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, September 10, 2005

Stop Stealing the F---ing Signs!

From this source:

British tourists have left the residents of one charming Austrian village effing and blinding by constantly stealing the signs for their oddly-named village.

While British visitors are finding it hilarious, the residents of F---ing are failing to see the funny side, The Sunday Telegraph newspaper reported.

... We will not stand for the F---ing signs being removed," the officer told the broadsheet.
"It may be very amusing for you British, but F---ing is simply F---ing to us. What is this big F---ing joke? It is puerile."

Local guide Andreas Behmueller said it was only the British that had a fixation with F---ing.
"The Germans all want to see the Mozart house in Salzburg," he explained.

"Every American seems to care only about 'The Sound of Music' (the 1965 film shot around Salzburg). The occasional Japanese wants to see Hitler's birthplace in Braunau.

"But for the British, it's all about F---ing."
h/t to JJ, who is British and who is off traveling somewhere ------ in Austria?
[I begged him to bring me back a sign]

I just "snoped" the story. It seems to be correct. Here is more, including real, uncensored, photos and a humourous write-up.

There must be a market for these signs, a market that could be profitably exploited by the F---ing souvenir shops. If there isn't, there should be [bizskool students can thank me later.]

Where are the t-shirts: "I visited F---ing Austria"?

and the one for the kids: "Mom and Dad Went to Austria and All They Brought Me Was this F---ing T-Shirt." The opportunities for tackiness, well appreciated by those of us in the Philistine Liberation Organization, are boundless.

Bagels and Bongos?

Until I learned about this CD, it never occurred to me that bagels and bongos might be considered complementary goods, in the sense that we use the term in economics.

"Bagles and Bongos" is the title of a new CD, a re-release of tunes by Irving Fields [h/t to JJ for the link]:
In 1959, when Irving Fields was playing piano at the Sherry Biltmore Hotel in Boston, two couples approached him with competing requests.

“One couple requested, ‘I Love You Much Too Much,’ a nice Jewish song,” Fields recalled, while the other couple insisted, “We wanna rumba.”

“So I blended them and played this traditional Jewish song as a rumba, and the crowd loved it,” Fields said.

Now 90, Fields is among a group of musicians whose music is being re-mastered and re-released by Reboot Stereophonic, a not-for-profit record label dedicated to mining and preserving music from the Jewish past. Their first releases will be lost Jewish/Latino musical classics, including those by Fields.
Here's more in this article:

"Bagels and Bongos" became a hit not only in America, Mr. Fields said, but also in Europe and Japan. A sequel, "More Bagels and Bongos," was commissioned, followed by more fusion experiments: "Pizza and Bongos," "Champagne and Bongos," "Bikinis and Bongos."
If you are interested in the CD, I recommend the site over the site. The last time I checked, the latter had a very high "import" price and an expected delivery date of 3-5 weeks, whereas the U.S. site had an expected shipping delay of 4-6 days.

Quiz: What is the cross-price elasticity of demand between bagels and bongos?

A Bit Overdone, Perhaps,
but frighteningly plausible

Steven Plaut wrote this column last October. It sets out, in an eerie parallel to the past, the potential horrors of appeasement and the seeking of "peace at any cost" in the Middle East.

If we believe that people respond to incentives, then a large part of policy-making must include trying to discern how much they respond and to which incentives. The only way to answer these questions is empirically, using experience and data from past events.

Friday, September 09, 2005

One of the Most Maddening and Sad Accounts...

Click here to read a narrative of people trapped in New Orleans, who tried many times to get out of the city, but who were forced to stay there. Forget the politics. Things like this should not have happened.

[Thanks to Alex Tabarrok of Marginal Revolution for the pointer; as he says, the situation cries out for a serious investigation.]

In the aftermath of Katrina...
indicators and contra-indicators

Mainstream Wall Street forecasters have looked like clowns before, but given the current atmosphere of economic denial, they seem more than usually foolish now.
That's the tagline of this article in MoneyWeek. [h/t to Sean]

Another quote from the article:

Michael Santoli for Barron's Magazine rather uncritically reports that, as always: "the designated market forecasters at the major brokerage firms are leaning as a group toward the bullish end of the boat. Their collective wisdom holds that the U.S. stock market can climb from 5% to 10% in the final four months of the year."

The less charitably inclined would hold that
a) Wall Street forecasters consistently amount to a herd chanting "Buy stocks"; that
b) both individual and institutional investors increasingly ignore this message on account of its inevitable banality; that
c) market forecasting is an essentially worthless occupation, and that
d) this message's essential triteness is thrown into starker relief during a time of acute national crisis in which the implications for economic growth or corporate profits are hardly unequivocally supportive.

Santoli does, fairly, point out that these same analysts have been "consistently erroneous" in their predictions of long-term interest rates above 5% - perhaps Wall Street forecasters do serve a purpose after all, as fairly reliable contra-indicators.

If This Is Multiculturalism, Forget It

A very sad tale about a woman abused by her Imam husband. He neglected her (his second wife), abused her, forced her to miscarry when she wouldn't get an abortion, and then divorced her. His punishment? Pray for forgiveness.

[h/t to JC]

Update: For more insight into the evolution of Sharia, see the posting and links by Tom Palmer (no relation).

