## Wednesday, November 30, 2005

### Worker Unity

There is an oft-made argument in the Marxist literature (for example, pg. 29 of "Production Process In A Competitive Economy" by Samuel Bowles, AER March 1985) that capitalists will seek to sow worker disunity to -- and here is the rub, the sole reason offered is to prevent unionization (the mechanism would be that you bargain seperately with different groups of workers, put workers of different racial/ethnic/gender characteristics in different jobs). There is, however, the trade-off because worker disunity decreases morale and induces shirking. Sowing disunity is hardly a costless proposition. Yet this trade-off for the firm is never mentioned. Plus, arguably, segragating workers of different racial/ethnic/gender characteristics within the firm would increase unity within each individual unit, even if total workforce cohesion is decreased. Then you might end up with unions of, say, janitors. Though this may be clever: you get cohesion at the unit level but no overall cohesion. Hence, all workers don't band together but morale is still high. But I don't think this is right. Point being, the argument strikes me as a rather strained explanation for why there aren't more unions -- those capitalists organize work so as to prevent it! Aren't explanations about collective action and etc. so much more fun?

### How is math different from religion?

I made the mistake of repeating the best math joke ever to a table of humanities majors:
Why did the math grad student drop out to become a poet?

Because s/he wasn't creative enough [to do math].
I like it because artsy-fartsy people have this self-image of being so creative and interesting, especially as compared to those boring science types. Well, math ain't exactly memorization and is remarkably pretty.

This launched debate about the epistemological status of mathematical knowledge. The claim, to which I had no real counter-argument, was that math is no different from religion. Theologians start from the axiom that, say, god exists and can do such and such, and then -- somewhat rigorously -- derive a whole theory about how the world works. Mathematicians start with some axioms about how sets fit together and then build up a rather interesting edifice. What's different?

A couple counter-arguments seem tempting, but ultimately not useful. One is to assert that, well, physics describes the world (is a successful science) and is based on mathematical ideas, so something must be right. But I don't think an argument from pragmatics is what we want. Another is to say that math is rigorous and deductive and theology is not, but that begs the question of the status of our axioms.

This really reveals why I ought to take philosophy of math next semester. Sadly, I won't. Suggestions?

## Sunday, November 27, 2005

### The Non-econometrician's Lament*

As soon as I could safely toddle
My parents handed me a model.
My brisk and energetic pater
Provided the accelerator,
My mother, with her kindly gumption,
The function guiding my consumption;
And every week I had from her
A lovely new parameter,
With lots of little leads and lags
In pretty parabolic bags.

With optimistic expectations,
I started on my explorations,
And swore to move without a swerve
Along my sinusoidal curve.
Alas! I knew how it would end;
I've mixed the cycle and the trend,
And fear that, growing daily skinnier,
I have at length become non-linear.
I wander glumly round the house
As though I were exogenous,
And hardly capable of feeling
The difference 'tween floor and ceiling.
I scarcely now, a pallid ghost,
Can tell ex ante from ex post;
My thoughts are sadly inelastic,
My acts incurably stochastic.
--Sir Dennis H. Robertson. 1956. "Economic Verse" in Economic Commentaries, pg. 174.

*Composed mainly during a session of the International Economic Association Conference on the Business Cycle, Oxford 1950, and published in its Proceedings (see p. 85).

### The Marshall Plan*

We hereby pledge each European nation
By Re-deployment and by Integration,
By Customs Unions (innocent of Preference,
And so consistent with our terms of reference)
To swell each asset, prune each liability,
And thus attain to Global Viability.

Summoned from every country (except Spain),
Briton and Benelucifer and Dane,
Affluent Switzer and penurious Greek,
We swear with hand on heart (and tongue in cheek)
By 1950 shall the thing be done
--Or if not '50, well then '51.

So look benignly on your zealous scholars,
Dear Mr Marshall, and release the dollars.
--Sir Dennis H. Robertson. 1956. "Economic Verse" in Economic Commentaries, pg. 173.

*Suggested report for the Committee of European Experts which met in Paris to consider Mr Marshall's offer, 1947.

### What Do Economists Economize On?

There exists in every human breast an inevitable state of tension between the aggressive and acquisitive instincts and the instincts of benevolence and self-sacrifice. It is for the preacher, lay or clerical, to inculcate the ultimate duty of subordinating the former to the latter. It is the humbler, and often the invidious, role of the economist to help, so far as he can, in reducing the preacher's task to manageable dimensions. It is his function to emit a warning bark if he sees courses of action being advocated or pursued which will increase unnecessarily the inevitable tension between self-interest and public duty; and to wag his tail in approval of courses of action which will tend to keep the tension low and tolerable.
...
What does the economist economize? ' 'Tis Love, 'tis love,' said the Duchess, 'that makes the world go round.' 'Somebody said,' whispered Alice, 'that it's done by everybody minding their own business.' 'Ah well,' replied the Duchess, 'it means much the same thing.' Not perhaps quite so nearly the same thing as Alice's contemporaries thought. But if we economists mind our own business, and do that business well, we can, I believe, contribute mightily to the economizing, that is to the full but thrifty utilization, of that scarce resource Love -- which we know, just as well as anybody else, to be the most precious thing in the world.
--Sir Dennis H. Robertson. 1956. "What Do Economists Economize On?" in Economic Commentaries, pg 147-154.

