Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, June 25, 2005

The Truth about Hillary;
a salacious new book review

The Truth about Hillary by Edward Klein is sure to be gossip delight. Here is a portion of Blake Wilson's review in Slate:

How nasty is The Truth About Hillary, Edward Klein's new biography of the former first lady? Let's just say that Monica Lewinsky appears on Page 1, groping Bill Clinton's crotch at the rope line outside a cocktail reception for his 50th birthday.

... Little Rock private investigator Ivan Duda tells Klein that Hillary called on him after Bill was defeated in his second governor's race. According to Duda, she said, "I want you to get rid of all these bitches he's seeing. ... I want you to give me the names and addresses and phone numbers, and we can get them under control."

... Michael Galster, a former Arkansas prison contractor who had social connections to the Clintons, tells Klein that when he considered blowing the whistle on a crooked scheme that implicated Bill, Vince Foster came to intimidate him: "You know what your noncooperation means as far as the state's renewing your orthopedic contract, don't you, Mike?"
... According to Galster, "It was accepted as a fact that Hillary and Vince were sleeping with each other."

Klein's gossipy source also tells him that Liz Moynihan said Hillary is "duplicitous. ... She would say or do anything that would forward her ambitions. She can look you straight in the eye and lie, and sort of not know she's lying. Lying isn't a sufficient word; it's distortion—distorting the truth to fit the case."
What impact will the book have on Hillary's political career?
My guess is that it will have zero effect, or possibly a slightly positive effect, a view supported by the reviewer for Publishers' Weekly:

This clip+paste job by a former editor of the New York Times magazine is unlikely to change a single mind, let alone vote - to paraphrase the political commentator, conservative Tucker Carlson, readers who already hate lightning-rod Clinton know why they hate her. Those who like her won't find their minds changed by any of the ersatz revelations in this ultimately uninteresting book.

If You Love Me, You'll Divorce Me

From Secret Dubai,

The 22-year-old wife had given her 27-year-old husband an ultimatum, saying that if he really loved her, he would divorce her.

Staff at the Justice Department were not particularly impressed, describing the wife as "immature" and the husband as "childish". They recommended the couple seek psychiatric help.
A rare instance in which I agree with a bureaucratic decision.

Hell Hath No Fury
Like a 78-Year-Old Woman Scorned

78-year-old woman shoots and kills ex-beau at a seniors' home in Georgia. [Also available at the WashPost (reg. req'd]:

Furious that their romance was ending, a 78-year-old great-grandmother shot her 85-year-old ex-beau to death as he read the newspaper in a senior citizens home, police said.

"I did it and I'd do it again!" Lena Driskell yelled to officers who arrived at the home June 10, according to testimony. Police said she was wearing a bathrobe and slippers, waving an antique handgun with her finger still on the trigger.

... After [a] nasty breakup with Winslow, she kept showing up uninvited at his apartment in Hightower Manor, the complex for seniors where they lived, Detective D.B. Mathis said. A security guard tried to calm her down, but Driskell drew out her gun, pressed it to Winslow's head and fired up to four times...
Do you think she'd have done it if either Winslow or the guard had been carrying a gun?
What would John Lott say?

Toronto, Ontario!
Live with Culture

Actually, the new slogan being bandied about by Trahnah's culture vultures is TO Live with Culture. [TO means "Toronto, Ontario, where Toronto is pronounced "Trahnah"].

I know SARS was a virus, not a bacteria, but do they really think "Live with Culture" is the best way to sell the city?

And how are they pronouncing the "i" in "Live"? Long or short?

Friday, June 24, 2005

PayPal spoof/fraud

I just received two copies of e-mail that are clearly an attempt to break into my PayPal account. The messages say to click on a website link so they can check on something because maybe someone has been trying to use my account fraudulently. This one is hilariously bad, though:

If you recently noticed one or more attempts your account while traveling, the unusual log in attempts may have been initiated by you. However, if your are rightful holder of the account, click on the link below tolog into your account and fallow the intrusctions.
Yup. My account is lying fallow, awaiting further intrusctions. The spelling and grammar get worse, though:

If you choose to ignore our request, you leave us no choise but not temporaly suspend account.

We ask that you fallow at least 72 hours for the case to be investigated and we strongly recomanded to verify your account in that time.
and then, when you run your cursor over the web site link, you see that the link is to a numbered IP address.

In case you don't know, don't do it.

Leftists Aren't Pink or Red
They're Pale Grey

From George Baker, of the Times Online [pointer from Melanie Phillips]:

... What does th[e] surprising, tentative resurgence for the Left signify in global politics? Not a triumph for progressive policies, that’s for sure. On the contrary, if you look hard at what unites the left across Europe and the US, it is decidedly reactionary.

... The French Left, and its allies in the rest of Europe, stands not for some progressive dream of international solidarity for the dispossessed, but four-square behind the protection of the continent’s own illusory privileges.