An important element of the counterattack against the jihadis and the promoters of “Islamist” tyranny (unfortunately referred to even in the essay by the misleading term “fundamentalists”) is the reclaiming of jurisprudence from the narrow, intolerant, violent, brutal interpretation they have given to the tradition of Islamic jurisprudence in recent decades: [He continues, quoting Ziauddin Sardar of the BBC]

The essence of the argument against the Sharia is much more than the fact that its interpretation and application is illiberal and contrary to contemporary ideas of human rights.

The fundamentalist position is that the Koran is the source of all legislation in Islam and therefore the Sharia is an immutable body of sacred law.
It is this concept itself that is now being challenged.

A Forming Tornado

In August, the town of Fergus, Ontario, was hit by a tornado. I have no idea who took this photo, but it is truly spectacular.

Thanks to violinist Murray Hall for sending it to me.

Update: the photo wasn't of Fergus (thanks to a commenter for the pointer). Now I wonder if maybe it and the others in the bunch were photoshopped a bit, too.

How Long Can the Irish Miracle Go On?

If the source of the Irish miracle is low taxes and the ability to re-export into the EU, then it will likely not continue for much longer, says Sol Gradman, chairman of the High-Tech CEO Forum. [thanks to MA for the pointer]:

Ireland annually exports $14 billion in software," Gradman says. "Israel's annual software exports amount to less than $4 billion. But what did I find? The overwhelming majority [of the Irish exports] come from American companies that develop software in the United States. The products are distributed from Ireland, which serves as a bridge to the rest of Europe, and that's why they're considered Irish exports. All the Dell computers sold in Europe are marketed via Ireland, which in effect is a logistics center with no added value or technological innovation," he says.

Gradman brings up another surprising fact. "In all of Ireland, only five local software companies sell more than $20 million. The numbers are surprising. The Irish want to know how we in Israel managed to create a local industry based on development and innovation. Their success is based on a low corporate tax rate, of 12.5 percent, and cheap labor, but that could change, since Eastern Europe now is becoming attractive," Gradman warns.

"For that reason, it's not necessarily correct to look at Ireland and say `let's do the same thing.' At the end of the day, Ireland isn't necessarily the right model. They have attracted investment and the country is thriving, and I'll tip my hat to them for that. But it's not based on local entrepreneurship, and the advantages can melt away fairly easily," Gradman says.
But let's not go overboard here. Wages in Ireland are not all that low; also, logistics, warehousing, and shipping provide considerable value added. Service industries provide considerable value, and it is sometimes a mistake to think of manufacturing (or in this case, software production) as the only source of value added.

Separate, But Unequal, Courts??

I am perturbed that the Province of Ontario has even considered allowing (or requiring!) the use of faith-based law to settle some disputes.
A new faith-based court arbitration system in Ontario will not jeopardize women's rights, Premier Dalton McGuinty said yesterday, despite concerns by a group spearheading a series of international demonstrations designed to pressure Queen's Park into rejecting Shariah courts in the province.
In many instances, tolerance, multi-culturalism, and this type of religious freedom clash with other freedoms. When that happens, I hope the other freedoms win.

Critics who organized last Thursday's protests in Toronto, Ottawa, Waterloo, Montreal, Victoria as well as a half-dozen European cities, say Ontario has become the target of an International political movement by extremists to entrench Islamic law in Western democracies.

"This has nothing to do with the faith of Islam. It's political Islam," said Homa Arjomand, founder of the International Campaign against Shariah Court in Canada. "Ontario is an easy target because we have multiculturalism."

For more details on Sharia Law and its conflicts with other freedoms, see this from the Toronto Globe and Mail [reg. req'd.].

The Emirates Economist has a quite different take on this situation. Quoting from the same article,

...the government is still in the process of reviewing a report by former New Democrat Attorney-General Marion Boyd, which concluded that Muslims in Ontario should have the same rights as other religious groups that use faith-based arbitration to settle family disputes. The government has been sitting on her report for nine months. . . . Christians and Jews have practised religious arbitration in Ontario since 1991, when the NDP government at the time made it law.

If other religions can practice religious arbitration, then I don't see how Ontario can legitimately continue to deny that right to Muslims. The alternatives are all or none.
This is one of those rare instances in which I disagree with the EmEc. When faith-based arbitration conflicts with civil law, the civil law of the country should take precedence. And, according to many of the details I have read, Sharia law does indeed conflict with much of Canadian law.

Thursday, September 08, 2005

Irrational Exuberance
and Irrational Expectations?

Craig Newmark wonders why first-round NFL draftee holdouts follow this strategy if they end up, on average, worse off:
Gregg Easterbrook argues that first-round NFL draft choices who hold out cost themselves lots of money. While more data would be welcome, I think Easterbrook poses an interesting question.

One part of the explanation might be that many highly-touted prospects, given injuries and ordinary "couldn't cut it," don't get a lucrative second contract. Another might be that establishing a reputation for being a tough bargainer is also worth a lot of money.
Another possible explanation might involve biased information and expectations. If a player is drafted in the first round, he is probably an extremely good player. He and his agent and his family and his college coaches all have extremely high expectations for him.

These friends and advisors expect little gain from being realistic and encouraging the player to be realistic in his negotiations because that is like telling him he isn't so good after all. Telling him that could easily lead to being dropped as a friend and advisor and member of the retinue and beneficiary of the big bucks.

