Friday Special 34

Tony & Paul showing off their ingenious creativity

Best of National Geographic 2007

Economics vs Sociology and more, with Googlefight!

Last week's earthquakes visualized on Google Maps

The ocean's ugliest fish

Game theory

For Lucas, the incident, which occurred in "the summer of 1965 or '66," was strategy. Strictly business. Because, as Lucas recalls, "when you're in the kind of work I was in, you've got to be for real. You've got to show what you're willing to do."

"Everyone, Goldfinger Terrell, Willie Abraham, Hollywood Harold, was talking about this big guy, this Tango. About six five, 270 pounds, quick on his feet . . . He killed two or three guys with his hands. Had this big bald head, like Mr. Clean. Wore those Mafia undershirts. Everyone was scared of him. So I figured, Tango, you're my man.

"I went up to him, asked him if he wanted to do something, some business. I gave him $5,000 worth of merchandise. Because I know he was gonna fuck up. That's the kind of guy he was. Two weeks later, I go talk to him. 'Look, man,' I say. 'Hey, man, when you gonna pay me?'

"Then, like I knew he would, he started getting hot, going into one of his gorilla acts. He was one of them silverback gorillas, you know, you seen them in the jungle. A silverback gorilla, that's what he was.

"He started cursing, saying he was going to make me his bitch and he'd do the same to my mama too. Well, as of now, he's dead. No question, a dead man. But I let him talk. A dead man got a right to say what he wants. Now the whole block is there, to see if I'm going to pussy out. He was still yelling. So I said to him, 'When you get through, let me know.' "

"Then the motherfucker broke for me. But he was too late. I shot him. Four times, right through here: bam, bam, bam, bam.

"Yeah, it was right there," says Frank Lucas, 35 years after the shooting, pointing out the car window. "The boy didn't have no head. The whole shit blowed out back there . . . That was my real initiation fee into taking over completely down here. Because I killed the baddest motherfucker. Not just in Harlem but in the world."

"After I killed that boy," Frank Lucas goes on, gesturing toward the corner on the other side of 116th Street, "from that day on, I could take any amount of money, set it on the corner, and put my name on it. FRANK LUCAS. I guarantee you, nobody would touch it."

This is from 'The Return of Superfly', a New York magazine story that led to Ridley Scott's 'American Gangster'. The film is OK, though not a must-see. The NY mag story is fantastic, I'm probably quoting its least interesting part. Here is a recent discussion between Frank Lucas and Nicky Barnes.

Christmas Special

Send last minute holiday greetings with ElfYourself or Sprint

Trying to dodge a holiday party? Use the excuse generator

Christmas lights decoration taken a bit too far

Would an economist kill him? The case of Leonel Torres Herrera

I am an innocent man, and something very wrong is taking place tonight. May God bless you all. I am ready.

This is from the last statement of L T Herrera, from a long, comprehensive list of last statements preserved by the Texas Department of Criminal Justice. (via Pharyngula)

Excerpts from the opinion of the Supreme Court, delivered by Chief Justice Rehnquist, including a description of the case:

Petitioner Leonel Torres Herrera was convicted of capital murder and sentenced to death in January 1982. He unsuccessfully challenged the conviction on direct appeal and state collateral proceedings in the Texas state courts, and in a federal habeas petition. In February 1992--10 years after his conviction--he urged in a second federal habeas petition that he was "actually innocent" of the murder for which he was sentenced to death, and that the Eighth Amendment's prohibition against cruel and unusual punishment and the Fourteenth Amendment's guarantee of due process of law therefore forbid his execution. He supported this claim with affidavits tending to show that his now dead brother, rather than he, had been the perpetrator of the crime. Petitioner urges us to hold that this showing of innocence entitles him to relief in this federal habeas proceeding.[Emphasis DC] We hold that it does not.

[...] In any system of criminal justice, "innocence" or "guilt" must be determined in some sort of a judicial proceeding. Petitioner's showing of innocence, and indeed his constitutional claim for relief based upon that showing, must be evaluated in the light of the previous proceedings in this case, which have stretched over a span of 10 years.

Once a defendant has been afforded a fair trial and convicted of the offense for which he was charged, the presumption of innocence disappears. [...] ("The purpose of the trial stage from the State's point of view is to convert a criminal defendant from a person presumed innocent to one found guilty beyond a reasonable doubt"). In the eyes of the law, petitioner does not come before the Court as one who is "innocent," but on the contrary as one who has been convicted by due process of law of two brutal murders.

And excerpts from the dissent, delivered by Justice Blackmun:

We really are being asked to decide whether the Constitution forbids the execution of a person who has been validly convicted and sentenced but who, nonetheless, can prove his innocence with newly discovered evidence. Despite the State of Texas' astonishing protestation to the contrary [...] I do not see how the answer can be anything but "yes."

The protection of the Eighth Amendment does not end once a defendant has been validly convicted and sentenced. In Johnson v. Mississippi, 486 U.S. 578 (1988), the petitioner had been convicted of murder and sentenced to death on the basis of three aggravating circumstances. One of those circumstances was that he previously had been convicted of a violent felony in the State of New York. After Johnson had been sentenced to death, the New York Court of Appeals reversed his prior conviction. Although there was no question that the prior conviction was valid at the time of Johnson's sentencing, this Court held that the Eighth Amendment required review of the sentence because "the jury was allowed to consider evidence that has been revealed to be materially inaccurate." [...]

Just as an execution without adequate safeguards is unacceptable, so too is an execution when the condemned prisoner can prove that he is innocent. The execution of a person who can show that he is innocent comes perilously close to simple murder.

The opinion, and to a lesser extent the dissent, do a horrible job of expaining and addressing the issue at hand.

Society has a certain 'model' ('judicial proceedings') it uses to determine whether a person in guilty or innocent. The issue before the Court is really very simple: does the expected gain in the predictive power of the model as a result of utilising the previously unavailable information justify the cost - in a wide sense - of a re-trial (i.e. re-running the model)? Both the opinion and the dissent touch on this in an incoherent manner, and treat these considerations as peripheral.

Chief Justice Renquist's thesis basically consists of stating that re-trials are costly so we need to take into account the output of previous trials even when these did not utilise all available information ('once a defendant has been afforded a fair trial and convicted of the offense for which he was charged, the presumption of innocence disappears.') while Justice Blackmun is mainly concerned with asserting that utilising more information would be beneficial. In the end, there is no systematic attempt at stacking one against the other.

When will courts start thinking and arguing clearly? The wonderful lessons of economics - define a clear question, explicitly state your assumptions, reach a robust conclusion - must make their way to the hallowed halls of justice, where they will find a natural, welcoming home.

What all borders should look like

Kris-Stella Trump travels to Helsinki.

It's the economy, stupid

Andrew Gelman has more, the paper (free access) is here.

