terrorist, you’re going to hide your weapons in your anus or your vagina.” He blushed when I said “vagina.”

“Yes, but starting tomorrow, we’re going to start searching your crotchal area” — this is the word he used, “crotchal” — and you’re not going to like it.” “For the First Time, TSA Meets Resistance“

And all that is before I’ve gotten to the feature articles I want to read, which generally run about 2000 words longer than a reasonable person would find reasonable.

The economics writing is a different matter, a lot of what Paul Krugman used to call “pop internationalism.”  I remember reading a cover story when I was in grad school called “Head to Head,” where Lester Thurow was arguing that the Japanese and Europeans were going to bury the US in the 1990s (I don’t see that one in the archives now?).  It’s not clear why they keep giving that guy space. But, I don’t read it for the economics.

So there you have it, my pitch for you to subscribe to The Atlantic.

Interdependent Utility Functions

Does knowing what your peers make matter to how happy you are?  Certainly, the utility functions that I sketch in Econ 300 say no.  As Ray Fisman puts it in a recent piece at Slate, “Why do we care what those around us make? It doesn’t affect the real estate or furniture or sushi dinners we can afford.”

On the other hand, of course it matters. And Fisman continues:

[I]n recent years, economics has become both more social and behavioral, borrowing evidence and ideas from elsewhere in the social sciences. Economists now acknowledge that we constantly judge our own accomplishments in comparison to others, and salaries serve as one ready benchmark. People (and perhaps monkeys, too) are also averse to inequality—unequal pay for equal work just isn’t fair (especially if you’re the one who drew the short straw).

Monkeys? Wow.

Fisman talks about an ingenious study by group of economists, including David Card and MacArthur genius grant winner Emmanuel Saez, that investigated how differences in pay affect variables like job satisfaction.  If you are interested in how economists think about these things and how they evaluate them empirically, this paper is worth checking out.  The abstract is below the fold: Continue reading Interdependent Utility Functions

Where Do Good Ideas Come From?

I’m not sure, because Steven Johnson’s Where Good Ideas Come From isn’t out for a few weeks, and all I have is this four-minute video.  Well, actually, I also have this longer video from over at TED (the new Harvard, I’m told).  But as I’ve often said, movie, shmoovie, I’ll wait for the book.

800 Years of Ineptitude

For today’s recommended reading, The New York Times profiles Carmen Reinhart and Kenneth Rogoff, authors of This Time Is Different: Eight Centuries of Financial Folly.

You may recall this title from our summer reading recommendations that we posted a few weeks ago.  You can find a paper approximation of the book here and a summary of its principal findings here.

Both of these economists seem to be pretty interesting characters and the article is a fun read.

Can You Think of a Radical Idea to End Poverty?

Guess Again
Think Again

What’s the best idea out there to reduce poverty and improve urban life? Well, Paul Romer thinks a big part of the answer is his charter city idea.  What’s the charter city idea, you ask?  I’m not sure, actually. Professor Finkler has been on me to read about it, and I may finally take him up on it, as the new issue of The Atlantic has a feature piece, “The Politically Incorrect Guide to Ending Poverty.”

How’s that for a provocative title?

The article of course profiles Romer, who is by any account a fascinating character.

In the 1990s, Paul Romer revolutionized economics. In the aughts, he became rich as a software entrepreneur. Now he’s trying to help the poorest countries grow rich—by convincing them to establish foreign-run “charter cities” within their borders. Romer’s idea is unconventional, even neo-colonial—the best analogy is Britain’s historic lease of Hong Kong. And against all odds, he just might make it happen.

We’ll see.

In addition to charter cities and making Aplia happen, Romer is also the hero of David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery.  The first half of the book is a short course in the history of economic thought; the second is an accounting of Romer’s role in launching endogenous growth theory. Both halfs are well worth reading.

Is College Right for You?

