Friday Special 128

Best wildlife pictures

Excellent interactive graphic that helps explain the scale of small things

by mendoza | Friday, October 30, 2009
  | 0 comments | | Friday Special 128 @bluematterblogtwitter

How will history judge the Almost-Depression of 07-09?

In 20 years time, the concensus amongst economic historians will be that the prime reason behind the Almost-Depression was central bankers' reluctance to pursue aggressive enough monetary policy, either by generating some inflation so that real interest rates can come down, or by other means.

They will argue that a few percentage points additional inflation would have worked wonders in softening the recession, and they will dismiss arguments that long-term central bank credibility would have suffered as a result. They will marvel at how anyone could have let below target inflation (let alone deflation) take hold, and they will label as disingenuous claims that the tools available to central bankers and policy makers at the time were insufficient to generate the required degree of inflation at will.

They will comment extensively on the shocking lack of international co-ordination, both amongst central banks and governments. Finally, they will have some rude things to say about using fiscal policy, with all its adverse effects on public finances, when a small tax on monetary assets (i.e. inflation) could have done a better job, and much more neatly.

In other words, the consensus in 20 years' time will be what Scott Sumner is already saying today.

Global poverty and inequality 1970-2006, by Sala-i-Martin and Pinkovskiy

Maxim Pinkovskiy and Xavier Sala-i-Martin have an important new NBER paper out parametrically estimating the world distribution of income. Some highlights on poverty:

  • Defining poverty as less than $1/day, world poverty rates fell by 80% from 27% in 1970 to slightly more than 5% in 2006.
  • The corresponding total number of poor fell from 403 million in 1970 to 152 million in 2006.
  • Similar findings apply if other poverty measures are used ($2/day, 5$/day, etc)
  • These estimates are much lower than what is suggested in other research.

The paper is an obvious must-read. I haven't yet had more than a quick look at the methodology, but it all looks decent enough for this sort of thing and even impressive at parts, and of course Sala-i-Martin's name is a gold seal of quality.

People doing crazy stuff with a football

I don't even know who these people are, or how american football is played, but this video is impressive. (Thanks Keiju)

Friday Special 127

Why once-wealthy Argentina has performed economically so poorly in the past century

by mendoza | Friday, October 23, 2009
  | 0 comments | | Friday Special 127 @bluematterblogtwitter

Give condoms, save the world

One of the cheapest ways to curb emissions in coming decades would be to provide access to birth control for tens of millions of women around the world who say they desire it.

U.N. data suggest that meeting unmet need for family planning would reduce unintended births by 72 per cent, reducing projected world population in 2050 by half a billion to 8.64 billion.

The 34 gigatons of CO2 saved in this way would cost $220 billion. However, the same CO2 saving would cost over $1trillion if low-carbon technologies were used.

Dot Earth has more, and here's the link to the numbers (pdf).

Wonders on sand

Kseniya Simonova performs Germany's invasion of Ukraine by drawing with sand on a lightbox. You have to see it to believe it, this is simply awe-some.

HT Kottke.

by datacharmer | Thursday, October 22, 2009
  | 0 comments | | Wonders on sand @bluematterblogtwitter

Aleka's shoes

One of my parents' good friends is a very successful (and rich) lawyer in her late fifties who grew up near Nafpaktos in western mainland Greece.

Back in the 60's when she was graduating from primary school, pupils needed to pass a challenging set of exams if they were to proceed to high school. Aleka almost didn't make it, and the reason was this: her father was dead worried that, if she failed the exams, the family wouldn't have any use for a girl's pair of shoes - and he refused to make the investment up to a few days before the exams. Aleka had no shoes up till then, and shoes were necessary to be allowed in the exam hall.

Going further back to the 1930's, my grandfather also passed his high-school exams, one of only two people in his entire (very large) village to achieve the feat that year. To get to the school, he had to walk 40 kms (a full marathon) every Sunday to get to the city, and 40 kms every Saturday to get back to his village. My great-grandfather made sure shoes were provided, but there was never any thought of my grandfather wearing them during his twice-weekly marathon: that would wear them out, and with no shoes there would be no school.

