Monthly Archives: July 2015

Questionable Journalism Regarding Maury Obstfeld

Posted on by

The WSJ blog writes:

Mr. Obstfeld said in 2012 that, should Berlin agree to backstop the debt of European countries, the eurozone as a whole would be better off if the bailout was unconditional, rather than requiring labor market reforms and budget controls. If Germany failed to bailout out weak southern eurozone members, he believed it would hurt Germany’s economy more than an unconditional bailout.

…The currency union requires stronger integration to overcome its vulnerabilities, Mr. Obstfeld wrote in a study of the lessons from the euro crisis. That means member governments would have to sacrifice far more of their economic sovereignty than they currently allow.

I believe that he said something along the lines of the second paragraph. The first paragraph sounds too extreme for any mainstream economist. I have made a few attempts to find a citation, but without success. Note that the first paragraph also strikes me as somewhat inconsistent with the second paragraph, because the latter seems to imply that he would expect bailed-out countries to have to give up some sovereignty.

In any event, Maury is a nice guy who subscribes to a technocratic view of the world that is quite different from mine. There is a group of economists, heavily represented at the International Monetary Fund, who will tell you that the world’s economic problems are caused by “global financial imbalances” (some countries save too much, others save too little) and that more management by the IMF is the solution. I, on the other hand, am among those economists who think that the IMF logically should have been abolished in 1971, when President Nixon ended the regime of fixed exchange rates.

It is easy to understand why the IMF did not consider me for chief economist.

Why Regulate Medical Treatments for Efficacy?

Posted on by

Recently, someone sent me a draft paper on this topic. My reaction is this.

1. I think that the default position of economists would be that while government may have a legitimate role in keeping unsafe drugs off the market, the best approach for dealing with ineffective drugs would be to help promote and disseminate research.

2. This default position is badly compromised, however, by the prevalence of third-party payments for medical treatment. Both government insurance programs and private insurance companies want clear guidance for when they can deny payment for a treatment. That implies that official government determination of the efficacy of treatments is going to be welcomed both by government programs and by private insurance companies. That in turn makes it difficult to extricate the FDA from ruling on efficacy.

Timothy Taylor on Coal’s Resurgence

Posted on by

He cites in particular a paper by Jan Christoph Steckel, Ottmar Edenhofer, and Michael Jakob. Of all of the factors affecting carbon dioxide emissions, the most important is probably the increase in the carbon intensity of energy use in Asia and in developing countries, fueled (so to speak) by coal. Taylor notes that simply going for a global crackdown on coal use would punish countries that are well behind the U.S. and other developed countries in terms of wealth. He concludes,

if you aren’t a big supporter of near-term, large-scale, non-coal methods of producing electricity around the world, you aren’t really serious about reducing global carbon emissions.

Urban America and Public Policy

Posted on by

Michael Evans and Andrew Hendrix write,

The Bay Area is not alone. Along with Boston, New York, and Washington, D.C., these four metro areas lost nearly 3 million people on net between 2000 and 2009 — even as cities became increasingly fashionable places to live. Meanwhile, the ten largest destinations for internal migration in the U.S. absorbed more than 3 million new residents. In these cities, the average newcomer found his wages to be 25% lower than at the job he left behind.

The cost of starting a business in coastal cities is high.

regulations won’t stop the next Facebook, but they may halt an immigrant hoping to set up a corner shop or an aspiring chef’s food truck. These mundane forms of entrepreneurship are the lifeblood of America’s cities, and they are slowly being choked by endless red tape. When an entrepreneur needs a miniature army of lobbyists to simply establish his business or develop a property, something is wrong.

It is unfortunate the there is so little political competition in these poorly-governed cities.

What I’m Re-reading

Posted on by

Alone, the second volume of William Manchester’s biography of Churchill, The Last Lion. If I were to sum up Manchester’s view of the 1932-1940 period in British history in two paragraphs, they would be:

1. The British ruling class was rotten. The British Prime Ministers of that era were dull-witted and feckless. Traumatized by the first World War and frightened of Bolshevism, they came up with an endless list of excuses not to confront Hitler. The role played by the media during this period was dreadful–covering for Hitler and suppressing the views of Churchill until very late in the game.

2. Churchill was, in many ways, more out of touch with the twentieth century than were other members of the ruling class. However, he had the strength and intelligence that the leading politicians lacked. And unlike most others of his class, he saw Hitler with clarity.