The Left’s new rallying cry is to build a protective system that would impoverish Bulgarians, Romanians, Turks, Indians and Chinese and would, of course, as do all attempts to retreat from the realities of the global market, ill serve its own workers.

And the real kicker:

In the Middle East the left finds it much easier to side with the mullahs and the jihadists, the persecutors of women and the torturers of dissidents. America’s flaws at Guantanamo and Abu Ghraib are viewed by the Left’s political and intellectual leaders as morally indistinguishable from (or perhaps worse than) anything the Islamists and Arab despots have got up to.

The Locusts of Private Foreign Investment

From The Smart Economist [see the blog ad to the right to sign up for their free newsletter]


Franz Muentefering, Chairman of the German ruling Social Democratic Party, launched an attack to foreign investors who seek what he described as "short-term gains" by comparing private-equity firms to the biblical plague of locusts that descended on Egypt, stripping it of vegetation.

- True, private-equity firms can be ruthless, but they strip underperforming company managers of their jobs, rather than the economic flora in foreign countries.

The MIT Weblog Survey

Take the MIT Weblog Survey

It looks as if I'm the second oldest person writing a blog (and who has taken the survey). Funny, I still feel like a 27-year-old.

Are Transaction Costs THIS High?
The U.S. Supremes Blow It

In a very anti-market, anti-property rights decision, the U.S. Supremes have ruled that a city may use eminent domain to claim people's property for use by private developers.

It was a decision fraught with huge implications for a country with many areas, particularly the rapidly growing urban and suburban areas, facing countervailing pressures of development and property ownership rights.

The 5-4 ruling represented a defeat for some Connecticut residents whose homes are slated for destruction to make room for an office complex. They argued that cities have no right to take their land except for projects with a clear public use, such as roads or schools, or to revitalize blighted areas.

As a result, cities have wide power to bulldoze residences for projects such as shopping malls and hotel complexes to generate tax revenue.

Since when did it become so difficult for developers to buy options? Since when did it become so costly to negotiate land amalgamations? I know there are potential hold-out problems, but the cost of them will likely prove to be far less than the costs of this decision, which gives developers massive incentives to try to buy off local politicians. And I don't really see how this decision is consistent with the U.S. Constitution.

As Tyler Cowen says, "This is just awful." Phil Miller calls it "A Sad Day, Indeed." Cafe Hayek calls it "lamentable," with this analogy:

the Supreme Court (well, five of its members) ruled that local governments can seize property from private citizen A and give it to private citizen B if it, the government – the gaggle of force-specialists – declares publicly a belief that such seizures will create jobs and increase the amount of money the force-specialists will succeed in forcibly extracting from non-force-specialists.
Suppose that a majority of this very same group of nine black-robed worthies were to declare that I, a private citizen, can poke a gun in my neighbor’s nose and demand that he sell his house to me so that I can give or sell it to someone else. The only condition demanded of this ‘court’ is that I proclaim with as much sincerity as I can muster that my seizure of this house will ‘improve the neighborhood’ and generate more income for me -- more income that I promise, cross-my-heart-and-hope-to-die, to spend wisely on further efforts to improve the neighborhood.

Would you – would anyone – respect such a ruling of this ‘court’?
Update: Check out Julian Sanchez on the decision. Also see Eugene Volokh for a different perspective. And Kip Esquire has two interesting pieces here and here.
Tom Luongo, in an excellent piece, calls it "Viagra for City Government". I note that he misspelled "gubmnt".

Now, more than ever, it is clear just how much the U.S. needs Posner or Easterbrook on the Supreme bench.

Re-Tagged in Book Tag

I have been re-tagged in book-tag, this time by Mapmaster of London Fog and by Sparky at SCSU Scholars. I wouldn't ordinarily consider re-playing, but for three reasons I'll play again.

First, it is intriguing that in one variation of the game, people ask how many books do I own, whereas in the first version with which I was tagged, the question was "How many books have you owned?" Mapmaster tagged me with the former; Sparky with the latter. The evolution has been fun to watch.

Second, there are some bloggers who need to be tagged.