Friday Special 33

Matt Stuart capturing unique comic moments in London

Japan builds artificial high-tech beach near real beach

Close-up of Airbus A380 with Singapore Airlines

Future Scanner aims at peaking into tomorrow

Boasting in size, innovation and design: Future constructions

Hitchhiking across the US - Life is either a daring adventure or nothing (Full set)

G-Econ: Economic activity tracked down

This is amazing, and in fact it's exactly what we needed for a paper we are about to start writing (Indifference Merv, take notice):

The G-Econ research project is devoted to developing a geophysically based data set on economic activity for the world. The current data set (GEcon 1.3) is now publicly available and covers "gross cell product" for all regions for 1990, which includes 27,500 terrestrial observations. The basic metric is the regional equivalent of gross domestic product.

Here's the project's homepage, thanks to Netsmith for the pointer.

This paper (free access) is particularly interesting - it's also short and very readable:

Three applications of the data are investigated. First, the puzzling 'climate-output reversal' is detected, whereby the relationship between temperature and output is negative when measured on a per capita basis and strongly positive on a per area basis. Second, the database allows better resolution of the impact of geographic attributes on African poverty, finding geography is an important source of income differences relative to high-income regions. Finally, we use the G-Econ data to provide estimates of the economic impact of greenhouse warming, with larger estimates of warming damages than past studies.

The cost of living extremely well index

Via The Big Picture.

Progressive taxation: yeah, right

Alex Tabarrok and Greg Mankiw have the right answer to the wrong question. The question is whether the rich pay a higher share of their income in taxes than the poor, and the answer is yes*.

Do you remember Robin Hood? He stole from the rich and gave to the poor; there is no account of the story where he is described as stealing from the high-earners.

The progressivity of income tax is not the *issue* at all. What really matters for people's welfare and purchasing power is wealth. Looking at the tax system as a whole, the rich pay a scandalously small proportion of their wealth in taxes, the poor a scandalously large one. (let me remind you that in the US 1% of households owns 38% of all wealth on last count, and that's not including intangible wealth such as human capital and access to corporate assets.) And still we have this ridiculous situation whereby people try to figure out how redistributive our society is by looking at the flow of purchasing power and ignoring the bloody stock.

Now, Robin, this is status quo bias.


*these numbers are computed in a way that makes the gap in the effective tax rates between the poor and the rich appear wider than is actually the case, but that's an issue for a different post.

Disclaimer: As is usually the case, this is all positive analysis, and descriptive - rather than policy prescriptive - (couldn't help the rhyme here) at that. I'm not saying the rich should be paying more and I'm not saying that they shouldn't. I'm not saying we should be looking to tax wealth rather than income either. And if the words 'consumption' and 'savings' sprung to mind as somehow justifying it all, well done, but this is not a post about morality.

Greece blogging

I'm in Athens for the next few days, so I'll be doing some posting on Greece's economy, culture and politics.

The flag of Greece, which I like very much, has nine stripes. They represent the nine syllables of the phrase "Ελευθερία ή Θάνατος" ("Freedom or Death", " E-lef-the-ri-a i Tha-na-tos"), the five blue stripes for the syllables "Έλευθερία" and the four white stripes "ή Θάνατος". They also represent the blue of the sky and sea and the white of the waves and clouds. "Ελευθερία ή Θάνατος" was the war-cry of the 1821 revolution that led to the establishment of the modern Greek state, and it is the national motto.

Greece is home to the largest merchant fleet in the world. The fleet has a capacity of roughly 3.5 deadweight tons per each inhabitant of Greece. My namesake, Aghios Nikolaos (St Nicholas) is the patron saint of sailors.

Greece is a big defence spender. With the exception of Israel, it is the only liberal democracy (I was aching to say 'proper country', but refrained from doing so) that features in this list of the top 25 military spenders expressed as a percentage of GDP. This metric is an underestimate of the amount of resources Greece allocates to the military, as all able-bodied Greek males are still required to serve in the army for at least a year. I did not find it to be a pleasant or educational experience. The best way to see conscription is as a particularly inefficient tax, which in most philosophical systems would also not score well on fairness grounds. I find 'social engineering' arguments in favour to be very weak indeed.

Of course, a lot of military spending is about buying influence from the arms-selling countries rather than for strictly military purposes. The US, Russia and France are major providers to the Greek armed forces. My personal experience mainly revolved around toys from France, although I did not get to play with them in any notice-worthy way.

Another namesake, Nikos Kazantzakis, is more than enough reason to learn Greek. Willem Buiter is a fan. Contrary to popular belief (I blame Shakespear) modern Greek is fairly easy to learn, although I will admit it's not the easiest language to master.

Multiply in style

This is cool, ultra geeky cool:


[embedded video]

HT Yet another sheep.

Friday Special 32

Secluded houses with inspirational beauty

Number gossip! The secret life of numbers

Global prices of gas as of July 2007

Visualization of who has the oil

Feel like Bluematter. got it all wrong? Try Netdisaster

Discover music with YouTube powered MusicMesh

LivePlasma is a similar tool for discovering bands and movies

Blue line jumps 11%

NEW YORK – Excitement swept the financial world Monday, when a blue line jumped more than 11 percent, passing four black horizontal lines as it rose from 367.22 to 408.85.

It was the biggest single-day gain for a blue line since 1994.

"Even if you extend the blue line's big white box back many vertical lines, you won't find a comparably large jump," said Milton Vogel, a senior analyst with Merrill Lynch. "That line just kept going up, up, up."

The Onion has the full story.

The fogscreen

This is friggin amazing. It took me a couple of minutes to convince myself it is not a hoax (if it is, then they have spent a lot of money setting it up). Watch it:



[embedded video]

I can't believe their imagination gets them only as far as billboards.

Youtube has tons more videos, here is the website (one of the main reasons I can't quite get over my suspicions).

Party finance reform: a different idea

Party funding is in the news again, and once more the focus is on caps and bans, as well as increased taxpayer funding. What's missing from the debate is another possibility: why not tax 'unwanted' or 'undesirable' contributions and spending proportionately to the degree of their undesirability rather than ban them outright? Here's what I wrote back when there were about three people reading this blog:

I am no expert, but these are the main issues as I understand them:

1. Owing to their ability to make higher contributions, rich individuals and corporations disproportionately influence the political agenda and government decisions. On the other hand, small contributions by individuals are seen as beneficial, as they promote wider participation in the political process.

2. The bulk of campaign spending is socially wasteful, closely resembling an arms race. If there was a way to bring total spending down in a universally accepted manner, everyone would be better off.

3. The main approach in the UK and the US to rectifying problems 1 & 2 above is legislation that imposes more transparency (parties have to declare the contributions they receive) coupled with restrictions on the amount of money an individual or organisation can donate.

Here's a different idea. Why not tax campaign contributions to the extent they are deemed to be socially undesirable? I propose instituting the Undue Influence Tax (UIT), to be introduced as part of the 'Invigorating Democracy Act' and waged on individual donations (and to give it an extra bit of harmless spin, it should be paid by the political parties rather than the donors). It will start at 0% of the value of the contribution, jumping to 30% after the first $5,000 or so, 50% after $10,000 and reaching 95% beyond $50,000.