So these folks, instead, have an incentive to encourage unrealistically high expectations. And when they do not come to fruition, it isn't their fault. They know the player is good; they keep telling the player he is good. It's somebody else's fault.

Eventually, though, won't some coaches get this empirical result across to the players? And once they do, won't being a hold-out be a more lucrative gaming strategy?

Katrina and Bankruptcy:
Who is the Least-Cost Bearer of the Risk

Many, many people will not be able to meet their financial obligations as a result of Katrina and its aftermath. Major automobile credit arms have said they will allow borrowers to defer monthly payments for at least three months. Many employers are offering zero interest loans. I am guessing that others will have similar policies.

But after that, what? And what about those not so fortunate in their choice of employers or lending agencies?

Representative Sheila Jackson Lee
has announced that she and other lawmakers will introduce legislation Tuesday, when Congress reconvenes, to protect devastated families and small businesses from penalties in the Bankruptcy Abuse Prevention and Consumer Protection Act, scheduled to take effect Oct. 17.
This charitable gesture raises the question of, well then, who should bear this risk? Should we expect lenders to have anticipated the risk that the area would be devastated and to have built a premium into their interest rates? Should lenders have required that borrowers have hurricane and flood insurance (and suffer the consequences if they didn't)? Should lenders have required that borrowers obtain "interruption-of-business" or loss-of-income insurance?

We might answer "yes" to that set of questions if it makes sense to hold the lenders responsible for monitoring the situation. They, in turn, would either impose responsibility for insuring against non-payment onto their borrowers or incorporate risk assessment and risk-rating in their decisions about the interest rate charged on the loan.

Another option might be to hold the borrowers responsible. But, as with all contractual situations, if the lenders can bear this risk more efficiently, most borrowing/lending contracts would adjust, one way or another, to take these risks into account.

What Representative Lee seems to be suggesting is one of two things. The first possibility is that she wants to impose this risk on lenders. Doing so will simply have the effect, in the future, that all lenders will require all types of insurance from the borrowers.

A second possibility, however, is that Lee thinks another group should be asked to bear these risks. This group is the taxpayers in general. And I wonder under what conditions this might be desireable. Surely it is more efficient to have the parties to the borrowing contract assess and assign the risk.

The only condition under which I can think that we might want taxpayers in general to bear some of this risk has to do with altruistic concern for both the borrowers and lenders. In times of disaster, we might want to require that everyone pitch in and help. The only problem with this approach is that it does not induce people to take care in their future decisions about risk-taking and risk-assignment.

Update: John Chilton points out in a comment that Becker and Posner also address this topic.

How to Prepare for the End of the Bubble

I am not entirely convinced that there will be a massive de-bubbling of the economy. Housing prices are easing in most markets, though, and some think that spells future trouble as consumers are becoming less able to dis-save by spending the equity they have built up in their homes. Here is a summary of the views of fund manager Bill Gross, from Market Watch [h/t to Sean]:

Investors should prepare themselves now for the end of the U.S. housing bubble by avoiding assets like equities, real estate, corporate debt and junk bonds, said Bill Gross, managing director of Pacific Investment Management Co.

In his monthly investment outlook, Gross advised investors to "cut the fat" from their portfolios.

Gross, a well-regarded bond bull, said the housing bubble is likely to either stop inflating, deflate or pop within the next few months, leading to a slowdown in economic growth. Read his commentary.

...If the bubble ends, investors must prepa re for the "debt liquidation" that Federal Reserve Chairman Alan Greenspan warned about 10 days ago, Gross wrote.

I have been concerned about overall asset inflation for the past year myself and have rebalanced my self-directed pension funds to be a bit more liquid than they used to be.

What is British for
"Impeach the Mayor"?

Once again, I have to wonder (and be concerned) that Ken Livingstone was elected mayor of London, England.

Ken Livingstone is to face a disciplinary hearing for likening a Jewish reporter to a Nazi concentration camp guard, it was announced today.

The London Mayor is to appear before the independent Adjudication Panel for England to face allegations that he failed to treat others with respect or brought his office into disrepute, the Standards Board for England, the local government watchdog said.

Mr Livingstone could be banned from office for five years, told to make an apology, suspended, made to undergo training or censured, if the panel decide he has breached the Greater London Authority code of conduct.
Read more here.

Katrina Relief and Softwood Lumber,

I recently picked up on a posting by Brian Ferguson that if the US wants to help with the rebuilding along the Gulf Coast, it should take the illegal tariff off the import of Canadian softwood lumber. I cross-posted that piece to The Western Standard, where it prompted considerable discussion. In response to the comments there, Brian has greatly extended his analysis at A Canadian Econoview. Here are his concluding paragraphs:

[P]rotectionism is a powerful drug and those who are hooked on it fight furiously to stay on it. And the benefits of free trade are never obvious to the public at large. We in the economics profession have not done a good job of selling the notion. It's kind of embarrassing, in fact, to think that we're still fighting the anti-mercantilist battle that Adam Smith entered into with the Wealth of Nations. It'll take a long time before most countries are willing to follow the example of 19th Century Britain and adopt a general, and genuine, free trade policy.

Battles like those we have with the US through NAFTA and the EU through the WTO make the whole business look pretty futile. Unfortunately, there are so many interests vested in protectionist policies that it's a struggle that'll have to be won by inches. Ultimately, though, they are battles that are worth fighting.