Third, after reading other people's answers, and after reading more books, I have different answers.
  1. a. How many books have I owned? I don't know. We buy them, we read them (or not, sometimes), we give them away. Probably between 4,000 and 5,000.
    b. How many books do I own? I haven't done a count, but a rough estimate is about 700. We have moved several times in the past decade, and I gave away tonnes of books before each move. Also, at one time I was seriously considering early retirement [aka offering my tenure for sale to the university], and I started paring down my economics library.
  2. The Last Book I Bought. It just arrived. A used copy of A Lifetime Burning in Every Moment from the Journals of Alfred Kazin (highly recommended to me by BenS, purchased from From the blurb:
    The son of Russian-Jewish immigrants, Alfred Kazin was born in Brooklyn. His memories of his parents and childhood, movingly evoked in these journals, serve to bracket a life spent in a different world altogether. ... Kazin candidly reflects on his four marriages, his feelings about the Holocaust, his criticism of American society, the pleasure and stimulation of reading good writers..., his need to pray, his travels abroad and within the United States, and more. I'll start it "real soon now".
  3. The Last Book I Read. Flatland by Edwin Abbott [The copyright is expired, so you can find it on the internet, too]. It is a speculative novel, first published in 1884, about a hero who lives in what he and his fellow citizens perceive to be a "universe" of just two dimensions. The hero miraculously visits lineland, which is composed only of one-dimensional beings and finds it impossible to convince them there is another dimension. Then he miraculously is taken on a tour of space-land, where there are 3-dimensions. He is completely awed by the experience and is completely unable to explain the third dimension to his fellow citizens.
    Earlier, I wrote about how the possibility that we live in a 4-dimensional 'brane of an 11-dimensional universe has had a big impact on me. I can see a lot of parallels between our lives in this setting and the lives of the Flatlanders. I didn't much like the superficial socionomological commentary, but the mathematics and dimensional philosophical problems were fascinating.
    Before Flatland, I read
    Trade-offs, by Harold Winter, which I reviewed favourably.
  4. Five Books that have Meant the Most to Me. This is pretty similar to my previous answer. The first three are the same, but the last two have changed.
    The Economic Way of Thinking (Canadian Edition) by Paul Heyne and John Palmer. Paul's U.S. edition had a big impact on me. It was a real treat to do the Canadian adaptation.
    Capitalism and Freedom by Milton Friedman. It helped me understand economics better than a four-year undergrad degree did.
    Industrial Concentration: The New Learning by Goldschmid, Mann, and Weston. This book played a major role in converting me from the Bainsian paradigm to the Chicago/UCLA approach to industrial organization.
    The Elegant Universe by Brian Greene. As I have said several times, this book (and the associated DVD series from PBS's Nova) have nudged me away from being a committed atheist by raising very intriguing questions about the nature of the universe. For more on string theory and Brian Greene, see this interview in Seed Magazine.
    How to Lie with Statistics by Darrell Huff. I know it's trite and trivial, but we bought several cases of this book and gave them to journalists back in the days when we ran a two-week course to teach them some economics. I wish everyone could develop just a bit more intuition about probabilities and statistics.
    5b. Okay, I'm cheating. The Joyless Economy, by Tibor Scitovsky. It is quite dated, now, but it opened my eyes to the possibility that the rational maximizing paradigm cannot quite explain everything about human interactions. It made me feel uncomfortable.
  5. And now I'm supposed to Tag 5 people. Here are the new tag-ees [apologies if you were already tagged and I missed your answers; "no tag-backs!"]
    1. Craig Newmark of
    Newmark's Door. Craig introduced me to blogs, and his is the first one I read each weekday morning.
    2. Skip Sauer, co-blogger and founder of
    The Sports Economist.
    3. Kevin Brancato, co-blogger and founder of
    Always Low Prices [and major blogger of Truck and Barter]. He just finished his PhD defence, and it will be interesting to see what else he has been doing with his time (besides working and blogging).
    4. Tom Hanna of
    Tom's Rants.
    5. Stephen Ayer of
    Disinterested Party.
    Update: I just realized that Phil Miller of Market Power hasn't responded to my first tag. Maybe he'll respond if I re-tag him.

Thursday, June 23, 2005

Why Do the Israeli-Palestinian Talks Seem Stalled?

The Main Stream Media will tell you it is because Israel has refused to talk about anything until the Palestine Authority eliminates all terrorist strikes against Israel (an understandable goal). But the MSM do not mention the intransigence of the PA:

The meeting Tuesday, June 21, between Israeli prime minister Ariel Sharon and Palestinian chairman Mahmoud Abbas – their first since the February Sharm al-Sheikh summit - went badly, as all the parties admitted. There was an attempt to present the failure as emanating from Sharon’s impossible demand of Abbas to crack down on terrorism, countered by the Palestinian leader’s complaint that he would if he could, but lacks the necessary strength. Israeli Labor spokesmen later criticized Sharon for failing to offer Israeli concessions to buy the embattled Palestinian leader more popular backing.

But, all in all, DEBKAfile’s Palestinian and intelligence sources claim the published account is misleading. Nothing was settled between the Israeli and Palestinian sides because the interchange was dominated by a flat refusal by Abbas flanked by prime minister Ahmed Qureia and other cabinet ministers to budge on any of the points raised by the Israeli side. Instead they pressed hard on their own. The atmosphere of the talks dropped to freezing before they broke up.

The above quotation is taken from this source, which details the points raised by Israel on which the PA refused to budge. [h/t to Joy Wolfe]

Global Evidence of a Global Housing Bubble?