## Friday, November 25, 2005

### Hah

Former FEMA Director Michael Brown, heavily criticized for his agency's slow response to Hurricane Katrina, is starting a disaster preparedness consulting firm to help clients avoid the sort of errors that cost him his job.
Says the AP.

### Traffic as metaphor

This reminds me of one of my pet theories: the flow of traffic serves as a very nice metaphor for the effectiveness, and limits, of economic ideas of how people interact. You have a group of people with approximately initial equal endowments (cars). They are minimally supervised, if at all, and yet they all manage to interact in a manner that is largely mutually beneficial. Traffic flows and there are very few accidents (I've never witnessed an accident). Sure they aren't all brilliant drivers and sometimes they do stupid or annoying things. But people in general stay in their lanes and drive at an appropriate speed and don't make rash moves. They are competent. And traffic flows such that everyone gets where they want to go in an approximately reasonable amount of time. An effective and mutually beneficial order arises from a group of people with equal initial endowments.

But this order and this competence does not arise from nowhere and isn't a utopia. People's skills are not only licensed by the state, but there is also heavy socialization about appropriate driving behavior. You have government that makes laws and sometimes even enforces them. You have government to build and maintain roads (though some would claim that either god, or private companies can do this). You have accidents and you have unnecessarily scary experiences. We have odd phenomena of mass slowdowns, like "gaper's gap" and gridlock which could be alleviated by intervention of some sort. Because people are cautious and law abiding, they drive slower than they would if we had a traffic god with perfect coordination and perfect control.

Don't you see how nice a metaphor this is? And surely this could be expanded to include even more aspects of society that you wish to describe.

## Thursday, November 24, 2005

### Naive traffic economics

Arnold Kling writes:
From my perspective, with the Washington DC area one of the three worst regions in the country for traffic, the anti-congestion motivation for taxing gasoline is worth considering. On the other hand, I think that taxing congestion-causing behavior directly may be a better approach.
But isn't the even better policy to reduce the costs of alternative modes of transportation (public transport)? A very naive welfare calculation would suggest that improving public transportation to make it faster and more convenient and hence reducing congestion and so reducing travel times everywhere would do more to enhance welfare than making efficient transport more expensive, even given that government could compensate people with toll revenue because there is the deadweight loss of "distorting" prices by taxing gasoline (though I suspect that the naivite lies in assuming that you can actually find non-distorted prices in transportation). And objections that public transportation systems always lose money aren't convincing for I don't think the marginal road turns a profit either.

### Sociological categories in economics

I left the following comment to this Tom Bozzo post about George Akerlof and Rachel Kranton's essay on identity. Economics has a broader problem with the fact that people are, as one of my professors liked to say, "meaning generating beings," and not just utility machines (and, I would maintain, meaning cannot be reduced to utility however clever you are).

I'm working my way through "An Economic Theorist's Book of Tales" and the more severe limitation of his models attempting to incorporate "sociolological" phenomena is a philosophical one: by sticking identity in the utility function, you assume that it can be traded off against other things at some price. For example, he writes (in chapter 5, "A Theory of Social Custom of which unemployment is one consequence") that someone doesn't want to be just rich, they want to be rich and famous. But they want to be famous only insofar as this can be translated into a wealth equivalent (that is, more money would make them just as happy as less money and more fame). Yet to the average person, to claim that someone wants to be rich and famous means that there is something about widespread recognition that is not understandable in purely monetary forms. A sociologist would, I think, claim that fame cannot be purely traded off against money. The assumption of comparability is one I'm comfortable with when arguing with sociology majors, less comfortable with when arguing with economics majors.

Here.

## Tuesday, November 22, 2005

### What actually drives the t-shirt industry...

From this talk given by Pietra Rivoli (hat-tip Isaac):
So over and over again, as I tried to understand something, I kept coming back to politics. I kept saying, okay, the way to understand why this happened is to understand how the politics works. The markets are really not central; they're not that big a part of the story.