Mark Steyn on New Orleans

Mark Steyn commenting on New Orleans and on the $230m. bridge to nowhere in Alaska:
Given that the transport infrastructure's already in place, maybe it makes more sense to rebuild New Orleans in Alaska.

h/t to Jack.

Wednesday, September 07, 2005

What the Media Would Have Said
Had Katrina Hit While Clinton Was Prez

Craig Newmark has a wickedly hilarious piece on how the media would be treating the situation if Katrina had hit and Bill Clinton were president. Excerpting from it is impossible; you won't regret it if you read the whole thing!

One Way to Help with the Rebuilding after Katrina

Brian Ferguson writes at Canadian Econoview that the rebuilding in the US South is going to increase the demand for lumber tremendously.

As the demand for materials to rebuild the Gulf coast places upward pressure on, for example, lumber prices, perhaps this would be a good time for the US to eliminate that tariff on Canadian softwood lumber? I've argued that tax cuts on gas won't bring the price of gas down beyond the very short run, but I suspect that lumber is more elastic in supply than gas, so a tariff cut might help.

And I'd Guess Our Union Dues ....

I was welcomed back to campus today with a mass e-mail from our faculty union:

...The Media Guild has requested that all CAUT and OCUFA member associations (we are in both) and their constituents refuse to give interviews or otherwise participate in CBC-related events until the dispute is ended and the CBC staff are able to resume their work.

As you are aware, members of the Media Guild have been locked out by CBC management. UWOFA has twice proposed negotiating goals, ratified by the membership, that would entitle its members not to cross picket lines. As colleagues in a union, we should each honour the request of the Media Guild.
But... but.... but... I love the CBC the way it is! More Music! Less Talk!

The Deflation of the Housing Bubble

Housing prices fell in July: [h/t to Sean]

The Wall Street Journal missed it ... and so did almost every major media outlet. When the new statistics on new home starts and pricing came out last week, the good news was overwhelming. Housing sales were up 6.5% "to break yet another record," reported WSJ.

So what did everybody miss? Namely, one small detail that tells more about the housing market than most statistics ... and very possibly is the first crack in this enormous real estate bubble.

Get this:
The median price of a home fell in July by a whopping 7.2%.
And the details paint an even more alarming picture of the staggering decline in the U.S. housing market. Since April, median home prices have fallen 14% ... They fell from $236,300 in April to $203,800.
Of course some regional housing markets have been thrown further out of whack by Katrina. Many homes were destroyed or rendered uninhabitable. Elsewhere, homes that had been on the market for months have been snapped up at listed prices (or more) in some places. And the demand for rental units is sky-high in the areas that have taken in many refugees.

So while the housing bubble may be deflating overall in the US, and may continue to deflate in the especially inflated markets on the east and west coasts, in other areas the deflation of the bubble will not likely be severe, if it happens at all.

How many real estate speculators in the south bought places on Monday afternoon, after news of the levee breaks, hoping to flip them within a couple of weeks? Would doing so somehow be immoral? Would selling a house at a price above the August 27th listed price be "price gouging"? Or is there an implication in anti-price-gouging advocacy that people who can afford to buy a house don't need protection from the evil, nasty price-gouging real estate speculators?

Gimme Your Lunch Money, Kid

This article is from BenS

The principal of one of the city's most respected public high schools has been ousted for urging parents to lie in order to milk the National School Lunch Program for extra cash.

Maurice Collins, the principal of A. Philip Randolph HS in Harlem, also threatened to withhold transportation for children whose parents didn't turn in their school-lunch applications.

The food firestorm started when Collins sent parents a letter urging them to lie about their wealth on the lunch applications — telling them that doing so would boost the school's budget. ...
To read the rest, you will have to register.

If school principals engage in such practices, how can we expect students to learn respect for law, order, legal entitlements, democracy, and due process? I hope they nail him.

Vile France:
the Book the London Library Would Not Order

BenS tells me that he and his wife have asked the London Public Library to order this book. Here are some excerpts from this review:

As Denis Boyles writes in the introduction to Vile France, “What we mistakenly see as a craven, anti-Semitic, hypocritical, hysterically anti-American, selfish, overtaxed, culturally exhausted country bereft of ideas, fearful of its own capitulation to fundamentalist Islam, headed for a demographic cul de sac, corrupted by lame ideologies, crippled by a spirit-stomping social elite and up to its neck in a cheesy soufflé of multilayered bureaucracy is actually worse than all that. It’s vile.”

In this bitingly funny and insightful polemic, Boyles, who has lived and worked in France for several years, examines the internal crises—a falling birthrate, an expanding Muslim minority, economic stagnation, a lessening of international prestige—that have changed the personality of what was once “La Belle France,” transforming it into a nation afflicted with status anxiety.
The library has, so far, refused to order the book. Perhaps they fear repercussions from Carolyn Parrish, the Canadian Member of Parliament who hates Americans and who once threatened to beat up an opponent.
. . . . . . . . .