Reader MA is quite convinced that the entire world is experiencing a housing bubble. Here are two more items he sent, supporting his contention.

Housing market experts are voicing their concern that a housing bubble is spreading throughout the entire nation.

... The local standard to judge bubbles is the "jeonse ratio," the ratio of the market housing prices to the prices for jeonse, or rentals with a huge lump-sum deposit, which is the most common form of housing here.

"The jeonse ratio is dropping is because the current real estate market is dominated by money games on imaginary demands," LG Economic Research Institute analyst Kim Sung-sik said, referring to people's tendency to snap up properties whose prices are expected to rise soon.
and this one from the Times Online:

In three years house prices have rocketed in South Africa by 95%, in China by 68%, in Australia by 56% and in America and Thailand by 29%. In Britain they rose 50%. The world has never seen a boom of such breadth and scale.

“Eighteen months ago you could have bought a studio in the Jumeirah Beach residence for £40,000,” said Paul Taylor of Dubai Select, a property marketing company. “Now you could sell it for £150,000.”
If the housing bubble is so widely recognized, and it is, indeed, a global phenomenon, why hasn't it burst, yet? One possible answer is that it is already slowly deflating.

Perhaps what MA (along with others) is concerned about, though, is that a small change in fundamentals could lead to a big change in prices. See the really nice piece Alex Tabarrok has written about housing prices at the Marginal Revolution.

MRIs in Canada - -
More Bureaucratic Inefficiency

From The National Post ($ required, link courtesy of Jack):

Some Ontario hospitals are operating their magnetic resonance imaging (MRI) machines at only 40% of capacity even as thousands of sick people languish on waiting lists for the much-needed diagnostic scans, according to a new study obtained by CanWest News Service.

“What it means is that for the hours they [MRI machines] are working, they are not putting through a big volume of patients,” the author of the government-commissioned report, Dr. Anne Keller, said in an interview. “I was amazed at how inefficient some places were.”

Dr. Keller said that while lack of funding or personnel shortages are major reasons for the inefficiencies, there are also situations where there “is not optimal business management.”

Dr. Keller’s report, commissioned by the province’s Wait Time Strategy agency, is the most comprehensive examination of MRI and CT utilization ever undertaken in Ontario.
At the same time, the department of defence is sending soldiers to private clinics for MRIs [See The National Post, June 21, Canada, page 8, subscription required]:

The Department of National Defence spent $1.3-million last year to send military personnel to private clinics for MRI exams and other diagnostic tests, newly released documents show.

The Canadian Forces can legally use private clinics, where waiting times for MRI (magnetic resonance imaging) tests are measured in hours, not weeks, because it operates its own health system outside of the Canada Health Act.

For more on the use of private health care by the military and by the RCMP, see this.

My prediction: the gubmnt will insist on inserting yet another layer of oversight bureaucrats to increase the capacity utilitization of Ontario's MRI machines.

My solution: privatize MRI and CT clinics. Let private entrepreneurs determine the optimal rate of capital utilization. Private MRI and CT clinics are in plazas and mini-malls in many cities in the United States on a nearly walk-in basis. They have considerably lower waiting times than we have in Ontario, and, as I posted earlier, they even advertise in Canada for clients.

Wednesday, June 22, 2005

No "Free" Tickets to Live-8 for Me!

To qualify for a free ticket to at least some of the Live8 Concerts, you had to answer the following multiple-choice question correctly (this is a paraphrase because I can't find the link any more):
To help alleviate world poverty, rich countries must
  1. Give a lot more in foreign aid to the world's poorer countries.
  2. Write off the debts of the world's poorest countries.
  3. Reduce trade barriers in a way that is "fair" to poor countries.
  4. All of the above.

I like (3). Research results overwhelmingly support (3).

(1) is clearly and patently wrong, and (2) is just a variant of (1) except that it gives more to the countries whose leaders were better liars.

And the bleeding-heart do-gooders, unfortunately, think the answer is (4).

My conclusion: we have not done a very good job teaching economics.

Download Beethoven Symphonies from the BBC

BBC 3 radio is broadcasting performances of all the Beethoven symphonies. The performances so far have received pretty decent reviews, including "vicious precision", which makes me want to hear them. The performances of Symphonies 6 - 9 will be broadcast later this month and in early July. For some reason, the performances of the first five are no longer available for download (dammit), and there is a short window when each of 6-9 will be available for downloading in MP3 format:

Symphony 6 will be broadcast on Monday 27th June, and available to download from Tuesday 28th June to Monday 4th July.

Symphony 7 will be broadcast on Tuesday 28th June, and available to download from Wednesday 29th June to Tuesday 5th July.

Symphony 8 will be broadcast on Wednesday 29th June, and available to download from Thursday 30th June to Wednesday 6th July.

Symphony 9 will be broadcast on Thursday 30th June, and available to download from Friday 1st July to Thursday 7th July.