It is very tempting to draw parallels between the highly-educated classes in this country today and the upper-class twits of Britain in the 1930’s. Indeed, at one point I suggested such a parallel during the discussion of the future of democracy, prosperity, and freedom.

So, as usual, I wrote the foregoing and scheduled it ahead. Meanwhile, there was the Islamist’s attack that killed four marines in Tennessee.

A casual reader of the Washington Post could be forgiven for blaming the attack on conservatives and the National Rifle Association. The lead Post story said that this was “the latest eruption of gun violence in the United States.” The print newspaper also provides a second front-page story, headlined “Shooter grew up in conservative family.” [The online version says “middle-class Muslim family.”]

I read every word of the second story, looking for the basis for terming the family “conservative.” Did they have a Romney bumper sticker on their car? A subscription to National Review? Perhaps they flew a Confederate flag? Were active in the Tea Party?

Instead, there are only two references to the attacker’s parents. One says that his father was briefly put on the terrorism watch list but was later removed from that list. The other quotes someone familiar with one of the daughters of the family:

“I got the sense [her parents] were very religious,” Harper added. “I got the sense they wanted to pick who she would marry.”

I would love to know how the Post determined on the basis of the content of the story that the best adjective to describe the family was “conservative.” Getting back to the 1930s comparisons, I do not want to equate Muslim radicals with Nazis, because I think that there are important differences. What I am getting at here are the similarities between the British media in the 1930s and what we find in the U.S. today.

As for the American educated in class in general, consider Harry Painter’s analysis of summer reading lists for college students.

Upon browsing the list, one might conclude that all of humanity’s best books are about minorities fighting and ultimately overcoming the oppressive constrictions of Western, male-dominated society.

My guess is that no college is going to suggest that students read Alone.

Hobbies: Narrower and Deeper

Posted on by

Karl Taro Greenfeld writes,

By any measure, participation in the game is way off, from a high of 30.6 million golfers in 2003 to 24.7 million in 2014, according to the National Golf Foundation (NGF). The long-term trends are also troubling, with the number of golfers ages 18 to 34 showing a 30 percent decline over the last 20 years. Nearly every metric — TV ratings, rounds played, golf-equipment sales, golf courses constructed — shows a drop-off. “I look forward to a time when we’ve got the wind at our back, but that’s not what we’re expecting,” says Oliver “Chip” Brewer, president and CEO of Callaway. “This is a demographic challenge.”

I forget how I got to the article, but I think I started with Instapundit somewhere.

In any case, I have probably remarked before on what I see as a trend for hobbies to get narrower and deeper. That is, fewer people do X, but there are more people deeply involved in X. X could be following professional baseball, playing bridge, playing golf, or what have you.

I think that hobbies are getting deeper because the Internet gives you more ways to go deeper into a hobby. You can get better at it by watching YouTube videos. You can learn more about it by reading stuff on the Web. What happens is that fewer people try to learn to play guitar, but the people who do play will tend to be pretty good at it.

I think that hobbies are getting narrower because (a) there are more choices, so people who might otherwise have done X will now instead do Y; and (b) because people are getting deeper into hobbies, this tends to discourage the more casual participant. Baseball was hard enough to understand before all the new statistics concocted by the sabermetrics nerds. Twenty years ago, I used to joke about “tournament folk dancing” to describe an especially difficult folk dance session. Now, the phrase could describe most sessions.

In any case, I would not bet on golf or any other hobby experiencing a persistent increase in its casual user base.

Quick, Weak Patents

Posted on by

Joshua Gans writes,

Suppose that patents were granted automatically without examination — beyond some minimal review — but consequently, with less exclusionary power should the patent be at issue in legal proceedings.

How would this work? An inventor submits a patent application and, if they choose, they can receive a ‘weak’ patent immediately. Should they notice someone else commercialising their invention, they could then initiate court proceedings at which time they would need to have the patent examined which could, of course, require all of the changes and uncertainty that comes with that process. Of course, it may be that this is an obvious outcome and could actually be avoided in return for some settlement with the potential infringer of their patent.

I will grant that, taking the amount of patent filings as given, this sounds like an improvement. But I think it would greatly increase the number of patent filings. From an offensive perspective, you want to file patents on anything you can dream of, because you know you are going to get approval. From a defensive perspective, you want to file a patent much sooner than you would have otherwise, for fear of someone else getting a weak patent.