Tuesday, September 06, 2005

Judge Kozinski Reviews (Pans)
A Constant Gardener

I must say, I thought the book, The Constant Gardener, was pretty dumb. Judge Alex Kozinski (of the 9th Circuit [note: this guy should be appointed to the Supreme Court!]) posted this review, saying the movie is at least as bad. Excerpted below is the intro to his review. Don't read the whole thing unless you don't mind spoilers, but here is what he had to say about the spoiler:
Please note, there are some spoilers, so if you plan seeing the movie, no matter what, and want to be surprised . . . .
Well, it's going to be hard to be surprised by this movie, if you have the intelligence of a turnip, but if you don't want to know the ending and such stuff, don't read the comment.
Here's the intro to the review:

I thought this movie would never end. The plot is a thinly disguised disinformation piece about how westerners, and particularly large drug companies, are taking advantage of Africans out of greed. No anti-western and anti-business cliché is omitted, and they are trotted out in a monotonously predictable fashion. Though the movie takes for-e-ver to plod through its torpid paces, there is no mystery here about how it will come out, or why. There are no plot twists, no startling denouements, nothing even mildly surprising. Endless camera shots--closeup and wide angle--of African poverty is supposed to give this movie higher meaning, but that motif has been done so much more effectively--and realistically--in other movies, like Hotel Rwanda, where the suffering is palpable. Here it is just a vehicle for carrying the movie's anti-western message.

Students' Reactions to High Textbook Prices

Economists know that people respond to incentives.

Economists know that demand curves are downward-sloping.

But how can the quantity demanded possibly respond to higher prices if students need the textbooks for their courses? The professor chooses the book, and the students have to buy it, right?

As all economists also know, "It all depends."

It turns out that not all students buy the assigned textbooks. Some students share a text. Some students hope to count on using a reserve copy in the library. Sometimes, I have been told, students will even attempt to pass a course by (maybe, sometimes) going to lectures, getting class notes from fellow students, and praying a lot. And there is evidence that these alternatives become more prevalent as textbook prices rise (in real terms).

But there is even more to how students react to textbook prices. [thanks to Skip Sauer, chief blogger at The Sports Economist, for the link]. They also exhibit considerable savvy about the market for durable goods.
... students skip buying a book that was published a few years ago far more often than they skip buying a new edition, and there seems to be only one explanation for the difference.

The students understand that the book with an older publication date is effectively more expensive than a more recent one, because the older one is more likely to get revised soon and lose its resale value. When an $80 textbook can be resold for $40, on the other hand, it effectively costs $40.

In the semester before economics textbooks are revised, sales plummet, typically by 50 percent, according to the researchers, Judith Chevalier, a Yale economist, and Austan Goolsbee, a University of Chicago economist.

... During the early part of a book's life, sales drop steadily, about 15 percent each semester, as the pool of used books on the market grows. But once it gets old enough to be in danger of revision, many more students suddenly say no thanks.

...But there could be a rational explanation for that, too. Parents sometimes pick up the bill for the new textbooks that a student buys at the start of a semester. The cash that comes from reselling the book often has a way of not making it back to mom and dad.
Several years ago, a student told me that, for many of her courses, she was able to find used copies of textbooks that had never been opened! I couldn't believe it. Even in my worst days as an undergrad (and there were many), I opened the books, pretended to read them, and made marks, which, upon review look like random pen scratchings.

Buying a book and not opening it somehow seems beyond the rational scope of "the economics of durable goods" unless these students are blatantly conning their parents or other funding agencies.

Maybe They Should Ask for Advice from Israel

What would best help Palestinian economic development in the Gaza strip?

... According to World Bank figures, Palestinian per capita gross domestic product, a basic measure of economic output, has plummeted from $1,493 in 1999, before the intifada broke out, to an estimated $904 this year. The poverty rate has soared from 20 percent in 1999 to 54 percent. Unemployment is approximately 28 percent.
... "If you poured in a lot of financing at this time, it would not have a big impact. It would not be very effective," said George T. Abed, who retired earlier this year from a senior position at the International Monetary Fund, then was appointed governor of the Palestine Monetary Authority. "Governance is poor. It would be wasted."

Abed, 66, a UC Berkeley-trained economist, said the view from inside the territories is different from the perception some may have from the outside. Although unemployment and poverty are rampant, Palestinian banks are overflowing with deposits, he said, and many wealthy Palestinian entrepreneurs living overseas are eager to invest in the territories.

The immediate challenge, according to Abed, is building a modern system to handle the existing capital efficiently, not attracting more -- at least not yet.
The article continues:

The Palestinians already receive the highest per-capita donor aid in the world, according to James Prince, a consultant to the Palestinian Investment Fund and co-author of a recent report, "The Economic Road Map: Beyond the Israeli-Palestinian Conflict."

The funds, Prince said, have not done much beyond ensuring a minimum standard of living. But they have left the economy weakened because little of the money has been used to encourage private investment. Job gains have been temporary, he said, and the Palestinian Authority has been left with a huge, cumbersome public sector.

"Many of the donor programs have not only been ineffective, they have harmed the economy," said Prince. "Cash is not the issue. What you need is investor confidence."

[h/t to BenS for the pointer]

Sunni Women Key to Iraqi Constitution Vote

Salim Mansur is a colleague in the political science department at UWO. He has just published a column about the upcoming Iraq consitutional vote. He predicts the constitution will be accepted.
It's a safe prediction that an overwhelming majority of Iraqis will approve their newly minted constitution in the Oct. 15 referendum.
Interestingly, he says Sunni women will be the key to its approval.