Now, much of the debate over globalization is about markets. On the right you have people saying that unfettered markets will lift all boats. On the left you say unfettered markets are crushing the poor. Coming out of writing this book, one of my conclusions was that this particular debate on the virtues versus the evils of markets was misspecified, at least for this T-shirt. It wasn't whether markets were good or bad but about whether the politics were good or bad and what the effects of the politics were on various actors in the T-shirt story.

Now, this relates to a second point. Many activists—more broadly, people on the left—have a variety of proposals or ideas that kind of go something along these lines: we have to protect the poor, we have to protect those that don't have resources from the cruelty of market forces. That's not something I found in my T-shirt's life story. What I did find over and over again is that those people without power, those people that were poorer, those people that had fewer resources, didn't so much need to be protected as they needed to be allowed to play. And they needed to be allowed to play with the same deck of cards as everybody else.

## Thursday, November 17, 2005

### The excitement of New Institutional Economics

Take this test and see how much you can remember from The Economic Institutions of Capitalism. And then remember why it is a distressingly annoying book to read, though it contains some interesting ideas.

### He's back!

Paul Krugman, in his 11/14/05 column (reproduced in full below) provides the best argument I've heard for public health insurance (and it's just adverse selection):
Several readers have asked me a good question: we rely on free markets to deliver most goods and services, so why shouldn't we do the same thing for health care? Some correspondents were belligerent, others honestly curious. Either way, they deserve an answer.

It comes down to three things: risk, selection and social justice.

First, about risk: in any given year, a small fraction of the population accounts for the bulk of medical expenses. In 2002 a mere 5 percent of Americans incurred almost half of U.S. medical costs. If you find yourself one of the unlucky 5 percent, your medical expenses will be crushing, unless you're very wealthy - or you have good insurance.

But good insurance is hard to come by, because private markets for health insurance suffer from a severe case of the economic problem known as "adverse selection," in which bad risks drive out good. To understand adverse selection, imagine what would happen if there were only one health insurance company, and everyone was required to buy the same insurance policy. In that case, the insurance company could charge a price reflecting the medical costs of the average American, plus a small extra
charge for administrative expenses.

But in the real insurance market, a company that offered such a policy to anyone who wanted it would lose money hand over fist. Healthy people, who don't expect to face high medical bills, would go elsewhere, or go without insurance. Meanwhile, those who bought the policy would be a self-selected group of people likely to have high medical costs. And if the company responded to this selection bias by charging a higher price for insurance, it would drive away even more healthy people.

That's why insurance companies don't offer a standard health insurance policy, available to anyone willing to buy it. Instead, they devote a lot of effort and money to screening applicants, selling insurance only to those considered unlikely to have high costs, while rejecting those with pre-existing conditions or other indicators of high future expenses.

This screening process is the main reason private health insurers spend a much higher share of their revenue on administrative costs than do government insurance programs like Medicare, which doesn't try to screen anyone out. That is, private insurance companies spend large sums not on providing medical care, but on denying insurance to those who need it most.

What happens to those denied coverage? Citizens of advanced countries - the United States included - don't believe that their fellow citizens should be denied essential health care because they can't afford it. And this belief in social justice gets translated into action, however imperfectly. Some of those unable to get private health insurance are covered by Medicaid. Others receive "uncompensated" treatment, which ends up being paid for either by the government or by higher medical bills for the insured. So we have a huge private health care bureaucracy whose main purpose is, in effect, to pass the buck to taxpayers.

At this point some readers may object that I'm painting too dark a picture. After all, most Americans too young to receive Medicare do have private health insurance. So does the free market work better than I've suggested? No: to the extent that we do have a working system of private health insurance, it's the result of huge though hidden subsidies.