Fast-forward to the present, and I'm tutoring 15-year olds in economics. The subject turns to economic growth (shockingly, not part of the syllabus), and I ask them whether they think people today are better off in material terms than they were 40 or 60 years ago. They usually hesitate to answer economics questions, and they often disagree with each other. This time, there was no need to pause for thought: they all confidently told me that people today are much, much poorer.

by datacharmer | Wednesday, October 21, 2009
  , , | 1 comments | | Aleka's shoes @bluematterblogtwitter

Charter cities

This economist thinks that Paul Romer's charter cities are an amazing idea, one that is very likely to speed up the process of eradicating poverty across the planet. I also think that they they will be easier to establish, politically, that perhaps even Romer believes. I may be naive, but I can very easily picture a Nobel-Peace-Prize-winning Obama ceding control of Guantanamo to the Canadians or the Norwegians for a limited time period before it is returned to Cuba. (for background on Charter cities and the US-Canada-Cuba scenario, see after the jump at the end of this post)

Chris Blattman disagrees:

Fundamentally, I think this is a problem not of economy, but political economy. Even if we know what an ideal Charter City looks like, have we mapped out how to get there amidst the lobbyists, big business, and international interests?

I think the crucial thing Chris is missing here is that, unlike say health-care reform, there really isn't any powerful constituency that would oppose Charter Cities. Lobbyists of all and any colours have no reason to fight them. Big business - all big business - has much to gain and nothing to lose. I find it hard to think of many scenarios where 'international interests' take offence.  There are gains from Charter cities that can be split between stakeholders so that everyone's happy.

Even if you think there are cases where some interest group objects, Charter Cities are small enough to ensure no-one stands to lose so much that they can't be brought around. 

Maybe it's time someone started tracking membership of the Charter City club (modeled along the lines of the Pigou club). In that case, count me in.

by datacharmer | Wednesday, October 21, 2009
  , | 1 comments | | Charter cities @bluematterblogtwitter

The Brawn fairytale

Andrew Benson chronicles a remarkable year for Brawn GP. Apparently (although not in the track), the car was 'a botch job':

[The Brawn car] was the fastest thing in the field by a mile, and Jenson Button went on to win six of the first seven races, the foundation for the championship he finally clinched on Sunday.

What is less well known, though, is that the car is, in the words of my source, "a botch job".

It was designed for a Honda engine, and it was not until December that the team knew they would be using a Mercedes. That necessitated some pretty crude changes.

"The chassis had the back six inches cut off to fit the engine in - the sort of thing you wouldn't normally do even with a test car," says my source. "And the gearbox was in the wrong place because the crank-centre height is different. There's a massive amount of compromise in the cars."

by datacharmer | Tuesday, October 20, 2009
  , | 0 comments | | The Brawn fairytale @bluematterblogtwitter

Never buy insurance for small things

You should never buy insurance for anything you can afford to replace, and you should always buy insurance for those things that you wouldn't be able to cover yourself (healthcare and fire insurance are good examples).

This way, you won't have to pay the insurance premium (moral hazard, adverse selection and overheads go away), and you will save money in the long run, even if stuff breaks from time to time. If you want some more solid numbers, Tim Harford suggests in an excellent Slate piece that by doing this you could save more than 90%* of what you would pay on buying insurance from third parties.

Whenever a retailer offers you an extended warranty, simply transfer that amount of money into a dedicated savings account.

When problems arise, you can simply pay for the repairs (or replacement) out of your warranty fund. And once the fund builds up to a sufficiently healthy size, you can back off on your contributions.

Remember… These warranties are designed to be profitable. Thus, more often than not, you’ll come out ahead by skipping them entirely.

Fivecentnickel has more, HT Argmax.