I hope this idea is thought through more carefully before it is implemented.

The Iran Deal

Posted on by

Speaking of things I am not qualified to say much about. . .

1. The key dynamic is the coalition of countries sanctioning Iran. That was a difficult coalition to assemble. It is a difficult coalition to hold together. My guess is that one of the factors that helped hold it together was that Russia, as an oil exporter, probably was happy to see Iran hampered in its ability to sell oil. But in general, you expect these sorts of coalitions to break down, for well-known cartel game-theoretic reasons.

2. To the extent that you believe that the sanctions coalition could not hold together, you would tend to support almost any deal. In other words, if the coalition was fragile, then Iran was in a strong bargaining position. I have not seen any analysis that makes this point. Again, knowing nothing but the game theory of cartels, I am inclined to think that Iran was in a strong bargaining position. Of course, we are not going to hear the Administration say, “This is as good a deal as we could get, because the sanctions coalition was starting to unravel.”*

3. Of all of the technical details of the deal, the one that will interest me the most is Iran’s obligation to get rid of some its enriched uranium. It takes a lot of time and effort to enrich uranium. If much of the enriched uranium will be handed over to other parties that will take it out of Iran and not give it back, then I think that pretty clearly reduces Iran’s ability to produce a bomb in the short run. As to Iran’s ability to produce a bomb in 5 or 10 years, the effect of this deal depends on what you think the alternative was. Again, I am not very optimistic about what the alternative was.

4. Even if the deal sets back Iran’s nuclear program, it could be that the situation in the region will be worse a year from now than it would have been had the sanctions coalition held together longer. It is hard to anticipate the consequences of these things.

5. I am not sure what Congress has to do with anything at this point. They cannot put the sanctions coalition back together.

6. What would Iran have to do to encourage the sanctions coalition to get back together? My guess is that it would take some really major, flagrant violations of the agreement, and perhaps not even those would be sufficient.

*As usual, I wrote this post more than 24 hours ago and scheduled it for this morning. Meanwhile, it turns out that President Obama at his news conference said something quite close to this.

Do Not Code Your Business Rules!

Posted on by

Sorry to be somewhat off-topic as far as economics goes. This is another one of my biases about systems development–not that I am a qualified professional at it. But on an earlier post, a commenter wrote,

code sent messages to customers by e-mail, phone, text, etc., for flight notifications (on time, late, cancel, gate change, etc.). Just for frequent flyers, the decision making on whether to send a message that a flight was delayed ran past 1000 lines of code. It depended on whether messages had been sent before already, plus results from multiple databases with customer contact details, timezones, whether the flight was a connection or originating, time-of-day, saved preferences, plus legal issues such as whether the customer had triggered telco opt-out for text messages.

My claim is that none of that should be written into computer code. Instead, think of a list of conditions that might trigger a message. Put those into a database and write code that constantly checks against those conditions. Then think of a list of conditions for sending a message by phone, a list of conditions for sending a message by email, etc. Put those into a database, and when “might trigger a message” is true, check these conditions and if they are satisfied, send a message.

My point is that business rules should reside as much as possible in data, not in code. That way, you know where they are, and you do not have the maintenance problems that come with large amounts of code.

One of the advantages I see in rewriting software is that you take the business rules that have crept into the code out of the code and into data.

When Will the Cable Business Model Break?

Posted on by

Kathleen Madigan writes,

In the inflation gap between goods and services, one of the biggest chasms is between the price of a television set and the accompanying cable bill. In the past five years, the price of a new TV set is down nearly 58%, while the cable bills have risen nearly 14%.

Her article cites the higher prices being charged by content providers, such as ESPN.

My household is providing a subsidy to cable TV. We don’t watch it, but it comes bundled with our Internet service. When will the cable TV model break, so that it can no longer extract so much revenue? Some possibilities.

1. Never. My household is an outlier. Other households are getting ever-increasing value from cable TV, and they will gladly pay more for it.

2. Never. The business model of bundling is sound when there are high fixed costs, as in wiring up a community.

3. When enough spectrum is freed up that consumers like me start to get rid of cable and rely solely on wireless.

4. When enough consumers shift toward Internet-based entertainment.