Private health insurance in America comes almost entirely in the form of employment-based coverage: insurance provided by corporations as part of their pay packages. The key to this coverage is the fact that compensation in the form of health benefits, as opposed to wages, isn't taxed. One recent study suggests that this tax subsidy may be as large as $190 billion per year. And even with this subsidy, employment-based coverage is in rapid decline. I'm not an opponent of markets. On the contrary, I've spent a lot of my career defending their virtues. But the fact is that the free market doesn't work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies. That system is now failing. And a rigid belief that markets are always superior to government programs - a belief that ignores basic economics as well as experience - stands in the way of rational thinking about what should replace it. Emphasis mine. Paul is doing what he does best (besides perhaps building models of currency crises): clearly explaining basic economic ideas to a large audience. ### Pro-Growth Progressives... Last week there was a debate at TPMCafe's Bookclub that could have been interesting (had it not devolved into a shouting match) over Gene Sperling's new book, The Pro-Growth Progressive. Unfortunately, there's no permalink to the whole thing. So here: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26. Now that the dust has settled, it seems Sperling has made a lot of points and proposals that I have always liked, if his arguments are a bit flawed. For example: The EITC is the model of a policy that promotes economic dignity and upward mobility while again workers directly - not interfering with the market or employers. A quality 0-5 education program for poor children would promote the values of fair starts, develop the cognitive skills most essential for the 21st century workforce, and actually help employers by allowing more working parents to avoid missing work. I like the EITC. But of course the EITC interferes with the market, it is a subsidy on labor. And in this case, as in many others, interfering with the market is not necessarily a good thing. It induces more hours work than you would otherwise choose. However, it is one of the better ways to redistribute income. I also like the idea of more birth-five education. But I don't like Sperling's language about the "21st century workforce" and I don't think that it's better to have parents away from their children for longer and longer periods of time. Sperling's basic philosophy is almost identically mine: What do I mean by progressive? I define it with three values. A belief in economic dignity for those who take responsibility for their lives; the opportunity for upward mobility, and the commitment that life's outcome should not be determined by the accident of your birth. To the extent I am a liberal (or progressive?) I think that the government should focus on these things (and one other.) But what's up with "pro-growth progressive?" Are there two trendier or more cliched labels than "pro-growth" or "progressive" (which even the West Wing poked fun at in the live debate episode.) Jason Furman points out that (amidst shameless Sperling-worship): One of the interesting points Gene makes in his book is that our policies should target all of these sources of job loss. Retraining, wage insurance, and other proposals should apply to everyone dislocated from a job. Finally, someone makes this point. One more thing. Jason Furman agrees with me that I love George Bush's phrase about an "ownership society," just not his policies to promote more ownership for owners and more debt for everyone else. The policies may be flawed, but the idea is basically good, isn't it? Don't we want people to have some wealth and self-sufficiency? So it pains me to see Democratic politicians attacking the notion of an "ownership society" itself. ## Wednesday, November 16, 2005 ### Weather It's been ridiculous in Swarthmore today: on November 16 temperatures in the high 60s or low 70s! In the course of writing the previous post, though, the sky has gone from slightly cloudy to covered in hulking low and gray clouds. It's going to be an exciting storm. ### Expertise? Just give me the drugs The New York Times writes about "young people" who self-medicate, and bypass the supposed expertise of psychiatrists. For a sizable group of people in their 20's and 30's, deciding on their own what drugs to take - in particular, stimulants, antidepressants and other psychiatric medications - is becoming the norm. Confident of their abilities and often skeptical of psychiatrists' expertise, they choose to rely on their own research and each other's experience in treating problems like depression, fatigue, anxiety or a lack of concentration. A medical degree, in their view, is useful, but not essential, and certainly not sufficient. As with any "trend" piece, one wonders how widespread this is (though if one didn't have such pieces, how would one think to look for data on a question?). Yet it says many an interesting thing about medicine. One phrase that gets tossed around in health care debates is "consumer-driven" health care: consumers ought to have more choice. The whole structure of the health care system is based on patients relying on the expertise of doctors, doctors as gate-keepers to health care. Insurance works, insofar as it does, because someone verifies the legitimacy of your complaint and treatment. The widespread perception that maybe doctors are useless -- or at least that psychiatrists are useless -- would do very odd things to the market for psychiatric drugs. You'd end up with psychiatrists being reduced to prescription machines (more so than they already are), and so the whole purpose of the profession would be undermined. They don't know more than we do. And the necessity of FDA approval would be called into question: if people can self-prescribe, why can't they assess risk of drugs? Why do we need a central group to certify drugs? Why not have a centralized group that verifies that public information about drugs is accurate, rather than that the drug is effective? Though again, this is all based on one trend piece and odds of this being more widespread than a small group of young urban professionals is slim. ### Marseille Via Marginal Revolution and Battlepanda, comes this Washington Post piece on Marseille. As I noted, Marseille is liable to be the most successfully integrated city in France due to its history and demographics, which the Post story summarizes nicely. History is one source of this stability. While other cities in France fret about the arrival of immigrants over the past 50 years, Marseille has been a magnet for outsiders for well over 100: Italians fleeing poverty, Greeks and Armenians escaping wars, Moroccan sailors jumping ship, Spanish smugglers looking for a haven, Europeans returning from France's former Algerian colony and impoverished Algerians themselves seeking work. A substantial Jewish community exited Algeria and settled here. On any downtown Marseille street corner, distinct fashions float by: a white Arab-style caftan here, the black overcoat of a Lithuanian Jew there, an African dyed garment, and a French short-brimmed cap over there. There's a budding Chinatown up in Panier, the cluttered neighborhood of sand-colored buildings on a hill above the Old Port. "Marseille was made by immigration," said Pierre Echinard, a local historian. Of a population of 800,000, a quarter is of North African descent. Residents say they miss the ethnic variety when they leave the close quarters of their city, which is squeezed against the Mediterranean Sea by hills. ... Marseille, a city more than 2,600 years old, long predates France, not to mention the Roman Empire. (It was so anti-Roman that emperors used to send troublesome consuls to Marseille as a kind of uncomfortable exile.) "Marseille feels it submitted to a power -- Paris -- that didn't bring it benefits. Marseille had long stood on its own and it was always open to the world," Echinard said. Unlike municipal leaders elsewhere, recent mayors of Marseille have given official recognition to communal diversity, rather than trying to fit everyone into one box of Frenchness. A program called Marseille Hope, begun in the late 1980s, periodically organizes consultations among religious leaders -- Catholic, Orthodox Christian, Muslim, Jewish and Buddhist -- on community problems. The Post story spins the relative calm as a good thing. You could also conclude that the absence of perfect calm is the indicator of a bad thing. On a more touristy note, the Panier is a) rapidly yuppifying and b) tremendously attractive. And bouillaibaisse is excellent. ## Tuesday, November 15, 2005 ### Holtz-Eakin to Council on Foreign Affairs Via Brad Delong, news that Douglas Holtz-Eakin is leaving the CBO for the CFA. Too bad: he is incredibly smart and incredibly honest, something American fiscal policy needs more of. ## Monday, November 14, 2005 ### Do corporations maximize profit? Tyler Cowen links approvingly to this Mickey Kaus piece: Are you impressed that TimesSelect has attracted "approximately" 135,000 paying customers?** At$45 a head (halfway between the introductory price and the regular price) that's $6.1 million. Bigger than Arianna! But if someone--say, Richard Mellon Scaife--had come along a year ago and offered the NYT$6.1 million to radically limit the reach of its (largely) liberal columnists, would the paper have taken the deal? ... P.S.: And is the future subscriber trajectory really up, up, up, as the Times' columnists fade as personalities on the Web and get replaced by other, freer popular writers? ...
But the Mellon Scaife comparison presumes that the Times exists to maximize its ideological power. Perhaps it's maximizing profit. Not that Tyler Cowen needs to be told what corporations do.