*More than 90%, because the profit insurers make only reflects their overheads, and does not take into account the additonal efficiency generated by solving the moral hazard and adverse selection problems.

Modern women

Man, you gotta understand - they are in a hard place. On the one hand they are hardwired to want kids, and on the other there are all the stimuli of modern society, and the two don't mix easily. It's all a bit of a mess, really.

The wisdom of Frag. The analysis is spot on for the 22-38 demographic.

by datacharmer | Tuesday, October 20, 2009
  | 0 comments | | Modern women @bluematterblogtwitter

Mad Men creator Matthew Weiner on consuming culture

I met this guy who was creating software where you could watch Mad Men and you could chat with your friend while you're watching it, and things would pop up, and facts would pop up, and I said, "You're a human battery. Turn the fucking thing off! You're not allowed to watch the show anymore. You're missing the idea of sitting in a dark place and having an experience."
He is Tyler Cowen's nemesis - Tyler walks out of almost every movie and leaves most books unfinished. A small part of me wants to be more like that, but in the end I can't really bring myself to disagree with Matthew Weiner.

And by the way, here's an (unrelated) excellent interview at Vulture (it starts getting interesting 4-5 paragraphs in).


Picture taken at Technorati today about 30 seconds before posting (1:44am UK time).

I'm sure they'll fix it shortly, but I really want to say: Thanks Technorati, you made my day.

by datacharmer | Monday, October 19, 2009
  , | 1 comments | | Technorati @bluematterblogtwitter

It scares me

Milgram redux, and I'm not at all surprised by the results. I observe this trait every day, everywhere, and it scares me to bits. I have never personally witnessed it culminate to brutal violence, but no violence is needed; I have seen much evil come of it at my workplace, in public debate, and even amongst my friends. All that is needed is blind loyalty to authority, to prevailing moods and cliches. A willingness to take a mental shortcut even though someone's welfare or dignity is on the line.

There are too many Hanna Schmitz; and the thought I may unwittingly become one myself - even in a much smaller way - horrifies me.

I think about Milgram's experiment almost every day. My desire to be someone who refuses to continue may define who I am, or would like to be, more than anything else.

by datacharmer | Sunday, October 18, 2009
  | 0 comments | | It scares me @bluematterblogtwitter

Friday Special 126

Cranberry harvest in Wisconsin and more fall 2009 scenes from around the world

by mendoza | Friday, October 16, 2009
  | 0 comments | | Friday Special 126 @bluematterblogtwitter

Funny graphs

Dave sent those via email - I've seen some of them before, but they are still hilarious (note: there's more graphs under the fold).

by datacharmer | Friday, October 16, 2009
  , | 0 comments | | Funny graphs @bluematterblogtwitter

Google: comfortable with our true nature since 1996

First, disable any filters (moderate safe search and the like) you may have on google search - I think these should be off by default anyways.  If no kids have access to your computer and yet you prefer to self-censor google search results, I suggest you take a long, hard look inside your soul and ask whether you really want to be one of those sorry people who think it makes sense to expend energy in avoiding accidentally reading the word 'fuck' or seeing an uncovered breast or two. In other words, get a life.

Now type 'my girlfriend' on google and check out the search suggestions it gives you. As of writing, these include 'cheated on me', 'is fat', 'hates me' (most search results by far), and 'is a virgin'. A martian trying to understand human nature in a hurry would be wise to use google search suggestions over any treatise on the subject I can think of.

And if you thought that was revealing, try typing 'my girlfriend won't', for suggestions such as 'shave'. Absolutely brilliant, absolutely spot on.

Edgar Allan Poe gets second funeral

The city of Baltimore has given writer Edgar Allan Poe, the master of macabre, a funeral service 160 years after his death; only seven people attended his funeral in 1849.

If it was ever fitting for anyone to have multiple funerals, it would be for Edgar Allan Poe. People can say what they want, but he still is one of my favourites.