This will make 'buying' political influence much more expensive - and as we know, when the price of a good rises, quantity falls. It will increase the relative value of small contributions, making candidates reach more to 'the people', rather than the wealthy and large corporations. Suitably calibrated, it can rectify all the actual and perceived ills of the current campaign finance framework.

Furthermore, the UIT is a tax-man's dream. It could become the most popular tax in history, as it only affects a small number of citizens, while clearly contributing towards a greater public good - 'giving power to the people'. The revenue obtained should allow for cuts elsewhere in the tax system or increased spending on public services. There is no need for additional bureaucracy - parties already have to declare contributors' names and donations. Whatever the rate, avoiding the tax is an option only for candidates with a political death-wish. Finally, it can be introduced gradually and fine-tuned to desirable levels , without generating any distortionary behavioural effects.

I'm sure the membership of the (carbon) Pigou club would approve.

That's what I wrote back then, but it seems I have ignored another important benefit of using a tax approach. Since cross-party agreement is needed, moving from banning to taxing also means that the policy space becomes a continuum rather than a series of discrete choices where it's impossible to meet the other party 'in the middle'. Allowing variable tax rates in the policy space means that the probability a mutually agreeable compromise can be reached is much higher than when choice is restricted between binary 'ban-no ban' options.

Double standards

This must be the most rambling and disjointed post that has ever appeared on Bluematter.; the reader would be well advised to scroll further down.

It is a fact that, at least ignoring second-order effects, the whole house market crash/ subprime crisis thing will have no long run effects on output. Concerns about the distribution of wealth apart (the current mess will lead to a massive redistibution from home-owners and loan issuers to the rest of society), there is no effect on anything other than how we value a single good: the land and the houses are still there and they are exactly the same as before; the only thing that is in fact different is that a house now buys fewer tomatoes than it used to.

In other words, there is nothing special about a house market crash or correction; it's just a change in the relative prices of different goods in the economy. In fact, to the extent that land is a capital good, society as a whole is better off: think how much better off we would all be if oil was free (ignoring pollution). If Saudi Arabia gets screwed in the process, we can always compensate them so that the advent of 'free oil' consitutes a pareto improvement.

Many economists reading this will argue that this is all well known; the long run is not the issue at all here and the reason everyone is so worried is the short run and the probability this will push us into a recession.

Now think of our approach to free trade and immigration. The parallels are striking: in the long-run, society is better off (again, ignoring the effects of redistibution), much as is the case with lower land prices. In the short-run, many people see part of their wealth (e.g. human capital) dramatically change in relative price terms. The only difference between freeing up trade and letting the housing market go to bust taking the homeowners with it is speed and numbers. The dismantling of barriers to trade or immigration has never been so rapid or universal so as to allow that many people to get screwed at the same time so that a recession ensues. (at least not at the national level; you can always look at the dying cities of Detroit or Buffalo in the States, the great industrial and mining towns of the UK and most farming towns in the Continent).

Economists are generally gung-ho when it comes to liberalising trade, while they tend to express concerns when they see falling asset prices. The difference between the two, however, does not amount to much other than the *natural* speed at which each occurs. I'm all for both, but the different approach has to be seen as a comment on the desirability of shock therapy when it comes to economic policy.

And so economics began...

Economist's view links to videos of the Nobel Prize lectures in Economics. Here's how Roger Myerson started his:

The scope of economics has changed. Economics began with Xenophon's paper Oeconomicus more than two thousand years ago, in which a model citizen of ancient Athens goes out to the countryside, to his farm, to monitor and motivate the workers he has there to make sure they are working. Then he comes back into the city to participate in various political institutions that are necessary to maintain his political status so that he can keep owning his farm.

Agents' incentives and political institutions are central concerns of economics today as they were then; they weren't always. Sixty years ago or so Schumpeter saw Xenophon as somewhat marginal or outside the scope of economic inquiry.

Here's the full text by Xenophon in English (tranlated as 'The Economist') from Project Gutenberg. Here is a previous Bluematter. post on Xenophon's work.

I wholeheartedly agree with Myerson. But we have only scratched the surface so far: despite the recent focus on the importance of institutions, 'government' (and for that matter morality) remains an exogenous influence in the vast majority of economic models, which is a shame given we can potentially model the behaviour of the various political actors almost as well as that of market participants. This ommission wouldn't account for much if as a profession we were content with only commenting on small, closed systems ('this is how you should design your auction', 'this is how you can allocate hamburgers efficiently'). But we aren't, so academic economics' 'won't bother with politics' attitude is one of the main taboos we ought to overcome.

In other words, we are never lucky enough to be advising a benevolent dictator. We should finally stop pretending this is the case and approach the issue in the systematic way that is the hallmark and great pride of the profession.

Our second failing is more fundamental, and it relates to our inability - so far - to make information a more tangible, and better measurable, quantity. Related to this is our failure to view homo economicus as rational across all possible models of reality (rather than just the 'correct one'), and to develop a general theory of 'biases' (no, atheoretical statistics are not enough). This probably deserves a post of its own; stay tuned.

And another aside: I was struck to see how many empty seats there were at the lecture theater. No, I didn't expect tickets to be selling for thousands of Kronas at the black market, but I didn't expect this either.

What economists do

Excerpts from a beautiful 20-year old essay by Robert Lucas, it's very short and do read the whole thing:

Economists have an image of practicality and worldliness not shared by physicists and poets. Some economists have earned this image. Others-- myself and many of my colleagues here at Chicago--have not. I'm not sure whether you will take this as a confession or a boast, but we are basically story-tellers, creators of make-believe economic systems. [...]

Well, that is why honest people can disagree. I don't know what one can do about it, except keep trying to tell better and better stories, to provide the raw material for better and more instructive analogies. How else can we free ourselves from the limits of historical experience so as to discover ways in which our society can operate better than it has in the past?

In any case, that is what economists do. We are storytellers, operating much of the time in worlds of make believe. We do not find the realm of imagination and ideas is an alternative to, or a retreat from, practical reality. On the contrary, it is the only way we have found to think seriously about reality.

In a way, there is nothing more to this method than maintaining the conviction (which I know you have after four years at Chicago) that imagination and ideas matter. I hope you can do this in the years that follow. It is fun and interesting and, really, there is no practical alternative.

HT to Yet another sheep.

Meet Calvin and Hobbes, economists

Via Yet another sheep.

Our solar system

A reader emailed me these fascinating pictures:


And the big boy:

Pump up da volume, yo

For the principles of economics:



HT Dani Rodrik.

The tesco's at Westminster is well protected

The pictorial representation of break and entering is a nice touch.