## Friday, November 11, 2005

### Free trade liberals

Nathan Newman gets mad at "free trade liberals" for not fighting for "trade adjustment assistance". His main evidence? That at the DLC and Progressive Policy Institute websites, searches for "trade adjustment assistance" turns up zero hits. No hits, hence they don't care. But this proves rather too much. For "free trade" also has zero hits. As does "welfare." As does "fair trade." And "George W. Bush." And "Bill Clinton." And "United States of America." And "America." Either these "free trade liberals" don't care about, well, anything, or the search function is broken and you can't prove anything from this. Take your pick.

Given that the search function is broken, I'm too lazy to figure out what the PPI and the DLC have to say about trade adjustment assistance. But just as I'm pretty sure that they have something to say about "America," I'm pretty sure they have a position on trade adjustment assistance.

### Ghetto

Patrick Belton continues his most interesting reportage from Paris. He notes that
What lingers for me was the pride the rioters express in the toughness of their neighbourhood - referring to it as 'ghetto' and 'south Bronx', and offering to take you to caches of molotov cocktails, drugs and arms - which seems to tap into a performative identity of images provided by American media of anger and power.
Given the popularity of a song about the American ghetto in Dakar this summer, I got into occasional discussions of comparisons of the toughness of Dakar to random American cities. Not being much a ghetto-boy, I wasn't able to offer much insight. But people clearly had the impression that American ghettos are much more serious affairs than Dakar ghettos. This supports Belton's point. It is also entertaining to contrast with Robert Kaplan's assertion that West African cities represent our (terrible) future. Yet in those same cities, people look to America for their notion of toughness.

## Thursday, November 10, 2005

### T-shirts and Globalization

Pietra Rivoli's The Travels of a T-Shirt in the Global Economy is a thoroughly worthwhile book. If anything, it's entertaining. It also makes a lot of good points, albeit in an extended-anecdote fashion. On sweatshops:
Like their sisters in time, textile and clothing workers in China today have low pay, long hours, and poor working conditions. Living quarters are cramped and rights are limited, the work is boring, the air is dusty, and the noise is brain numbing. The food is bad, the fences are high, and the curfews inviolate. As generations of mill girls and seamstresses from Europe, America, and Asia are bound together by this common sweatshop experience--controlled, exploited, overworked, and underpaid--they are bound together too by one absolute certainty, shared across both oceans and centuries: This sure beats the hell out of life on the farm. [Emphasis Rivoli's.]
On the race to the bottom:
The countries that have lost the race to the bottom are some of the most advanced economies in the world today, but they share a common heritage in the cotton mill and the sweatshop as the ignition switch for the urbanization, industrialization, and economic diversification that followed, as well as for the economic and social liberation of women from the farm. The now high-income workers have priced themselves out of work in the sweatshops, and these countries no longer have the desperate rural poverty that pushed and pulled women from the farms to textile and apparel factories. The workers are now neither cheap nor docile, and offer comparative advantages to other industries, in auto manufacturing, financial services, and information technology. While it was never a happy day when the mill closed, a padlocked cotton mill is also a sign that the economies, and the workers, by losing the race to the bottom, have emerged as victors.