I can't think of any better excuse for getting an iPod or Creative Zen than to have something for listening to these downloads. 8-)

Let's hope the other members of the PLO don't see this!

Interview with Heckman

The Emirates Economist has excerpts from an interview with James Heckman. Here are some very brief snippets, but his excerpts are well worth reading even if you don't read the entire interview.

Race. Markets do many useful things, but they did not solve the problem of race. Not in America. That's probably heresy to admit it as a Chicago economist, but I became convinced that a doctrinaire notion that markets would solve the problem of discrimination is false. Civil rights legislation and civil rights activity played huge roles in eliminating overt segregation in the United States. On the other hand, I also believe that affirmative action in the post-civil rights era has played very little role in elevating the status of blacks.

Early Childhood Intervention. Enriched early intervention programs targeted to disadvantaged children have had their biggest effect on noncognitive skills: motivation, self-control and time preference. We know that there's a scientific basis for this finding.

Job-training programmes. Cognitive skills such as IQ can't really be changed much after ages 8 to 10. But with noncognitive skills there's much more malleability. That's the point I was making earlier when talking about the prefrontal cortex. It remains fluid and adaptable until the early 20s. That's why adolescent mentoring programs are as effective as they are. Take a 13-year-old. You're not going to raise the IQ of a 13-year-old, but you can talk the 13-year-old out of dropping out of school. Up to a point you can provide surrogate parenting. [I wonder how much -EclEco]
Also from the FRB interview,

Genetics and the environment. If you have an aggressive child in an affluent family, the child will get treatment, will be taken to a psychologist. Parents will take special care to override or suppress the behavior. An aggressive kid in a poor family is far less likely to receive such treatment. If his parents themselves are aggressive, they may in fact exacerbate such problems. So there are genetic predispositions, but they're always manifested through an environmental interaction.

Heterogeneity. When we look at individual data, we see very diverse behaviors. Some people react positively to schooling, for instance, and some people respond negatively. Some people react positively to job training; some negatively. There's a distribution of responses.
and there is much more there. Craig Newmark steered me to the comments at Cafe Hayek, and Arnold Kling points out what seems to be a pretty strong slap from Heckman at Steven Levitt:

In economics there's a trend now to come up with cute papers in an effort to be cited as many times as possible. All the incentives point that way, especially for young professors who seem risk-averse rather than risk-taking after they get tenure. In some quarters of our profession, the level of discussion has sunk to the level of a New Yorker article: coffee-table articles about “cute” topics, papers using “clever” instruments. The authors of these papers are usually unclear about the economic questions they address, the data used to support their conclusions and the econometrics used to justify their estimates. This is a sad development that I hope is a passing fad. Most of this work is without substance, but it makes a short-lived splash and it's easy to do. Many young economists are going for the cute and the clever at the expense of working on hard and important foundational problems.

Defeat of Terrorism Key to Middle East
says New Gingrich

In a lengthy treatise published in the Summer, 2005, issue of The Middle East Quarterly, Newt Gingrich sets out his analysis and suggested solutions for the problems in Israel, the West Bank, and Gaza. [Thanks to BenS and AlanP for the link]

His description of the problems is sound: corrupt Palestinian leaders have made the lives of most Palestinians miserable by stifling economic growth and by stealing much of the aid money and the taxes collected on their behalf by Israel.

He emphasizes, with detailed descriptions, that in the face of constant terrorism threats, Israelis have shown remarkable patience.
Israel has spent the last fifty-seven years trying to protect itself within a system in which every Israeli action is described as a provocation and every Israeli retaliation is described as disproportionate and inappropriate.
Gingrich says the burden of preventing terrorism lies with the Palestinians:

The burden for preventing terrorism should rest on the Palestinian Authority. Western governments should not bestow the privileges of governance without its responsibilities. The Palestinian Authority should be held accountable for all violence coming from its territories, and Israelis should be compensated by the Palestinian Authority for all acts of terrorism. The rules of normal international behavior should apply to both sides.

The bias against Israel is now so decisive that no one even asks why Israel has killed Hamas leaders who would be alive today if Arafat had kept his word and locked them up. The result is a vicious circle. First, Israel should not suffer the loss of its innocent citizens murdered by terrorists and simultaneously bare the burden of blame for self-protection, nor should Israel be expected to sit down and talk with the people it knows are co-conspirators in trying to destroy it. This is what the Oslo and roadmap processes have brought to Israel.
Gingrich's proposed "strategy" is fourfold:
  1. both Western governments and their Arab allies should recognize that there is a real war underway between a minority of the Palestinians and the Israelis. This minority of Palestinians has one goal: to destroy Israel. It is impossible to negotiate with this group, and it is equally impossible for the Israelis to engage in rounds of diplomacy when their women and children are being brutally murdered in an ongoing dance of death and destruction.
  2. the goal must be to establish safety for the Israeli people. It is the duty of a government to protect its own citizens.
  3. it is important to recognize that the vast, but intimidated, majority of the Palestinian people would like to live in safety, health, prosperity, and freedom. Most Palestinians do not want their children living in war torn neighborhoods surrounded by poverty and devastation. They do not want to live their lives under the heel of a corrupt, brutal, and incompetent dictatorship.
  4. protecting Israel and developing a peaceful Palestinian leadership has to precede any lasting diplomatic solution. Instead of focusing on diplomacy, the White House and State Department should develop two parallel tracks, one for helping Israel defend itself and the other for helping the Palestinian people develop a better future.