In a continuing series on why I love being an economist, here’s a piece from The New Yorker on the costs and benefits of college education.  In it, the author discusses the job prospects and salaries of various disciplines, including our own:

Economics majors aren’t doing badly, either: their starting salary averages about fifty thousand a year, rising to a mid-career median of a hundred and one thousand. Special note should be taken of the fact that if you have an economics degree you can, eventually, make a living proposing that other people shouldn’t bother going to college.

Well, of course we do that. Maybe college isn’t right for everyone.  In our burgeoning post-industrial, service economy, some jobs might require at least some college (“consultant,” CSI analyst, attorney, surgeon, computer game developer), others might not (burger flipper, garden hand, dog walker, Wal Mart greeter, professional athlete), and others might require non-traditional schooling (massage therapist, engine diagnostic tester, fire watcher, marauder).

Here at Lawrence, however, we believe that college is right for people who share our mission — “commitment to the development of intellect and talent, the pursuit of knowledge and understanding, the cultivation of sound judgment, and respect for the perspectives of others.” Not exactly a vocational bent, that’s the point.

But for assessment purposes, many view college as a training ground for future professionals.  Thus the question, should we evaluate the efficacy of college on the basis of the integrity of its graduates, or on whether graduates get jobs, whether they like their jobs, and how much money they make? Given that whether someone has a job or not tends to be easier to measure than the (change in) integrity of a person over the course of their college life, whether college is “worth it” or not is often framed as whether the monetary benefits outweigh the costs.

Well, anyway, hope the Lawrence Experience is right for you.

Are Patents the Engine of Growth?

Great post by Richard Langlois at the Organizations and Markets blog about the extent to which “James Watt’s steam-engine patents retarded innovation in steam technology and slowed the British industrial revolution.”

Typically, we teach that the patent is an imperfect solution to the “appopriability” or “positive externality” problem, where individuals and firms are reluctant to innovate because they cannot capture the full value of their efforts due to competitors copying the innovation.  The patent offers temporary monopoly power in exchange for the inventor disclosing technical information to the public. Watt certainly benefited from that protection.

In this case, however, some say the patents were so broad in scope that they allowed Watt to stifle competitors altogether.  There is an on-going discussion in the innovation world about this “strategic patenting,” and the Langlois piece is a nice introduction if you are interested.

Rumor has it that Professor Langlois’ book, The Dynamics of Industrial Capitalism, will be featured in this fall’s I&E Reading Group.  Watch this space.

EconTalk of the Town

Several blogs that I read have pointed to Russ Roberts’ new essay on the financial crisis, Gambling with Other People’s Money.   This from the Executive Summary:

I argue that public-policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing. Over the last three decades, government policy has coddled creditors, reducing the risk they face from financing bad investments. Not surprisingly, this encouraged risky investments financed by borrowed money. The increasing use of debt mixed with housing policy, monetary policy, and tax policy crippled the housing market and the financial sector. Wall Street is not blameless in this debacle. It lobbied for the policy decisions that created the mess.

In the United States we like to believe we are a capitalist society based on individual responsibility. But we are what we do. Not what we say we are. Not what we wish to be. But what we do. And what we do in the United States is make it easy to gamble with other people’s money—particularly borrowed money—by making sure that almost everybody who makes bad loans gets his money back anyway. The financial crisis of 2008 was a natural result of these perverse incentives. We must return to the natural incentives of profit and loss if we want to prevent future crises.

Roberts, of course, is the voice of EconTalk, a principal at Cafe Hayek, and one of the brains behind the Keynes v. Hayek video.  So, my guess is that this will have some elements of a “government failure” story.

An Oz. of Prevention

The indefatigable Ralph Nader came, he saw, he sold some books, and he raised some hell.  Are you wasting the prime of your life with hang ups you should have dealt with as a teenager? Do you find yourself spending more time looking at yourself in the mirror than keeping tabs on Congress? Mr. Nader isn’t shy about asking the tough questions.