Irrespective of faith and ethnicity, when given the opportunity as in Afghanistan and in Iraq's January election, women have voted to extend the limits of freedom. Women across the Arab-Muslim world know best how cruelly unenlightened and repressive is the patriarchal system imprisoning them.

Women also seem to understand instinctively that a constitutional order, however perfect in conception, must be nurtured through its infancy into maturity with patience, as any living arrangement within family or society requires.

One-half of Sunni Arab voters are women, and in the privacy of the voting booth will more than likely vote for freedom and democracy.
We'll see.... I hope he's right.

Are Sharing, Caring Societies Less Likely to Have High Growth Rates?

Bryan Caplan says they are.

As is often the case in rural Latin America, there is strong social pressure on the most economically successful villagers to take a turn at the helm. During his term, the leader is expected to basically burn up his personal fortune to pay for public services. If he persistently refuses, he loses a lot of respect... and maybe more. (Insert thinly veiled threats here).

This set-up is known as the
cargo system. As one website explains:

In the context of the religious system that the descendants of the Mayan Indians practice the word "cargo" refers to a burden. These burdens are offices held by individuals within a community that consist of civil-religious duties that are to be carried out by the office holder. Office holders are required to use their own money to cover the expenses involved in carrying out these various duties, and often use all their savings in order to complete their terms.

If you want to avoid this burden in Oapan, Tyler [Cowen] explains that there are several common escape routes:
1. Avoid success. Those who have no money to spare aren't pressured to lead.
2. Be a drunk.
3. Convert away from Catholicism.

Now think about how bad these incentives are. Any villager who wants to get ahead knows that if he does, he will have to either give away most of what he earns, or become a pariah, an apostate, or a drunk. Despite the low level of formal taxation, the effective marginal tax rate in Oapan is probably above Swedish levels.
I'm not an anthropologist, and I'm not much of a historian. Which came first: the cargo system or poorly developed capital markets? If there were well-developed capital markets, the incentive to break free from the cargo system would have been (and would be) greatly enhanced.

Update: The Gods of the Copybook Headings thinks well-developed capital markets wouldn't have much effect on the system. It's an interesting piece, well worth reading.

Monday, September 05, 2005

Trade-Offs: HDTV vs. CRC

Maximizing utility subject to a budget constraint

For the past several months, Ms. Eclectic and I have been contemplating buying a high-definition television set and decoder. Last week, our cable company put the decoders on sale.

Then Katrina hit, and so we sent the money to
The Canadian Red Cross.
We can wait a few months for HDTV.

This is a massive tragedy. I urge you to give to some reliable charity.
[This posting has been moved to the top until September 6th]

Has There Been an Insta-Move?

So far as I know, there is
no truth to the rumour
that this man has moved to
Clinton, Ontario
(population, 3300)

The Contrast between Mississippi and Louisiana

I've become increasingly upset with the media's reporting about the failure of the US federal gubmnt in the relief effort. I understand the anger at FEMA, but their failures are minor in comparison with others. Where is the anger about the horrible lack of planning and inability to take charge early on? These were clearly local and state, not federal, responsibilities.

Here is something really worth reading: [link via instapundit]

One of Chrenkoff readers reflects on different responses to the Katrina devastation throughout the South:

I read Gov. Blanco's (D-LA) statement too with some weird bemusement. Free tip - contrast the Louisiana situation with the one next door in Mississippi - Gov. Barbour (R-MS). What's been lost in all the blather over New Orleans is that it was really Mississippi that took the big hit. The buildings in New Orleans are still standing; the Gulf Coast of Mississippi basically has been scrubbed, like God took out a pencil eraser and just erased it. (Up in the northern hemisphere, since storms spin counterclockwise, the worst part of a hurricane is the "right-front" quadrant - because the wind is going with the momentum of the storm's movement, plus the wind pushes the storm surge along. The center hit basically at the MS/LA state line, so MS was on the bad side.)

I really don't like to find fault at times like this, but one thing that was missing was a quick recognition that in such a situation the potential for civil collapse is nearly 100%. Once the weather settles, you need to immediately declare marshal law and send in the MPs. That's basically what Haley Barbour did in Mississippi - there were a few early problems but very quickly the MPs were patrolling what was left of Biloxi and Gulfport and keeping a lid on things. Back on Tuesday when I put on the news and we all saw Kathleen Blanco bursting into tears, I knew that was the wrong message and would bring trouble. Louisiana and New Orleans basically have those touchy-feely, "I'm okay, you're okay" soft-leftie types in charge. Their education took a few days and has been expensive.

So I hope you're Watching Mississippi. Highly recommended - we may have found our next President out of this (you heard it here first).

Amidst all the hyperventilating that's going on, it's actually a good time for a civics lesson, particularly watching the competence of the people in Mississippi and the gross incompetence of almost all concerned in Louisiana. Who was responsible for what?

- The mayor of NO has been a good hyperventilator, but one thing became obvious quickly. NO is below sea level and it was inevitable that someday The Worst was going to happen. NO didn't even take the worse possible hit (MS did), but it was clear that no one in NO had ever planned for The Worst. Last weekend, the mayor said, "Everyone get out of town." It's obvious that lots of people weren't able to just load up the car and go - folks with no transportation like that, the incapacitated, patients in hospitals, etc. There was no plan to really evacuate the city, and it's the local officials (over decades) who were responsible for that.