Stop abusing statistical significance

I just made my first edit on Wikipedia, on the article on 'statistical power'. Here's the old text, with the deleted parts in bold:

There are times when the recommendations of power analysis regarding sample size will be inadequate. Power analysis is appropriate when the concern is with the correct acceptance or rejection of a null hypothesis. In many contexts, the issue is less about determining if there is or is not a difference but rather with getting a more refined estimate of the population effect size. For example, if we were expecting a population correlation between intelligence and job performance of around .50, a sample size of 20 will give us approximately 80% power (alpha = .05, two-tail). However, in doing this study we are probably more interested in knowing whether the correlation is .30 or .60 or .50. In this context we would need a much larger sample size in order to reduce the confidence interval of our estimate to a range that is acceptable for our purposes. These and other considerations often result in the true but somewhat simplistic recommendation that when it comes to sample size, "More is better!"

However, huge sample sizes can lead to statistical tests becoming so powerful that the null hypothesis is always rejected for real data. This is a problem in studies of differential item functioning.

Leaving the cost of collecting data aside, larger (appropriately collected) samples are ALWAYS BETTER. At the end of the day, if your sample is *too* large (for example if your statistical software restricts the amount of information you can load on it and you don't need the extra information anyways) you can always obtain a smaller random sample from your larger random sample. So, the 'more is better' recommendation is simple, but not simplistic.

The last paragraph reveals a fundamental misconception about statistical significance that refuses to go away. If the effect of an independent variable on the dependent variable is zero, using a very large sample will result to an estimated effect that is 0 to many decimal places; as the sample size increases further, the effect will approach *exactly* zero even more. NEVER USE STATISTICAL SIGNIFICANCE AS A PROXY FOR PRACTICAL SIGNIFICANCE. I have no clue whether large sample sizes have been seen as a problem in the past in studies of differential item functioning, but if that is the case then the researchers are idiots.

Here is another post on problematic applications of statistical significance.

Friday Special 31

Chase the sun on these top destinations for each month

Do you know your world? Traveler IQ Photos, Places, Flags

ThisIsTheLife.com for people who want to get the most out of life

Watch your hotel by destination

These links should enable you to plan a decent vacation, just to remind you...

The Worst Paper Ever Written: A Tribute

This incredible 2007 paper by Satoshi Kanazawa published in the Journal of Social, Evolutionary, and Cultural Psychology (free access - HT Crooked Timber) is the worst piece of academic work I have ever come across. It's so bad it's actually great*. So great in fact, that despite suffering from severe sleep deprivation I feel I have the moral duty to present an abridged version to you - lest you are too busy to read the whole thing and you miss out on a true gem of scholarly endeavour.

Below are selected, edited excerpts from the paper, arranged in such a way so as to preserve the flow of the reasoning and cover the main ideas expressed by the author. For the most part, I am quoting Kanazawa verbatim. My 'contributions' and comments appear in bold or in parentheses, marked DC.

Brace yourselves:


WHY YOU CAN’T GET A DATE ON A SATURDAY NIGHT
AND WHY MOST SUICIDE BOMBERS ARE MUSLIM


Abstract:

I discuss how one’s difficulty in dating might be connected to the current world war.

Introduction (DC: including the unavoidable drivel that signal the paper is written by a great antrhopologist):

Social and cultural factors impact human behavior only through the evolved human nature. The evolutionary psychological imagination reminds us that, in the words of inimitable Laura Betzig, “people are animals” (Betzig, 1997).

Amazing insight #1:

If you are chronically spending every Saturday night alone, despite valiant and persistent effort to find a date, then chances are there’s something wrong with you, at least in this area of life.

(DC: But don't despair brother!)

You may be comforted to know that you are not alone in your plight; there are losers like you everywhere in the world, and for the same reasons. (DC: yeah, you are all busy playing Super Mario Galaxy)

The root of the problem

Your personal troubles are not entirely your own doing; there are larger forces at work to keep you alone on a Saturday night. For example, if you consistently find yourself dateless, chances are you are a young man, not a young woman. On any given Saturday night, more young men than young women find themselves dateless.

This is because humans are naturally polygynous. The mathematical consequence of polygyny is most obvious in societies that sanction and practice (simultaneous) polygynous marriage, such as many African tribes and Muslim societies in the Middle East. If every married man has four wives, for example, it means that, given a 50-50 sex ratio, three-quarters of men are left mateless. A large majority of men in such societies are in the same situation as you are; they find themselves alone on a Saturday (and every other) night.

The more polygynous the society, the more young men face the distinct possibility of ending their lives as complete reproductive losers. Such is the mathematics of polygyny.

The problem

Thomas L. Friedman predicted that the first major war in the 21st century, after the end of the Cold War which characterized the latter half of the 20th, would not be fought between nations. It would instead be declared by what Friedman called “super-empowered angry men”.

In his September 13, 2001, NYT column, Friedman once again predicted that the events in New York and Washington two days earlier signified the start of World War III. Nearly six years later, we are still in the middle of World War III.

It appears that, for our current enemies, the murder and destruction is the goal, rather than means to political goals. Why? (whyyyyyy?) Why are our current enemies in World War III so different from traditional terrorists?

The diagnosis

While suicide missions are not always religiously motivated, when religion is involved, it is always Islam.

What distinguishes Islam from other major world religions is that it sanctions polygyny, and, as we saw earlier, polygyny increases competitive pressure on men, especially young men of low status, who are most likely to be left without reproductive opportunities when older men of higher status marry polygynously. Polygyny therefore increases the likelihood that young men resort to violent means to gain access to mates because they have little to lose and much to gain by doing so, compared to men who already have wives.

However, polygyny by itself, while it increases violence, is not sufficient to explain suicide bombings. The other key ingredient is the Koran’s promise of 72 virgins waiting in heaven for any martyr in Islam.

This creates a strong motive for any young Muslim men who are excluded from reproductive opportunities to commit suicide bombings. Now a vague promise of 72 virgins waiting in heaven may not sound so appealing if they have even one real mate on earth, which monogamy in the context of a 50-50 sex ratio mathematically guarantees. However, for young, low-status Muslim men who are excluded from any mating opportunities because of polygyny among older, higher-status men, even such a vague promise in the afterlife begins to be appealing in light of their bleak reproductive prospect on earth.

My theory is cool, and I'm cool by association

Sometimes the evolutionary psychological imagination allows you to see things that few others do. On March 11, 2004, ten bombs exploded nearly simultaneously on four crowded commuter trains in Madrid, killing 191 people and injuring almost 1,800.

Within minutes of the explosions, the Spanish government publicly accused ETA for the terrorist act. And I immediately said to myself, “No, it ain’t ETA. It’s Muslim suicide bombers.” (DC: Kanazawa repeats this last sentence three times in the space of a paragraph)

(The kabalistic significance of the date -- that March 11 is the calendrical opposite of September 11 -- had not occurred to me or many others at first.)