Friday Special 125

Emma Maersk - Among the largest container ship in the world

The art of making footballs

by mendoza | Friday, October 09, 2009
  | 0 comments | | Friday Special 125 @bluematterblogtwitter

Question for Alex Tabarrok and Tyler Cowen

What do they think when they see ads like this on their blog? 

Do they think that editorial control of ads (beyond sex and vulgarity) is not a suitable thing for a blogger to do? Does it bother them but they think the money is worth it? Are they of the same mind or is one more inclined than the other to reject it? Have they even thought about it, or do they feel that ad space is not a real or integral part of MR? I am not being critical, I am honestly curious. I find this question particularly intriguing, because I think I can predict pretty accurately what their stance would be on almost every other issue I can think of.

In any case, I would love to know. Marginal Revolution readers out there, what do you think?

UPDATE: Thanks to Justin Wehr, we now have a (disappointing and predictable) answer from Alex Tabarrok:

        Markets in Everything!  :)

By the way, for context see for example here, here and here.

A crazy, yet comprehensive solution to high healthcare costs, involving less government in the aggregate

1. Reduce the period for which patents for drugs and medical equipment are granted. There will then be fewer expensive treatments coming to market, and their price will be falling quicker. This is much neater than regulation or voluntary agreements, and it more or less leads to the same outcome. The crucial difference is that it involves less 'government' and more 'freedom', so people on the right shouldn't have any objections.

2. Do what Milton Friedman advocated and abolish occupational licensing for medical personnel. If you can't stand that much less government, relax rather than completely abolish.

3. Use the savings generated to publicly fund 100% insurance for the poor, and taper that off as you go up the income/wealth scale. On top of that, create a fund to provide public co-funding of treatment in 'catastrophic' cases, defining catastrophic as treatment that a patient can't possibly afford by a mile. Insurers then don't have to worry about extreme cases and premia can come down, while those that rationally choose to utility-maximize by not insuring will now face a somewhat lower-stakes gamble: if they fall ill they will suffer a massive blow to their finances, but no-one will be dying in the streets. (if you don't see the relevance of protecting insurers from catastrophic scenarios, remember how Kenneth Arrow back in the day couldn't find any insurer who would assume unlimited liability - he wrote about this in his classic paper on healthcare)

There, I solved US healthcare in a blog post written on my mobile phone.

And for those of you philosophically inclined, note how point 1 in particular demonstates how utterly silly it is to bring in 'freedom' and 'markets v government' ideology to a debate involving reform at the margin.

Keynesian economics: the basics

If you are are looking for a simple, jargon-free explanation of Keynesian economics and the debate on what government should do about the recession, you've come to the right place. It will still be hard work if you haven't studied this stuff (it's not the easiest concept in the world), but you certainly don't need an economics degree or advanced training to understand any of it.

The central Keynesian insight is this: when you decide to hoard some extra cash rather than spend it, income in the rest of the economy goes down by the exact same amount, which then has a knock-on effect on your income. A recession ensues: a period when we work and produce less than we would like, and as a result get paid less too.

To illustrate the point while keeping things simple, let's say there are just two people in the world - me and you. This is an unrealistically small economy, but as we will see, the basic lesson applies to economies of any size.

In this make believe world, I make £100 a week by selling bread to you at £1 a loaf, and you make £100 a week by selling chocolate to me at £1 a bar.  The total income in this economy (its Gross Domestic Product or GDP) is £200, which corresponds to 100 loaves of bread and 100 bars of chocolate.

Now, let's say that one fine day you decide to save £20 out of your £100 and keep it in cash. As a result, my income falls to £80, and the total income in the economy is now £180 - with the economy producing 20 chocolate bars fewer than before. In the following week, I only have £80 to spend, which means that your income also falls to £80, and you end up buying fewer of my loaves. 

In the end, both our incomes are lower, and we produce and consume less than our potential. Our economy is in recession.