- Why wasn't the National Guard called out sooner to maintain order? Responsibility with each state's National Guard contingent in situations like this (where they operate within state boundaries) is the responsibility of each state's governor. To put it bluntly, the responsibility for calling out the NG in LA rested with the governor. If it didn't happen on time, that's HER failing.

Mississippi got hammered much worse than Louisiana but is barely in the news because the leadership has been much more competent. Ms. Blanco is clearly way out of her league in this situation.

This was a good reminder that LA has for decades been our worst managed and most corrupt state. I briefly caught a bit of the News Hour last night, and David Brooks pointed that out; he also pointed out something that's pretty obvious - for the most part, the South has been booming for the past 25 or so years. The major cities went from backwater jokes to leading cities - Atlanta, Raleigh, Dallas, all of Florida, etc. The "hole in the map" in all of this has been Louisiana - it's like the last 25 or 30 years of southern growth have passed it right by. Get away from the gussified tourist areas and NO is a pretty awful city.

He also asked why we were so good at quick response halfway around the world in Banda Aceh while we seemed so unable to handle something right in the country. That's actually pretty obvious to me. Indonesia was a piece of cake because there was no bureaucracy out there - "What have we got over near there?" "The USS Lincoln battlegroup." "Send 'em in and let the Navy people on site to run the show." Inside this country, you have multiple interlocking bureaucracies that just don't know what to do on their own, let alone when they try to interact.

What is it about Louisiana? Check out this report in Little Green Footballs that medical assistance was turned away!

And here is even more:
It seems pretty clear that Blanco was doing everything possible to avoid asking for the help that the President is now being blamed for not providing immediately after Katrina struck.

Inefficiency At San Francisco State University?

I recently saw a letter dated late July 2005 from the registrar at San Francisco State University (name omitted by request).

July 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Term: Spring 1997
Foreign Address . . . . . . . .Degree Conferred: Master of Arts

Dear _________

The final review for your application for graduation has been completed and you have met all requirements for your degree.

... Again, congratulations from the staff and faculty of San Francisco State University on the successful completion of your degree and best wishes in all future endeavors.
I have no idea why it took them 8 years to mail out this letter. [and, yes, all the requirements were completed in 1997]

and it didn't even contain a request for a donation to the Alumni fund!

Which Wine Goes Best with a Big Mac?
the economics of complements

Alex Tabarrok is now an honourary life-time member of the Philistine Liberation Organization for having sent me an article by Matt Hopkins from the Washington Post [reg. req.]:

In the interest of full disclosure, I eat fast food with guilt. I gravitate toward an assembly line meal's stronger flavors, despite knowing I'm often choosing the least healthy option on the menu. To compensate for the large number of deliciously greasy calories, I pass on the fries and the supersize soda. But the lack of a sweet cold liquid leaves me craving something more.
My second confession is easier to admit: I drink strong peppery red wines with just about everything.

Even though I'm an avid reader of wine magazines, a veteran of wine club tastings and known among my friends for my improper thoughts, it still took time for me to concoct the odd idea to combine my two vices: A wonderfully deep fruity zinfandel would be just about perfect with my new favorite mushroom Swiss burger (I'm a sucker for those "limited time" sandwiches, too). ...

"Hi, could I have value meal No. 5? Yes, with the Sonoma zinfandel, unless the chef has a different suggestion. Okay, supersize please."

After a little experimentation, turns out my odd pairing isn't so odd. The current fast food fixation on lighter, fresher foods and spicier sauces is made for a stronger drink. More suggestions for fast-food favorites made to pair with wines that usually cost less than $15:

To see his suggestions, click here.

What a great new set of examples to use in the classroom when teaching about complements!

Update: Phil Miller has the answer to the question in the subject line.

Ms. Eclectic's Garden

Sunday, September 04, 2005

Oil and Refining Capacity;
a shock waiting to happen

By now, most people know that the impact of Katrina on oil supplies and oil prices was not very substantial, relative to the relevant market -- the world market for oil. I even shook my head in disbelief when I read that the US federal gubmnt was planning to release some oil from its strategic reserves, and that other countries have promised to so, too, as if that do much to affect the markets.

The major impact of Katrina in the energy markets has been (and will continue to be) on gasoline and heating oil, not on crude oil. The reasons are well explained in this NYTimes article [reg. req., thanks to Sean and JJ].

No new refinery has been built in the United States since 1976. Over the last quarter-century, the number of refineries has fallen by more than half, to 149. Some, but not all, of that capacity has been made up by expanding or improving existing facilities. Refining capacity has declined by 10 percent, to 17 million barrels a day.

Over the same period, however, gasoline consumption has risen by 45 percent, to 9.5 million barrels a day. Domestic consumption of oil, including that used to make gasoline, is more than 20 million barrels a day.
Disruption to 25% of the US refining capacity, and destruction of some of it, means that even if the US had lost no oil pumping ability, there would be large price increases for gasoline and heating oil. If, indeed, the price elasticity of demand for gasoline is 0.7, prices will have to rise by more than 30% above the pre-Katrina levels, and stay there for some time, to clear the market.