I was amazed and surprised with his digression on the 1872 Mining Law and his browbeating of the audience about our ignorance of the statute and its implications.  Having done some research on the subject myself, I would put the ball back in his court.  Does he know that environmental group opposition is stifling volunteer cleanups of abandoned mines? In this month’s Atlantic Monthly there is a short piece describing the situation. The basic problem is that there is a single policy instrument in place to prevent pollution and to govern cleanups.  It turns out, this is like throwing one stone at two birds:

But as these volunteers prepare to tackle the main source of the pollution, the mines themselves, they face an unexpected obstacle—the Clean Water Act. Under federal law, anyone wanting to clean up water flowing from a hard-rock mine must bring it up to the act’s stringent water-quality standards and take responsibility for containing the pollution—forever. Would-be do-gooders become the legal “operators” of abandoned mines like those near Silverton, and therefore liable for their condition.  In mid-October, Senator Mark Udall of Colorado introduced a bill that would allow such “good Samaritans” to obtain, under the Clean Water Act, special mine-cleanup permits that would protect them from some liability. Previous good-Samaritan bills have met opposition from national environmental organizations, including the Sierra Club, the Natural Resources Defense Council, and even the American Bird Conservancy, for whom any weakening of Clean Water Act standards is anathema.

In other words, it is the environmental groups who are standing in the way of environmental progress in this case.  The reasons for this are straightforward, predictable, and understandable.  It is all described cogently in this testimony on similar proposed legislation from ten years ago!

The sad state of affairs is that as the various  groups dig in their heels, the acid drainage continues to pollute the waters in the west.  Again, from The Atlantic:

Just a few miles from Silverton, in an icy valley creased with avalanche chutes, groundwater burbles out of the long-abandoned Red and Bonita gold mine. Loaded with aluminum, cadmium, and lead, it pours downhill, at 300 gallons a minute, into an alpine stream. The Silverton volunteers aren’t expecting a federal windfall anytime soon—even Superfund-designated mine sites have waited years for cleanup funding, and Udall’s bill has been held up in a Senate committee since last fall. Without a good-Samaritan provision to protect them from liability, they have few choices but to watch the Red and Bonita, and the rest of their local mines, continue to drain.

13 Bankers or 1 Federal Puppet Master?

On the news that Goldman Sachs allegedly engaged in securities fraud and also posted $3.46 billion in quarterly earnings, the intersection of politics and high finance is of special interest.   My Political Economy of Regulation class read Simon Johnson’s “Quiet Coup” about the cozy relationships between Wall Street and federal regulators as a possible example of capture theory (making a convincing case to some).

Now Johnson is back with 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, bolstering his case with the help of co-author James Kwak.  Tyler Cowen reviews the book for The Huffington Post and comes to a much different conclusion:

Much as I admire their analysis and exposition, I see the problem a bit differently than they do. Whereas they see banks as the puppet master and our government as the fool, I wonder whether it is not more accurate to think of the government as running the show….

[N]amely that the U.S. government stands at the center of a giant nexus of money raising, most of all to finance the U.S. government budget deficit and keep the whole show up and running. The perception at least is that our country requires the dollar as a reserve currency, requires New York City as a major banking center with major banks, and requires fully credible governmental guarantees behind every Treasury auction and requires liquid financial markets more generally. Furthermore the international trade presence of the United States (supposedly) requires the federal government to strongly ally with major commercial interests, just as our government sides with Hollywood in trade and intellectual property disputes. To abandon banks is to send a broader message that we are in commercial and political decline and disarray, and that is hardly an acceptable way to proceed, at least not according to the standards of the real Washington consensus.

Back to square 1, I guess.  I see a discretionary writing assignment for Friday on the horizon.

 

UPDATE: Russ Roberts interviews Johnson on EconTalk, and a summary of the interview.