Oh my research is so relevant to current events - approaching the grand finale

It is instructive to note that the Iraqi insurgents, who commit suicide bombings on a daily basis, have actually killed more than six times as many Iraqis as Americans (2,466 American troops vs. 6,004 Iraqi military and police personnel plus 10,131 civilians, as of January 29, 2007). It is as if the Iraqi insurgents are trying to eliminate as many of their intrasexual rivals (fellow Iraqi men) as possible, rather than killing American troops (the infidels and occupiers).

Conclusion

Maybe the Muslim suicide bombings are not “terrorist” acts, as the term is usually used. Maybe it has nothing to do with Israel or the American and British troops. Maybe it’s all about sex, as everything else in life is. Men do everything they do in order to get laid (Kanazawa, 2003). Maybe young Muslim men are no exceptions.

THE END

And in case you missed it, let me repeat this last, most fundamentalist (sic) of insights:

Men do everything they do in order to get laid (Kanazawa, 2003).

Amen.

*My theory is that this paper is meant as a joke, a sneaky critique of modern sociology/anthropology/psychology. Failing that, it may have been written to attract some publicity for Kanazawa's new book. At the very least, it's an active bid (pick me! pick me!) for the Ignobel prize. That said, Kanazawa has had other dodgy work published in the past. Who knows, maybe the world is going bonkers after all.

Thoughts on ownership

Forrest emails me with a comment on this amazing story:

These parents in the Czech Republic found out they had been given the wrong baby 9 months after the birth and switched back.

This got me thinking. I guess that if you find out pretty quickly (say after a day) that you have taken the wrong baby home, you’ll switch back. I also guess that if you don’t find out until the kid is 18, you probably won’t. So what do you reckon the tipping point is here?

Addendum: This story reminded me of one of my most cold-hearted posts on Bluematter.

The ruler of Dubai still owns slaves - Shock

[...] a fund manager owned by the ruler of Dubai made a “substantial investment” in Sony.

From The Economist.

Race and brains, once more unto the breach

If the previous post did not persuade you to stop wasting your time thinking about it, McMegan links to Jim Manzi who addresses the question. He concludes his well researched piece with this:

Do genetic differences accounts for any material portion of the difference in IQ scores by self-identified racial groups in the US? The only honest answer is that we don’t know. This, not political correctness is why the American Psychological Association’s formal consensus point of view on this question is stated without qualification: “At present, this question has no scientific answer.”

All right and proper, but that's not the right question to ask. What you really want to know is this: are 'black genes' leading to materially less intelligence than 'white genes'? And the answer is simple: IQ tests can't tell you that.

My understanding is that IQ scores say nothing about 'absolute' intelligence, they only provide a ranking. Or to use terminology more familiar to some of my readers, IQ scores only have an ordinal, not a cardinal meaning. It is very well likely that someone scoring 110 is only trivially more intelligent than someone scoring 90; what the difference between 110 and 90 actually means in terms of 'amount of intelligence' is anyone's guess.

OK, I hear you say, but don't we use quasi-cardinal interpretations for IQ scores? (e.g. isn't 'normal intelligence' supposed to lie between 90 and 109?) Quoting Manzi again:

There are statistically significant differences in IQ test performance between self-identified racial and ethnic groups in the US, and these differences have been sustained over long periods of time. The specific difference that is most widely discussed is the fact that in the US Non-Hispanic whites score, on average, about 15 points (~1 STDEV) higher than African-Americans. (Leaving aside the complication that it matters exactly how we define “long periods of time”, since, for example, there is circumstantial evidence that the black-white IQ gap may have been reduced substantially over the past several decades.)

So, 15 points is the maximum possible difference between the races. We also know with certainty that environment plays a role in determining intelligence, so the difference that can be attributed to genetics is a maximum of 10 points or so, with the actual difference (if it exists) likely to be much smaller. That's nothing: let me remind you that the average (and I think also median) person scores 100 by design, that 'average' or 'normal' intelligence is a 20 point band, and that in any case IQ is a flawed measure of 'intelligence' as used in everyday language (and a 'better than random' - but not by much - predictor of 'success' in life).

To bring the human element into this, my own results from several IQ tests are uniformly distributed across a 35 points range, and while I'm pretty good at arriving to answers to almost every IQ test type question thrown at me - questions that the average person won't answer at all - I take more time than the average person to do so (does that make me more or less intelligent?). And since the human element sells, I got more for you: here is a long list of highly successful and intelligent people who were very likely autistic, and here's the corresponding long list of people with dyslexia. What's the point? Intelligence is not a uni-dimensional variable.

And just to make sure, I should also mention the Flynn effect, quoting from this (excellent) paper (free access):

Since 1932 and probably prior to that, test scores have been increasing at a rate of 3 to 6 IQ points per decade, depending on the IQ test used. The preponderance of evidence indicates that scores are continuing to rise at a constant rate (Flynn, 2006b).

And since you apparently have to be a genius to read Bluematter., I won't even draw out the implications of the following observation on the likely (non)persistence of any currently observed differences amongst races (ala Manzi's circumstantial evidence):

There is at least one exception, however. The Scandinavian countries currently are showing little or no rise in their test scores (Flynn, 2006a). As large IQ increases were seen in Norway prior to 1968, Flynn suggests that Scandinavia might have experienced early increases that have since abated. This raises the possibility that IQ increases in other industrialized nations will also end.

So in IQ we have a metric with no cardinal interpretation, with a weak correlation to 'general intelligence' and an even weaker one to 'success in life', with the observed differences between races being pretty small and most likely diminishing even before controlling for environmental characteristics.

What's the issue again?

Assume blacks have lower IQ than whites and DNA is to blame

Now name one thing you would do differently - as a politician, as a citizen or as a human being. I'll be damned if you can come up with a single example.

I really, really can't understand what this debate is all about (other than in an immature 'I did not evolve from the apes' or 'I am really frustrated the earth is not at the centre of the solar system' kind of a way). Hell, even this debate is more relevant.

Now can we please, as a culture, move on?

Measles deaths down

Good news:

Measles deaths in Africa fell by 91% between 2000 and 2006, figures from the World Health Organization show. The drop, from an estimated 396,000 to 36,000, means the United Nations target to cut measles deaths by 90% by 2010 has been hit four years early.

But the WHO warned deaths were still far too high in South Asia, particularly in India and Pakistan.

The success follows concerted efforts to vaccinate all children against measles before their first birthday.

Overall global measles deaths fell by 68% - from an estimated 757,000 to 242,000 - over the six year period, a WHO report showed. WHO said the decline in measles deaths in Africa was made possible because governments had implemented robust immunisation programmes.

"This is a major public health success and a tribute to the commitment of countries in the African region," said Dr Margaret Chan, WHO director-general. "We need to sustain this success and intensify our efforts in other parts of the world, as there are still far too many lives lost to this disease."

Disaggregating annual variables

A reader emails me:

When doing econometrics on quarterly time series data, if there are some key variables that are available only annually, is there merit in interpolating the annual data to create a quarterly series or should the variables be discarded? What is the general advice on interpolation?