Unfortunately, his suggestions for achieving these goals (which he misnames "strategies") are unclear and weak. They cannot be implemented so long as Hamas is given any semblance of legitimacy, nor can they succeed so long as the anti-Israel bias is rampant in Palestinian schools.

Tuesday, June 21, 2005

Research on Racial Differences

I don't want there to be differences between the races. I don't want there to be racial differences in abilities, in athleticism, in susceptibility to various diseases, etc. And if there are differences, I want them to be endogenous to environment, not genetic.

I was bothered 15 years ago when Phil Rushton, of the University of Western Ontario, put forth some of his ideas about racial differences. I had hoped that noted pinko left-wing interventionist geneticist, David Suzuki, would demolish Rushton's ideas in a debate. He didn't. All he did was react with moral outrage, but he did not refute the data or the ideas.

I know, in my scientific heart, I should support continued questioning and research. I know, in my emotional being, that I don't want it to happen. But it continues. From a very long article in the Globe and Mail [thanks to BenS for the link]:

...Western Ontario's infamous J. Philippe Rushton has seized upon modern genetics as an opportunity to make his case again, in the company of Arthur Jensen, a University of California psychology professor who argues that race determines IQ.

This month, the unpopular scholars have the lead article in the journal Psychology, Public Policy and Law , presenting 60 pages of evidence arguing that genes explain 50 per cent of the IQ differences between races, in which Asians rank higher than whites and whites higher than blacks. (The publisher, the American Psychological Association, invited scientists to rebut the paper in the same issue.)

And yet, despite all the social hazards of modern genetics, Dr. Scherer said scientists should not “have to fear discussing their results of their research, so long as they are open-minded and listen to criticisms and comments from others, including the public.

For more, check out Brian Ferguson's quotation of Julia Witt's detailed analysis. Her well-reasoned conclusion is
Instead of sticking our heads in the sand, and being naïve about thinking that scientific research should not reveal things that we may not want to know, we should be ready to deal with this information when (or as) it becomes available.
I may not like it, but I know she's right.

Invite Me to be Your Graduation Speaker

This is an open solicitation.
I would like to give the commencement address at your school.
Here are some reasons you should invite me:
  1. I have a cap and gown that have been described as cool or sexy (click here to see a photo).
  2. I look very professional and academic with my gray beard and glasses.
  3. I have considerable experience listening to bad commencement addresses, so I know what not to do or say.
  4. I am an award-winning professor, with considerable acting and speaking experience.
  5. I promise not to cuss.
  6. I will charge no fees (until the demand increases considerably)
  7. I will pay my own transportation expenses, within reason
  8. You have your choice of opening lines (and topics):
  • "Never apply latex paint over glossy alkyd enamel," or
  • "There are no refunds for losing lottery tickets."

Studying Economics and Eating --
Are They Complements?

Cynthia suggests they are. She posted this to her blog and to her course message board:

When reviewing Chapter 2, the model used extensively throughout deals with a Pizza/Robot Economy. Did anyone else actually order pizza when reviewing this chapter? I did!
If studying economics and eating are complements, is it a logical implication that economists are fat? Or is the eating that takes place while studying economics a very good substitute for eating when not studying economics (do we time-shift our eating)? Or are there other important complementarities [some students would say that studying economics also induces nausea, countering the effects of eating].

In my case, any time I read about pizza and beer, like Cynthia, I'm at the fridge and the telephone. The power of suggestion easily seduces me.

Do Low-Income Countries Have a Comparative Advantage in Producing Pollution?

Harvard President, Larry Summers, is reputed to have once opined that

Just between you and me shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs [least developed countries]?

I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.... I've always thought that underpopulated countries in Africa are vastly underpolluted; their air quality is vastly inefficiently low compared to Los Angeles or Mexico City."

Even though later evidence indicated that Summers did not write that memo, it caused quite a stir.

There is now evidence [presented by Matthew E. Kahn and Yutaka Yoshino (2004) "Testing for Pollution Havens Inside and Outside of Regional Trading Blocs", Advances in Economic Analysis & Policy: Vol. 4: No. 2, Article 4. (registration required)] that in fact poorer countries do produce and export more from dirty industries, and that as incomes rise, countries migrate from emphasizing dirty industries to emphasizing cleaner ones.