“Incumbants Make Bad Revolutionaries”

Relying on incumbents to produce your revolutions is not a good strategy. They’re apt to take all the stuff that makes their products great and try to use technology to charge you extra for it, or prohibit it altogether.

That’s Cory Doctorow at Boing Boing, who won’t buy an iPad, doesn’t think you should buy an iPad, doesn’t think the iPad is going to do much for the beleaguered publishing industry,  and, frankly, doesn’t seem to have many nice things about the iPad at all.  In fact, he contends that Apple is showing “palpable contempt” for its customers.

Here’s some more:

For a company whose CEO professes a hatred of DRM, Apple sure has made DRM its alpha and omega. Having gotten into business with the two industries that most believe that you shouldn’t be able to modify your hardware, load your own software on it, write software for it, override instructions given to it by the mothership (the entertainment industry and the phone companies), Apple has defined its business around these principles. It uses DRM to control what can run on your devices, which means that Apple’s customers can’t take their “iContent” with them to competing devices, and Apple developers can’t sell on their own terms.

A very provocative perspective.  Probably even more so if you know what DRM is.

I recommend you would-be innovator types check it out.

More on Financial Reform and Start Ups

Craig Pirrong at the Organizations & Markets blog weighs in on the quizzical financial constraints placed on start ups under proposed financial reform legislation.

Here’s Pirrong:

The most fascinating question is the political economy one: whose interest is served by this provision? The most likely explanation is that incumbents — including, no doubt, one-time startups — having made theirs prefer to make it harder for others to displace them.  They liked creative destruction on the way up, but the idea of being swept away in some future gale is far less appealing. So hobble potential future competitors, future creative destroyers, by increasing the costs startups incur to raise capital. This pernicious provision also gives advantages to big investors, venture capitalists, and existing companies who would face less competition in supplying capital to potential startups.

I’m not sure I buy that — who is this group of now-successful former start ups banding together to create barriers to entry?   On the other hand, I don’t have a better explanation.

Anyone?

Proposed Financial Reform Does Not Tout the Start Up

Thomas Friedman might tout the start up, but proposed financial regulation does not.   According to Robert Litan from Kaufmann, there are provisions in the legislation making its way through Congress that would slow down start ups.

Under existing law, startup companies can raise money easily and quickly from “accredited investors” — individuals with substantial wealth or income. There is no need for the companies or the investors to gain approval from any state or regulatory official.

All of this would change if Section 926 of the Dodd bill is included in any final reform legislation. That section would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.

The negative impact of the SEC filing requirement would be aggravated by the proposed doubling of the net worth or income thresholds required for investors to be “accredited.”

Ouch.

So why are these provisions in the bill?   Again, according to Litan:

It is difficult to know why these provisions are in a much larger bill whose primary aim is to address the fundamental causes of the recent financial crisis…  There is no evidence that angel investment in startup companies played any role whatsoever in events leading up to the financial crisis.

Thomas Friedman Touts the Start Up

A few months ago in this space, we pointed you to a speech by Robert Litan of the Kaufmann Foundation on the importance of start ups in job creation.  The remarkable conclusion was this:

Since 1980 until the recession, all net new jobs—net meaning gross jobs minus layoffs — have been created by firms under five years old.

Not to be outdone by the Lawrence Economics Blog, New York Times columnist Thomas Friedman trots out the same data in his column this past Saturday.   Friedman argues that the U.S. needs to foster innovation, promote start ups, and relax its, um, restrictive immigration policies.

The Big Shorts for Spring, Introducing Michael Lewis

Michael Lewis is one of our generation’s most influential business writers, having penned the Wall Street classic Liar’s Poker (even I read that one), the professional sports classic Moneyball (hey, I read that one, too), along with assorted other gems on the would-be masters of the universe (here’s a page-turner about Iceland ).

Why am I telling you this?  Well, because his new book, The Big Short has arrived, and with it the obligatory lengthy excerpt at Vanity Fair.

Please let me know what you think.

Oh, for good measure, here’s what he reads.