As a general rule, you should not discard the annual data. As with any econometric problem, the question is: do the additional data contain potentially useful information? If the answer is yes, then the next step is to find the best way to disaggregate the annual observations into quarterly ones.

There are many ways to do this, and the most appropriate one will depend on the problem at hand. Also, keep in mind that determining the appropriate standard errors for your included variables, especially the disaggregated ones, can be a bit tricky in this setting.

Here are some relevant papers (only the first free access)

Also keep in mind that, depending on the problem you are facing, it may even make sense to aggregate variables – e.g. making annual variables out of quarterly ones. Yes, you shed information in that case, but an even more critical question to ask is whether your assumptions are satisfied (usually E(u|X)=0). In many cases, you would have reason to expect the error to be correlated with your dependent variables in a ‘quarterly’ model but not in an ‘annual’ model, in which case it would be most probably preferable to use the latter.

Friday Special 30

Multicolored: Build your own flag such as the United States of China

Kitchen and style tips from the Bible (hilarious!)

Now, that's an office!

StaTetris is mixing aspects of the popular game 'Tetris' and US. geography

Various objects in an experimental environment

No visitors from Wyoming! Would you like to help?

This blog has had visitors from every single State in the United States (including Alaska and Hawaii) - except from Wyoming!

Would you like to give me a helping hand here? If you know someone living in Wyoming, email them with a link to this blog or a specific post. If you are a blogger that can spare a couple of lines, post a link to this blog simply saying 'If you are from Wyoming, click here'.

This is a little experiment. I am curious to see how long it will take for the first visitor from Wyoming to arrive following this plea, and then observe the dynamics and report back to you. How far can Wyoming climb in the States' visitors rankings?

Your help is greatly appreciated!

UPDATE: Mission accomplished! Thanks Tim, thanks to all who sent out those emails and thanks to the Wyomingites who dropped by.

It doesn't get geekier than that

You all of course know about Erdős numbers. You might even be familiar with Bacon numbers.

But Erdős–Bacon numbers? This takes it to a completely different level. There are 23 people for whom the number is defined, including such luminaries as Bertrand Russell, Stephen Hawking, Richard Feynman, Carl Sagan and Natalie Portman.

I wonder if one of those will ever be up for sale...

Mugabonomics

Zimbabwe's chief statistician has said it is impossible to work out the country's latest inflation rate because of the lack of goods in shops. "There are too many data gaps," the Central Statistical Office's Moffat Nyoni told state media. Many staple goods are often absent from shop shelves after the government ordered prices to be halved or frozen in a bid to stem galloping inflation.

September's inflation rate was put at almost 8,000%, the world's highest. Other reports suggest the rate could be at near 15,000% and the International Monetary Fund had warned it could reach 100,000% by the end of the year. [...]

Maize meal, bread, meat, cooking oil, sugar and other basic goods used to measure inflation largely disappeared from shops after Robert Mugabe's government ordered prices to be slashed.

Manufacturers have said they cannot afford to sell goods at below the cost of producing them. Most basics are intermittently available on the black market at well over the official prices.

Last month, the central bank offered loans, known as Bacossis, to businesses at 25% interest to restore supplies to shops, AP news agency reports. "We hope the situation will improve, especially with the availing of Bacossi funds," Mr Nyoni said.

From BBC News. Given the inflation rate, a loan at 25% interest is free money - but make sure you spend it fast! And sadly for Zimbabwe, even free money won't change the fact it doesn't make sense to sell below cost...

How low is low enough for regime change?

2008 Election Top Donors

Open Secrets has the full list.


The numbers are based on contributions from PACs and individuals giving $200 or more to federal candidates and parties as reported to the Federal Election Commission. All the numbers are for the 2008 election cycle and are based on data released by the FEC on Monday, September 24, 2007. Source: Center for Responsive Politics.

What's in a name?

Andrew Gelman quotes this paper (free access) by Leif Nelson and Joseph Simmons:

In five studies, we found that people like their names enough to unconsciously pursue consciously avoided outcomes that resemble their names. Baseball players avoid strikeouts, but players whose names begin with the strikeout-signifying letter K strike out more than others (Study 1). All students want As, but students whose names begin with letters associated with poorer performance (C and D) achieve lower grade point averages (GPAs) than do students whose names begin with A and B (Study 2), especially if they like their initials (Study 3). Because lower GPAs lead to lesser graduate schools, students whose names begin with the letters C and D attend lower-ranked law schools than students whose names begin with A and B (Study 4). Finally, in an experimental study, we manipulated congruence between participants’ initials and the labels of prizes and found that participants solve fewer anagrams when a consolation prize shares their first initial than when it does not (Study 5). These findings provide striking evidence that unconsciously desiring negative name-resembling performance outcomes can insidiously undermine the more conscious pursuit of positive outcomes.

The explanation? (Keep in mind this is a paper published in Psychological Science)

People like their names and initials (Nuttin, 1987). In fact, this name-letter effect (NLE) is influential enough to encourage the pursuit of name-resembling life outcomes and partners. [...]

Do people consciously or unconsciously pursue name-resembling outcomes? Do a few people named Jack deliberately move to Jacksonville for its Jack-resembling appeal, or are they driven by an unconscious desire? Researchers have certainly argued that the latter is true. The NLE is described as an indicator of implicit egotism (e.g., Koole, Dijksterhuis, & van Knippenberg, 2001; Jones et al., 2004; Pelham, Carvallo, & Jones, 2005; Pelham et al., 2002; Sherman & Kim, 2005), as own-name liking is thought to indicate unconscious self-liking.

I'm not convinced. To refer back to one of the quoted studies, how about students whose surnames start with 'F'? Shouldn't they be performing much worse than the C's and D's?

Two potential explanations here:

1. Omitted variable bias. For example, say that names that start with C or D are way less frequent in the population of Asian students compared to Anglo-Saxon surnames. Further, assume that Asians are discriminated against when it comes to college admission, perhaps due to uncertainty about the quality of the schools they attend. That way, the average Asian in college will be a better student than the average Anglo-Saxon, and he will also be less likely to have a name that starts with C or D.

2. There are an infinite number of hypotheses, and a finite but very large number of original datasets. In other words, datamining - or if we want to be somewhat less harsh on the researcher, pure luck.

And talking of names, here's Levitt and Dubner approaching the issue from a completely different angle.

Unions and inequality redux

Paul Krugman says (via Mark Thoma):

All of the world's advanced nations have to compete in the same global economy. Yet America's combination, of soaring incomes at the top and stagnant wages for most workers, is unique.

We're told that unions, once a key support for wages, have become obsolete in the modern world. Yet the collapse of the union movement in America hasn't been matched elsewhere in the advanced world, even in our neighbor Canada. About 30 percent of Canadian workers are union members, compared with only 12 percent of workers here.