Using bilateral trade data over the years 1980 to 1997 for 128 nations for 34 manufacturing industries, we document that low-, middle-, and high-income nations differ with respect to their income elasticity in exporting dirty goods. Outside of RTA [Regional Trade Agreement] blocs, we find general support for the pollution haven hypothesis. As a nation’s income rises, its exports of dirty goods decrease relative to its exports of clean goods. When we compare, low-income, middle-income and high-income nations, we find that middle-income nations have the largest dirty trade income elasticity.
Whether it was World Bank policy probably doesn't matter: if there is, indeed, a positive income elasticity of demand for cleaner air, we would expect this result just from the machinations of the market.

Interestingly, the negative correlation between country income and dirty industries does not appear to be the result of foreign direct investment by multi-national firms [see Beata Smarzynska Javorcik and Shang-Jin Wei (2004) "Pollution Havens and Foreign Direct Investment: Dirty Secret or Popular Myth?", Contributions to Economic Analysis & Policy: Vol. 3: No. 2, Article 8. There is a series of papers on this topic at B.E.Press].

Monday, June 20, 2005

Ethanol Nonsense

The agriculture lobbies are having some success in convincing politicians to require and/or subsidize the use of ethanol. Their arguments are frustrating. The truth is [Thanks for the link, Jack]:

o An acre of U.S. corn yields about 7,110 pounds of corn for processing into 328 gallons of ethanol. But planting, growing and harvesting that much corn requires about 140 gallons of fossil fuels and costs $347 per acre, according to Pimentel's analysis. Thus, even before corn is converted to ethanol, the feedstock costs $1.05 per gallon of ethanol.

o The energy economics get worse at the processing plants, where the grain is crushed and fermented. As many as three distillation steps are needed to separate the 8 percent ethanol from the 92 percent water. Additional treatment and energy are required to produce the 99.8 percent pure ethanol for mixing with gasoline.

o Adding up the energy costs of corn production and its conversion to ethanol, 131,000 BTUs are needed to make 1 gallon of ethanol. One gallon of ethanol has an energy value of only 77,000 BTU. "Put another way," Pimentel says, "about 70 percent more energy is required to produce ethanol than the energy that actually is in ethanol. Every time you make 1 gallon of ethanol, there is a net energy loss of 54,000 BTU."

o Ethanol from corn costs about $1.74 per gallon to produce, compared with about 95 cents to produce a gallon of gasoline. "That helps explain why fossil fuels -- not ethanol -- are used to produce ethanol," Pimentel says. "The growers and processors can't afford to burn ethanol to make ethanol. U.S. drivers couldn't afford it, either, if it weren't for government subsidies to artificially lower the price."

o Most economic analyses of corn-to-ethanol production overlook the costs of environmental damages, which Pimentel says should add another 23 cents per gallon. "Corn production in the U.S. erodes soil about 12 times faster than the soil can be reformed, and irrigating corn mines groundwater 25 percent faster than the natural recharge rate of ground water. The environmental system in which corn is being produced is being rapidly degraded. Corn should not be considered a renewable resource for ethanol energy production, especially when human food is being converted into ethanol." ...

o The average U.S. automobile, traveling 10,000 miles a year on pure ethanol (not a gasoline-ethanol mix) would need about 852 gallons of the corn-based fuel. This would take 11 acres to grow, based on net ethanol production. This is the same amount of cropland required to feed seven Americans.

o If all the automobiles in the United States were fueled with 100 percent ethanol, a total of about 97 percent of U.S. land area would be needed to grow the corn feedstock. Corn would cover nearly the total land area of the United States.

Gains from Trade --
one of the best ever expositions

Ben Muse summarizes a recent piece from the Washington Post, "The Payoff From Globalization" by Gary Clyde Hufbauer and Paul L.E. Grieco,

...we estimate that the combination of shrinking distances -- thanks to container ships, telecommunications and other new technologies -- and lower political barriers to international trade and investment have generated an increase in U.S. income of roughly $1 trillion a year (measured in 2003 dollars), or about 10 percent of gross domestic product. This translates to a gain in annual income of about $10,000 per household.

Unfortunately for the cause of continued liberalization, Americans do not receive this money as a check marked "payoff from globalization." Instead, the payoff is hidden within familiar channels: fatter paychecks, lower prices and better product choices...
Despite the huge payoff to the United States, maintaining political support for trade liberalization has never been easy. ... Large gains are widely dispersed, and much smaller private losses are highly concentrated. Surveying several estimates, we arrive at a middle-of-the-road figure of roughly 225,000 trade-related job losses per year. Most dislocated workers find new jobs in six months, many far sooner; but some are unemployed for an extended period. Even workers who are re-employed may face significant pay cuts. Taking these features into account, we estimate that the lifetime costs of a year's worth of trade-related job losses is roughly $54 billion, about $240,000 per affected worker.