[...]

But of all the rallying cries of the anti-globalization movement, the call fo "stop the race to the bottom" is both the scariest and the most nonsensical, especially when it comes from rich country activists who owe their own prosperity to the very race they wish to halt for others. Who, we might ask, would these activists like to keep on the farm? Yet if some activists are misguided in their ideas about stopping the race to the bottom, others are a powerful force in changing the nature of the bottom itself.

### A problem

Isaac discovers that Kevin Drum has discovered the Stolper-Samuelson theorem. Here's what Drum writes:
Obviously it matters a lot whether the effect is large or small or very small, but I didn't know there was unanimity among economists that, regardless of the size of the effect, [trade with lower-skilled countries is] always negative "in absolute (not just relative) terms, and permanently (not just through tough 'transitions') [for less-skilled workers]."

That certainly puts a different spin on the standard thesis that free trade agreements are good for growth, doesn't it? If "growth" mean GDP growth, it's probably true. But if "growth" means growth in median wages, as I think it should, then it might not be. You learn something new every day.
Drum quotes Josh Bivens at MaxSpeak. Yes, under the model of international trade that Stolper and Samuelson developed, you can show that expanded trade leads to a lower rate of return for the "scarce" factor. In the United States this happens to be low-skilled workers. This is where we get into a lot of trouble. Drum does not know the details of the paper; he hasn't read it. But the discovery of this "theorem" is changing the way he thinks about trade.

There are countless such "theorems" in economics and in international trade. You can think about trade under the assumptions of any number of models. Drum's change of heart is akin to that of people who decided protectionism was good after Paul Krugman showed a small tariff on a specific kind of industry could be welfare-increasing. Or that of people who take a preliminary, unconfirmed empirical result in any kind of science too seriously. There are always caveats and these things always must be taken in context, a context that Drum (and I) are not sufficiently familiar with. Is Drum's (perhaps waning) support for free trade based on similar "theorems"? There are problems when economic models are taken too seriously and problems when they are not taken seriously enough. This is the former.

I don't know that much about Stolper-Samuelson, though the result does make sense. But one theorem based on one model should not be enough to change someone's mind about something as complex and multifaceted as trade. And I suspect that there are certain misconceptions about Stolper-Samuelson flying around this discussion.

### Kevin Drum discovers Stolper-Samuelson!

In this post. This is most entertaining for it is from 1941. More importantly, when the paper was written, Stolper was at Swarthmore (and supposedly it is largely written by Stolper given that it is better written than other Samuelson essays). See, Swarthmore does do useful things.

I'm not sufficiently something or other to have found this out for myself. But I do have a friend who is.

## Wednesday, November 09, 2005

### Unions suck

At the end of the Times' story on Judith Miller's leaving the paper, Katherine Seelye notes that
Negotiations were difficult in part because Ms. Miller is a member of the Newspaper Guild and could not be fired easily.

### More France

In a very wittily titled op-ed, Olivier Roy argues for the universality of the riots. They have everything to do with the sufferings of an underclass and are not specific to culture or (even failed) assimilationist policies:
we are dealing here with problems found by any culture in which inequities and cultural differences come in conflict with high ideals. Americans, for their part, should take little pleasure in France's agony - the struggle to integrate an angry underclass is one shared across the Western world.
But you might still might ask: why? It is not enough to say that they are an underclass, c'est tout. Sure they are an underclass, but in each country underclass resentment and anger is mediated through different cultures and institutions. There is still intellectual work to be done to say what it is about France today that causes riots today. Why is anger manifested in riots in some generations and not in others? Not every underclass riots all the time -- not even every generation of every underclass riots. Some generations never riot. Perhaps it is simply a random variable. I doubt it. The claim of the generality of underclass resentment is correct and necessary, but something remains to be explained about why now. And I'd claim that that leaves room for all kinds of speculation.

## Sunday, November 06, 2005

### Riots in France

Of local interest is the fact that one of the two teenage boys who died in the power station was of Mauritanian origin. More substantively, I've been scanning the stories every day to see when the riots hit Marseilles. So far they have not. This fact strikes me as somewhat important for Marseilles has always been swarthier than the rest of France in virtue of being a port city. And has presumably done a better job of integrating immigrants. If the immigrant community in Marseilles riots, then you know that the French social model is hopelessly flawed because the most open city would have failed to make it work.