Back in June, I said: (and there's more where this came from)

Many economists suggest that the declining fortunes of unions are the main driver behind the increase in income inequality over the past few decades. While I agree that decreases in union membership and increases in wage inequality go hand-in-hand, I believe the standard narrative is somewhat misguided when it comes to causality. Rather than declining unions leading to increased wage inequality, it is the increasing variance of individual worker productivity that lies behind both. [...]

The fall in the power of unions was not a random event that then led to the increase in wage inequality we observe. This development should be attributed to the changing nature of production and the subsequent increase in potential wage inequality: unions were merely a short-run obstacle to achieving that new equilibrium.

I'm not aware of any empirical study looking into this potential endogeneity, and no suitable instruments spring to mind. In any case, Herb Gintis, approaching this from a somewhat different angle, seems to agree.

And if you do follow this last link, for the record, I think the bonobos will not only survive, but they will prosper too. What keeps the pig coalition together is not a love for free markets or opposition to redistribution, it is common social values (anti-abortion, pro-Jesus and the like - so much for 'only caring about what's in their trough'). The bonobos will eventually compromise on these - a process already underway - and the redistributive hand of the state will start moving more boldly once again.

The Greeks are introduced to the potato

This is the story of an upward slopping demand curve in the absence of information, and one of my favourite anecdotes from childhood:

Ioannis Kapodistrias (in Greek Ιωάννης Καποδίστριας, in Italian Giovanni Capo d'Istria, Conte Capo d'Istria) (February 11, 1776 – October 9, 1831) was a Greek diplomat of the Russian Empire and later first head of state of independent Greece.

On his arrival [to Greece], Kapodistrias launched a major reform and modernisation programme that covered all areas. He re-established military unity, bringing an end to the second phase of the civil war; re-organised the military, which was then able to reconquer territory lost to the Ottoman military during the civil wars; introduced the first modern quarantine system in Greece, which brought epidemics like typhoid fever, cholera and dysentery under control for the first time since the start of the War of Independence; negotiated with the Great Powers and the Ottoman Empire the borders and the degree of independence of the Greek state and signed the peace treaty that ended the War of Independence with the Ottomans; introduced the phoenix, the first modern Greek currency; organised local administration; and, in an effort to raise the living standards of the population, introduced the cultivation of the potato into Greece.

The way Kapodistrias introduced the cultivation of the potato remains famously anecdotal today. Having ordered a shipment of potatoes, at first he ordered that they should be offered to anyone who would be interested. However the potatoes were met with indifference by the population and the whole scheme seemed to be failing. Therefore Kapodistrias, knowing of the contemporary Greek attitudes, ordered that the whole shipment of potatoes be unloaded in public display on the docks of Nafplion, and placed severe-looking guards guarding it. Soon, rumours circulated that for the potatoes to be so well guarded they had to be of great importance. People would gather to look at the so-important potatoes and soon some tried to steal them. The guards had been ordered in advance to turn a blind eye to such behaviour, and soon the potatoes had all been "stolen" and Kapodistrias's plan to introduce them to Greece had succeeded.

The 7 wonders of the totalitarian world

Esquire has an interesting list of monuments to megalomania (via Peter Klein). Make sure you check out this abomination from North Korea, easily the ugliest thing I've seen in my entire life.

(but if you a relatively new Bluematter. reader you should also see this video from Arirang in North Korea, a truly daunting exhibition.)

Asset pricing

Via the Big Picture.

One two three four

A little something to cheer you up :)



[embedded video]

UPDATE: Youtube removed the video, but found it again.

Sex of a child may depend on stress

From the Economist (November 15, 2007)

A Boy or a girl? That is usually the first question asked when a woman gives birth. Remarkably, the answer varies with where the mother lives. In rich countries the chances of its being a boy are about 5% higher than in poor ones.

Strange as it might seem, the terrorist attacks of September 11th 2001 shed light on the enigma. Studies noting the sex of babies conceived in New York during the week of the attacks found a drop in the ratio of males to females. That is consistent with earlier studies, which revealed a similar shift in women who became pregnant during floods and earthquakes and in time of war.

Dr Obel suspects the immediate cause is that male pregnancies are more likely to miscarry in response to stress than female pregnancies are, especially during the first three months.

While there are many factors that could potentially influence the gender of a child, the most accurate tool may after all be the ancient Chinese birth chart.

Paul Krugman explains why I can't stand political reporting

Think about what passes for a “tough” question on the Sunday talk shows. It’s not “Senator Bomfog — you say X, but the statistics show that it’s actually Y. How can you explain this discrepancy?” In fact, I’ve never seen that happen. In political reporting, being wrong means, at most, that your claims are “in dispute.”

The excerpt is from his NYT blog, via Economist's view.

Paul is spot on. For some reason (misguided notions of unbiasedness? journalists and politicians that don't know their left hand from their right?) bringing reality to a political discussion is bad manners. Everyone is entitled to their own preferences and opinions, and their own facts too.

Friday Special 29

iPhone heads this year's best inventions

Nice places to relax: Houses with a view

The world's first laptop

What to do with a big apartment, a lot of time and great imagination

Change your car colour with the flip of a switch

Happy thanksgiving!

Bluematter readers loyal and occasional, thank you ever so much. You deserve all this and more. (Make sure the sound's on!)

Thank me for smoking, and keep the change

The always interesting Zubin Jelveh interviews W. Kip Viscusi:

What are the differences between smokers' cost to themselves and smokers' cost to society?

The other study I've done is looking at the financial ramifications to smoking for the rest of us. These include higher medical costs on the one hand, but lower social security, pension, and nursing home costs on the other hand because smokers die sooner. On balance if you put those together, smokers don't cost us money, but save society $0.32 per pack.

I kinda object to not being counted as part of 'society' - which according to Viscusi consists solely of non-smokers - but I forgive him: I like the idea non-smokers owe me money.

Viscusi also has a new NBER paper out (with Joni Hersch) estimating the personal cost of a pack of cigarettes to be around $220 for male smokers and $90 for females. For what it's worth, $220 sounds a bit high to me - I reckon my reservation price for a pack of 'healthy cigarettes' (if they existed) would be around $100.

Any smokers in the audience who would like to name the maximum they would be willing to pay for a pack of healthy ciggies?

Monkeys and fairness

Two researchers at the Yerkes National Primate Research Center have found that brown capuchin monkeys have a sense of fairness and will reject inequitable rewards, much as humans do.

Frans de Waal, C.H. Candler professor of primate behavior, said his work with Georgia State University professor Sarah Brosnan was based on a study they did in 2003. In that experiment, monkeys responded negatively when a partner received a superior reward for completing the same task, retrieving a pebble and placing it the researcher’s hand.

“As soon as the partner’s getting something better, like grapes, they don’t want to do it any more,” de Waal said. “They throw the food out of the cage sometimes.”

Brosnan and de Waal conducted a follow-up study to rule out alternative explanations for why monkeys would reject slices of cucumber, a previously acceptable reward.