How does this carry forward to the real, larger, economy? Just think of me and you as blocks of people: essentially, when too many individuals decide to increase their cash holdings simultaneously - perhaps because they turn pessimistic about the future - a recession ensues.  As Paul Krugman puts it beautifully (in mild economese):

The key to Keynes’s contribution was his realization that liquidity preference — the desire of individuals to hold liquid monetary assets — can lead to situations in which effective demand isn’t enough to employ all the economy’s resources.

So, this is how a recession starts; the question is, how can we climb back out of it?

Our first option is to do nothing. If you paid close attention to the story above, you will have noticed that despite the slump in demand (you now only demand 80 loaves of bread rather than 100), I kept my price fixed at £1 per loaf. But I would really like to sell more bread to you because I can then have more income. Eventually I will start lowering my prices so that I can go back to selling all 100 loaves I can produce.

By exactly the same logic, you will do the same and we will be back where we started - producing at our full potential of 100 loaves of bread and 100 bars of chocolate. Recession kaput.

And here's where the difference between neoclassical and Keynesian economics lies.

The former school of thought assumes that the adjustment process is instantaneous: if you decide to hold £20 extra in cash, neoclassical economics assumes that we both immediately lower our prices to £0.80 so that nothing real changes: the economy keeps producing (and consuming) 100 loaves and 100 bars of chocolate, and there's never any recession.

(This is not strictly true. Neoclassical economics doesn't say GDP can never fall - to stick with our example, you might fall sick and not be able to work, or decide to work less because you want to spend time with the kids, leading to less chocolate, bread and incomes all round. What you can't have with neoclassical economics, however, is a demand-driven recession: a fall in economic activity simply because too many people decide to increase their cash holdings and consume less at a point in time)

Recessions, then, are generally self-correcting: prices will eventually adjust, and the economy will go back to producing at potential. And while this offers some consolation, we would still like to lessen the pain by either avoiding or speeding up the process of adjustment.

In our simple example, there is an obvious solution. Let's say that when you first made your decision to hold £20 in cash rather than spend it to buy my loaves, the government printed an extra £20 and used it to buy my unsold produce. My income at the end of that week would be £100 just as it was before, and because my income is your income (remember, I spend my income on your chocolate bars and you spend yours on my loaves) the economy doesn't go through a period of under-producing at all. There is no recession, there is no need for a lengthy period when prices adjust, and we happily keep producing at our potential.

This is as far as our simple story will take us. Recessions can ensue for as silly a reason as people wanting to hold more cash, and the government can in principle take action to correct the situation.

If you found this post worthwhile, let me know and I will build on this basic story to cover the action government can take (fiscal and monetary policy), the complications that arise in practice, and the role of banks and financial markets.

Safer data mining

Machine learning department members from Carnegie Mellon protest at the recent G20. Hat tip (and more pics) Social Science Statistics blog. 

by datacharmer | Monday, October 05, 2009
  , | 0 comments | | Safer data mining @bluematterblogtwitter

George Soros on markets, reflexivity and the future

The law of one price: there's an app for that

This is amazing: RedLaser on the iphone will instantly scan any barcode and look up the product on amazon and google product search, showing you where you can get the best price. The entire process takes less than 2 seconds, and it works flawlessly. This is not simply a must-have app; it's a reason to buy an iphone.

And of course finding the lowest price is just one of the things you can do: you can check for book and dvd reviews, put together a shopping list by scanning stuff in your fridge - the possibilities are endless. The developer has even made the SDK available to other application developers, which means that this is just the beginning.

Take me to the next level.

Friday Special 124

50 People questioned and responses filmed:

1) Where would you wish to wake up tomorrow? Answers from Brooklyn.

2) At the end of the day, what would you wish to happen? Answers from New York or New Orleans

Please leave your own responses as a Bluematter comment. Thanks!

by mendoza | Friday, October 02, 2009
  | 3 comments | | Friday Special 124 @bluematterblogtwitter