Addendum: It should be noted that the French government seems not to recognize the fact that something is wrong. See, for example, this op-ed in Le Monde by Sarkozy which just repeats the argument that we all benefit from security and so we should never question the need for more. Surely there is a place for law enforcement in this, but for all the official rhetoric to concern nothing but security is rather sad.

UpdateDamn, Le Monde is not the best source for news on France. The Guardian reports that there are riots in Marseilles. France is troubled.

## Friday, November 04, 2005

### Year Two

Today is the anniversary of our very first posts on Armchair Capitalists, two days after Bush was re-elected. (Reading those is only a little bit painful.) Here's to another year of productive (and hopefully interesting?) blogging!

## Thursday, November 03, 2005

### Catholics are smart

Via Matthew Yglesias, this TNR piece by Franklin Foer on why all conservative judges seem to be Catholic. I've previously speculated that this is about abortion, but had hoped that there was a more interesting story. Foer provides it: he argues that the evangelical movement lacks the language to talk about conservative ideas whereas Catholic theology provides it in oodles. I'm not entirely convinced. After all, do all conservative Catholics use recognizably Catholic language and concepts in their thinking? I don't know the answer. Still worth reading (a summary here, or try www.bugmenot.com).

## Wednesday, November 02, 2005

### Barro on...

Via Cafe Hayek comes this interesting interview with Harvard macroeconomist Bob Barro. Here's Barro's slightly more subtle than popularized view of Ricardian equivalence:
Let me say first that I think the Ricardian equivalence idea is basically right as a first-order proposition. However, people get confused as to exactly what it says. [...] To illustrate the potential pitfalls in what Ricardian equivalence says and does not say, one can consider the famous quote attributed to Vice President Cheney to the effect that President Reagan proved that budget deficits don't matter. The Cheney quote is often interpreted to mean that the level of government expenditure does not matter, and that surely is not what Ricardian equivalence says. The Ricardian proposition is about the consequences of paying for a given amount
of public expenditure in different ways. Specifically, does it matter—or does it matter a lot—whether the government pays for its spending with current taxes or with current borrowing, which entails higher future taxes?
Yet he doesn't address the very valid concern that most people don't act in a way consistent with Ricardian equivalence. On Bush:
I should say, in general, that the Bush administration has been a real failure with respect to fiscal discipline, especially during its early years. I mean this with respect to the level of federal expenditure, not about fiscal deficits per se. [...] Unfortunately, the spending discipline coming from fiscal deficits did not seem to work during Bush's first term. Maybe that is because they figured out Ricardian equivalence—that is, that fiscal deficits do not matter (much). In some ways, it's better if Washington pretends that fiscal deficits and public debt are awful even if they really are not. [...] President Bush really should try vetoing a spending bill sometime.
On the equity premium puzzle:
The equity premium is mostly about the very low risk-free real interest rate. The rare-disasters framework says that this low risk-free rate reflects the large demand for risk-free assets because of the potential for big disasters. In addition, the framework explains how the expected real interest rate on, say, government bills moves around when perceived disaster probabilities change. You do not need very big changes in probabilities to get fairly substantial responses. A small increase in this kind of risk—as an example, due to the September 11th events—leads to a noticeable response of real interest rates. When this probability goes up, the risk—free rate goes down because people put more of a premium on holding a relatively safe asset. [...] I'm trying to get more objective measures of disaster probabilities by using options prices on the stock market.
Or more subjective measures, depending on how you think about it. On Bono:
We had a wonderful lunch back in 1999—Sachs, Bono and I. It was clear that they invited me not to get information or advice. Instead, Bono wanted to learn the conservative, free-market objections to his approach so that he could come up with better counterarguments. Then he could be more persuasive, as he turned out to be, even with Republican officials in Washington. I'm sure I had no impact on the policies that Bono ended up proposing. It's amazing what kind of influence he's had. He really did manage to convince many people in Washington to carry out substantial debt relief. It's a shame that we could not harness his talents for persuasion in more productive directions.

### Wednesday Night Swarthmore Blogging

You can now see best-seller lists on Amazon.com for any number of different communities, geographical or otherwise. Here's the list for Swarthmore:
1. The Da Vinci Code
2. Nazi Seizure of Power: The Experience of a Single German Town 1922-1945
3. Quicksilver
4. Lies and the Lying Liars Who Tell Them: A Fair and Balanced Look at the Right
5. Blueprint for Disaster: A Get Fuzzy Collection
6. Cryptonomicon
7. The South Beach Diet: The Delicious, Doctor-Designed, Foolproof Plan for Fast and Healthy Weight Loss
8. Straight Talking : A Novel
9. The Complete Far Side 1980-1994
10. Blow Fly: A Scarpetta Novel
Not entirely what I would have predicted, especially #7.