Update: For more on the implications of these price hikes, see this item in the WSJ. It says 10% of refining capacity was lost; thus if the price elasticity of demand for gasoline is .7, then the price will have to rise by only about 14%; that's plausible if the elasticity is a longer-run measure.

How long prices will stay that high depends on several factors:

  1. How long will how much refining capacity be disabled?
  2. How much refined gasoline and heating oil can be purchased internationally?
  3. To what extent are gubmnt bureaucrats gonna mess with the market system?

This last point, sadly, is missed (as seems typical) by the NYTimes:

Still, with no government control over either prices or supplies - and despite the global emergency coordination, the pledges of rising European imports and the loans from American strategic stocks - the risks to oil markets remain very high, analysts and economists said.

I don't believe this. I would like to see the names of the economists who said this. One thing has become very clear over the past forty years: the risks to oil markets are higher when gubmnts try to control them.

tasty rodents

Nutria are large semi-aquatic rodents that have been destroying the marshlands of Louisiana. They were imported to be raised for their fur, but have gone out of control in the wild. Here is a brief item about them from the National Geographic:

Loiusiana's Department of Wildlife and Fisheries estimates that currently over 63,000 acres (25,000 hectares) of coastal wetlands have been demolished, or chomped, by the now ubiquitous nutria. The large, marsh-loving rodent, somewhere between a muskrat and a beaver, was brought to Louisiana from South America in the 1930s for the fur industry and has since claimed Louisiana's coastal wetlands as home. The Department of Wildlife and Fisheries is hoping to control nutria populations by encouraging Louisianans to trap them. And eat them.

Nutria meat, also called ragondin, is likened to rabbit or dark turkey meat. It is higher in protein and lower in both fat and cholesterol than beef, chicken, and even turkey. Though nutria is difficult to find on menus, the department hopes it will one day become a popular dish and has even posted recipes on its website: So remember, "Nutria: Good for You. Good for Louisiana."
Yum. Swamp rat.

I know what I'm ordering in a restaurant the next time I have the chance while visiting the South.

The Ray Nagin Memorial Motor Pool

All those unused school buses!

link via Instapundit

How Much Will US Energy Crunch Affect Europe?

Sean and JJ sent me this article from Reuters UK:

BERLIN (Reuters) - The head of the West's energy watchdog said in an interview on Saturday that Hurricane Katrina could spark a worldwide energy crisis if damage to U.S. refineries led to a big increase in U.S. purchases of European petrol.

"If the crisis affects oil products then it's a worldwide crisis. No one should think this will be limited to the United States," Claude Mandil, head of the Paris-based International Energy Agency (IEA) told German daily Die Welt.

"They are already buying gasoline in Europe. If the refineries are damaged, that will only increase. Then this will become a worldwide crisis very quickly."

This is a form of "arbitrage", and the effect is to move scarce resources from lower-valued uses to more highly-valued uses, as measured by willingness to pay. It helps explain why gasoline prices have jumped in Canada, too.

Rest assured, it will become more of a crisis (requiring more bureaucrats, of course) if the market system is not allowed to function fluidly.

Meanwhile, in the US, the Joint Economic Committee issued a report on the expected economic impact of Katrina. Here are just three of its points [ht to econopundit]:

o Potential effects of heightened energy costs on consumer spending, which accounts for roughly 70% of GDP, present an increased risk of a significant slowdown in economic growth in coming quarters.
o Katrina-induced energy price spikes have sharpened the focus of consumers and businesses on already-elevated energy prices. Prices in long-dated energy futures suggest that elevated energy prices are expected to be more than just a temporary phenomenon.
o To the extent that persistently elevated energy prices are born out in the future, we will increasingly see purchasing patterns in consumer durable-goods spending and business investment spending change, with substitutions occurring away from relatively energy intensive goods toward more energy-efficient goods.

Is Dr. Jayant Patel the Latest "Doctor of Death?"

Des Bramich suffered a chest injury, but seemed to be recovering well.

But as soon as Bramich's condition appeared to be stabilizing, he suddenly took a turn for the worse. Fluid was building up around his heart, which needed to be attended to immediately. Dr. Jayant Patel, 55, who was on duty that day, took control of the situation. He immediately scheduled an operation to drain the excess liquid, "a procedure that required a large needle to be pushed into a sac surrounding his heart," Meraiah Foley reported for the Associated Press.

During what should have been a routine operation, medical staff watched in shock as Patel stabbed Bramich with a needle around 50 times in an effort to penetrate into the chest's pleural space. Chandler quoted Toni Hoffmann, a nurse in the hospital's intensive care unit (ICU): "the whole thing was like a nightmare" and Patel was "really out of control." The intervention failed, leading to Bramich's death the following day.

Hoffmann filed numerous complaints concerning Patel's handling of Bramich, as well as other patients. The grievances sparked an investigation, in which Patel would be the primary suspect in at least 90 patient deaths in Australia and the United States. Moreover, he would be linked to at least another 170 other cases of alleged medical misconduct in both continents, which had yet to be proven. As details slowly emerged, investigators realized that they were unraveling what was likely one of the biggest medical scandals in Australian history.
To read all the details of the ongoing investigation, see this. It has twelve "chapters". [thanks to BenS for the pointer]

Update: Brian Ferguson writes to say, "It gets better." Inquiries and court cases and accusations of bias and outrage from former clients and....
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