“The most important one was you could argue that the monkeys reject the cucumber pieces because they see grapes and they want grapes,” de Waal said. “We would show them grapes, but we would put them away, and showing them the grapes didn’t make a difference in our test. It had to do with what partner was getting.”

Brosnan and de Waal also varied the amount of effort required to complete the task to see its effect on the monkeys’ reactions.

They found that when monkeys had to expend more effort, they were more sensitive to inequity and less likely to accept cucumber slices when partners had received grapes for equal or less work. But both would accept grapes even if they completed tasks at different levels of difficulty, de Waal said.

“If you gave them grapes, they were not sensitive to effort,” he said. “The grape is such a good reward that they would do whatever to get the grape.”

De Waal said similar behavior has been shown in chimps, and he “wouldn’t be surprised” if other species, like dogs, would react the same way to inequitable rewards.

According to de Waal, the research illustrates inequity aversion, a concept from the field of behavioral economics, which applies behavioral psychology to economic interactions. Like the monkeys in de Waal’s study, humans do not always act as rational profit maximizers and sometimes turn down good offers if someone else is getting a better deal.

“For a monkey to refuse a perfectly fine food like cucumber just because somebody else is getting something better is an irrational reaction,” de Waal said. “Profit maximizing requires that whenever you can get something you take it.”

Some scholars, however, argue that reactions like the monkeys’ make sense in a social context. The capuchins’ sense of fairness has “evolved within the context of cooperation,” de Waal said, because capuchins live in groups and sometimes hunt squirrels together.

“If you don’t get in accordance to your effort, you should be sensitive to that, or everyone will take advantage of you,” he said. “It’s actually a rational response to make sure you get the right rewards for the right amount of work.”

From Emorywheel.

England's suppresed religion

It is the fourth largest religion in the country, and by some accounts the fastest growing one, with 400,000 recorded believers. Yet there is no temple, no priests, no government funding; politicians and unbelievers dismiss it as foolish and irrelevant.

Stop the injustice now. Give the Jedi the respect they deserve.

Thanks to the England Expects blog for the statistics, from a post on the European Commission's desire to find out when you first got laid.

Apple's new thing - 'All this hype for something so ridiculous!'

No, not the iphone, but the first ipod to be released back in 2001.

A loyal reader emailed me with this fascinating forum discussion at Mac Rumors right after the ipod was announced. How different things turned out to be...

An exquisite 82 words

One of the Vietnamese people I met here asked a question I had a hard time answering, even though she spoke excellent English: why, she asked, did DC have so much crime?

Even with no language barrier, I found myself staring across a cultural gulf I couldn't bridge in the 45 minutes we had to eat lunch. I wanted to say, "they are poor". But that seems a ridiculous statement in a country of 85 million people who are nearly all living at a lower standard of material consumption than the poor of DC.

Megan McArdle from Hanoi.

My favourite Capricho

The Sleep of Reason Produces Monsters

Text caption from the "Prado" etching version:

"Fantasy abandoned by reason produces impossible monsters: united with her, she is the mother of the arts and the origin of their marvels."

More here.

The Laffer curve is all wrong

No, I'm not referring to supply-siders arguing lower tax rates will bring in more revenue, I'm talking about the very foundations of the curve. Yes, I admit this is pedantry, but it may come in handy next time someone at a cocktail party starts explaining what the Laffer curve is all about (if you go to this sort of cocktail parties that is). Here's a recent description at Tim Worstall's blog:

Trying to explain this idea to an eager Cheney, "Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it," writes the liberal New Republic journalist Jonathan Chait. "The premise of the curve was simple. If the government sets a tax rate of zero, it will receive no revenue. And if the government sets a tax rate of 100 per cent, the government will also receive zero tax revenue, since nobody will have any reason to earn any income.

A 100% tax rate on everything was tried before, of course: they called it communism. Whereas not advisable, government revenues sure weren't zero. And even if you rule out authoritarian methods, it is very likely that even at such high levels of taxation some market activity would take place simply to support non-market, non-taxable activities. And of course, I would expect considerable social pressure on individuals to work (if you don't work alongside me, we all die), plus a lot of activity from people who actually enjoy doing their job.

Thanks for bearing with me - now I got this off my chest I can return to posting mildly interesting stuff again.

Banking crises and the government safety net

Charles Calomiris has a new NBER paper discussing banking crises, and he concludes that the government safety net is the main culprit behind their recent proliferation:

More recent banking system experience worldwide indicates unprecedented costs of banking system distress – an unprecedented high frequency of banking crises, many bank failures, and large losses by failing banks, sometimes with disastrous costs to taxpayers who end up footing the bill of bank loss. This new phenomenon has been traced empirically to the expanded role of the government safety net. [Emphasis DC] Government protection removes the effect of market discipline. It thereby encourages excessive risk taking by banks, and also creates greater tolerance for incompetent risk management (as distinct from purposeful increases in risk).

Ironically, the government safety net, which was designed to forestall the (overestimated) risks of contagion seems to have become the primary source of systemic instability in banking.

Calomiris makes an excellent point here, but the recent events with Northern Rock show that a commitment never to intervene is not a solution.

Firstly, bank runs can sometimes be panic-driven with the amount of information available completely swamped by the noise; in these cases, it makes sense for the government to intervene to stop the fire from spreading, much the same way as with a real house burning due to its owner's carelessness or otherwise.

Secondly, even if that wasn't a consideration, public and 'stakeholder' opinion is miles away from accepting such a solution. Central bank independence in setting interest rates was a walk in the park; with banking crises, there are real, visible victims - even if only due to their own folly. The governor of the Bank of England and the Chancellor were not critisised for intervening, they were critisised for doing 'too little, too late'.

As I said before, given these political constraints, the Northern Rock crisis was handled in the best way possible.

Don't let banks fail, but Give Them Pain. Make their share price go like this and break their CEOs' hearts. The government safety net should deliberately be porous and whimsical, but it should be there - if only because it is impossible to do otherwise.

Markets in everything, pseudo-cannabis edition

More here. Jamaican Ghanja, Amsterdam Gold and Devil's weed are also on offer.

Comparative advantage: please handle carefully

Megan McArdle misuses the term:

The one question everyone here wants answered--including the Vietnamese--is how Vietnam will manage to compete with China. China's mountainous economies of scale loom over every discussion; Vietnam has no offsetting advantages to speak of. [...]

[But] Vietnam does have one comparative advantage I can think of: it isn't so big. To be sure, it's been saddled with textile limits, but it isn't the target of the kind of ire that China's enormous market draws. It's not unreasonable to hope that the 600 pound gorilla may attract the attention of all the big game hunters in the anti-dumping movement, leaving the Vietnamese to trade in peace.

You always have a comparative advantage in producing something. All that comparative advantage requires is that the relative costs of producing different goods in a country are not identical across all countries.

The term Megan should have used here is competitive advantage - a fluffy management term meaning that (because of fixed costs, trade barriers etc) you have some monopoly power as a producer of something, and you can command excess profits.