This is a huge loss on a personal level, but only about 5 percent of the annual national gains from liberalization. Moreover, a rough estimate of the adjustment costs to agricultural landowners suggests that the progressive removal of trade barriers and farm subsidies over a decade could lower agricultural land values by $27 billion a year. The strident opposition to CAFTA from sugar barons such as the Fanjul family confirms that this is a sensitive matter. Yet again, lower property values are a one-time private loss and a fraction of national gains.
When Canada negotiated its moves toward freer trade, it implemented a "transitional adjustment programme" to ease some of the pain for those who suffered losses from the increased competition. Doing so was a wise political move, but it also reinforced the notion that the gubmnt should protect us from all downside risks. I, personally, like the idea of a safety net; but I don't think it should be so high that it drastically reduces the size of the pie.

More on the Housing Bubble

Reader MA is convinced we are experiencing a global housing bubble. To support his contention, he sent me two recent articles. The first deals with residential real estate in South Africa:

Paul Stewart, the chief operating officer of Plexus Asset Management, says there is strong evidence that a bubble exists in certain areas in the US. There has been too much investment in US real estate by builders and developers, and this has led to the supply of properties on the market outstripping the demand from buyers, Stewart says.

When there is an oversupply of rental property or, even worse, when owners cannot find tenants, fierce competition among owners for tenants results in rents falling and owners experiencing negative cash flows. Then, when interest rates rise - even moderately - over-indebted property owners get caught in a squeeze of falling yields and rising interest costs, Stewart says. These owners are usually forced to sell their properties quickly, and the large number of sellers leads to a fall in property prices.

...Stewart says that speculative growth in property prices has also been identified in other parts of the world, such as the United Kingdom, Canada, Australia and New Zealand.

...He says there is a common misconception that prices cannot fall in the property market, and that all that happens when a bubble bursts is that prices move sideways for a couple of years.However, Stewart says the examples of Japan and other Asian countries show that prices can fall - and these falls can be quite dramatic.

What concerns me about the U.S. housing market is the confluence of two related phenomena: the growth of reliance on interest-only mortgages, and the growth in second-home purchases. A rise in interest rates and/or an economic cooling-off could leave some mortgagors in pretty dire straits. The fact that housing prices have risen much less, on average, in Canada than in the U.S. could well be attributable to our relying far less on interest-only mortgages.

The other article MA sent quotes Deepak Parekh, Chairman, HDFC:
He said that today, warning signs are flashing in many global housing markets. Property market surveys have revealed that the ratio of housing prices to average disposable incomes is touching unsustainable levels.

In the US, house price inflation has been at double-digit rates since the past year. Another country feeling the pressure to curb speculation and keep the property market healthy is China.

"In India, residential property prices in some areas have recorded a growth of about 15 to 20 per cent in the last two years. This has raised concerns, and one of the questions being repeatedly highlighted is whether the escalation in demand and the resultant uptrend in prices have been driven purely by low interest rates and rising levels of affluence, or whether the success story has a speculative angle attached to it."
And, of course, some businesses are moving out of the higher-priced areas. The long-run price elasticity of demand for housing is greater than the short-run price elasticity.

Sunday, June 19, 2005

Oil Price OOOooooppps?

Remember those forecasts that oil prices would drop? I'm sure they all meant in the long-run, meaning a time span of more than a month or two.


My Drift Toward Agnosticism

I used to be an avowed atheist; but now I tend toward a bizarre agnosticism. Six months ago I had what might be called an fuzzy epiphany. The vehicle for this philosophical questioning/awakening was Brian Greene's The Elegant Universe.

When my younger son, Adam Smith Palmer, announced over a decade ago that he wanted to study astrophysics to help him understand the meaning of existence, I had no clue what he was talking about. But the explication by Greene helps me understand a bit more.
The essence of Greene's approach is super string theory; Craig Newmark has some excellent links to accessible material about this concept. The NYTimes ($ required because it is in their archive file) also published this helpful piece by Brian Greene back in April.

The principal idea of super string theory is that everything, matter and energy (and everything else conceivable), is composed of or the result of something called super strings, which are so infinitesimally tiny that no one can see them, but which many physicists believe exist; this belief is the result of some fancy math.

One implication of super string theory is that we live in an 11-dimensional bulk universe; three of these dimensions are spatial, one is time; those are the dimensions of the universe as we perceive it. But who knows what the other seven dimensions are. They are well beyond my comprehension, that's for sure.

A further implication is that our 4-dimensional "universe" is like a membrane [or 'brane] in the bulk universe of 11 dimensions. One possibility of our living in an 11-dimensional universe is that something or some things in the other seven dimensions could at times intervene in our 4-dimensional universe. And that possibility blows my mind.
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