In other news, the course schedule for the Spring 2006 semester has been released. Contra Barry Schwartz, the mere knowledge that I have to make this decision brings me great joy, despite the fact that I'm choosing from some 747 offerings.

## Tuesday, November 01, 2005

### Abortion numbers

The CDC publishes "abortion surveillance" documents, with data on indicidence and location of abortion. The most recent data available are for 2001. Some numbers:
• In 2001, there were 246 legal induced abortions per 1000 live births. That is, approximately 20 percent (246/1246) of pregnancies end in induced abortions. This number is too high insofar as about 10 to 15 percent of pregnancies end in spontaneous abortions. If you are pregnant, then, you have about a 10 to 15 percent chance of a miscarriage. The above numbers refer to pregnancies that don't (or hadn't yet) miscarried. So of all pregnancies more like 17 or 18 percent are terminated in induced abortion.
• Taking a historical perspective: in 1973, there were 196 legal induced abortions per 1000 live births. The number peaked at 364 legal induced abortions per 1000 live births in 1984 and has since declined.
• The ratio is as low as 36 per 1000 in Idaho and as high as 767 per 1000 in New York City (New York City and Washington DC are the only two non-states to report separate statistics). In fact, New York City had the most abortions of any reporting region: more than Florida and Texas (California did not report data in 2001; presumably data for California is imputed from previous data).
• "The abortion ratio for black women (491 per 1,000 live births) was 3.0 times the ratio for white women (165 per 1,000), and the ratio for women of the nonhomogenous "other" race category (376 per 1,000) was 2.3 times the ratio for white women."
• "For women whose marital status was adequately reported (39 reporting areas), 79% of women who obtained abortions were known to be unmarried."
• "For women who obtained an abortion and whose number of previous abortions was adequately reported (39 reporting areas), 55% were reported to have obtained an abortion for the first time, and 18% were reported to have had at least two previous abortions."
The major caveat:
the overall number, ratio, and rate of abortions are conservative estimates; the total numbers of legal induced abortions provided by central health agencies and reported to CDC for 2001 were probably lower than the numbers actually performed. Additionally, the abortion total for 2000 provided to CDC by central health agencies are 20% lower than that reported for 2000 (the most recent year for which data are available) for the same reporting areas by The Alan Guttmacher Institute, a private organization that contacts abortion providers directly. A previous report documented a discrepancy of approximately 12%; the reasons for this larger discrepancy are unclear.

### The Immortal Part, Sir, of Myself

Reputation is the last refuge of scoundrels when trying to explain business behavior. But how else to explain this puff-piece in the Times?
Inside a stuffy, windowless room here, veterans of the 2004 Bush and Kerry presidential campaigns sit, stand and pace around six plastic folding tables. Open containers of pistachio nuts and tropical trail mix compete for space with laptops and BlackBerries. CNN flickers on a television in the corner.

The phone rings, and a 20-something woman answers. "Turn on Fox," she yells, running up to the TV with a notepad. "This could be important."

A scene from a campaign war room? Well, sort of. It is a war room inside the headquarters of Wal-Mart, the giant discount retailer that hopes to sell a new, improved image to reluctant consumers.

What's going on here is that Wal-Mart wants to get a reputation for taking its image seriously. Look, we have a war room! We've hired an expensive ad agency! We're bucking our corporate past! This desire is distinct from wanting to get a reputation for taking care of workers which would imply actually changing policies. But no:Wal-Mart has every intention of continuing the policies for which it has a bad reputation. What Wal-Mart thinks matters is elite opinion which will be formed not from experience in Wal-Mart or from knowing Wal-Mart workers, but from articles like this: if a company takes its reputation seriously surely it wouldn't continue offensive policies. War room implies cares about reputation implies will change policies (because bad policies would impact reputation, right?). By modus ponens, we have that the mere presence of a war room ought to assuage concerns -- or that has to Wal-Mart's logic here. Even if it has only a slight chance of working, it is certainly cheaper than changing employment practices.

A media campaign is a very noisy signal of actual plans. Hopefully this is either the first step in something broader, or else it fails to work.

### Good News

Like Isaac I've recently experienced a number of shocks to my free time (namely mid-terms and a short trip to Spain). Regular blogging will resume shortly.

More good news: according to the Business Opportunities Weblog, Armchair Capitalists is worth $8,468.10. That is, based on the recent aquisition of Weblogs Inc. by AOL, the present value of future earnings from advertisements (that don't exist) on this blog is$8,468.10. (Via Crooked Timber.)