Saturday, May 30, 2009
I really enjoyed the discussion following last weeks post, so let me attempt to get the ball rolling again by offering a few quotes. As before, feel free to make comments on these quotes or any others you found interesting. Questions, particularly since this section deals with the choice-theoretic foundations of the Austrian school, would be great as well.
From pages 82-83:
The rich, the owners of the already operating plants, have no particular class interest in the maintenance of free competition. They are opposed to confiscation and expropriation of their fortunes, but their vested interests are rather in favor of measures preventing newcomers from challenging their position. Those fighting for free enterprise and free competition do not defend the interests of those rich today. They want a free hand left to unknown men who will be the entrepreneurs of tomorrow and whose ingenuity will make the life of coming generations more agreeable. They want the way left open to further economic improvements. They are the spokesmen of material progress.It amazes me that people still believe only the rich and powerful benefit from free markets (and, as a result, that free-market economists are puppets for the wealthy). As Mises points out, these are often the very individuals interested in deviating from free markets!
From page 89:
Judicious rationalists do not pretend that human reason can ever make man omniscient. They are fully aware of the fact that, however knowledge may increase, there will always remain things ultimately given and not liable to any further elucidation. But, they say, as far as man is able to attain cognition, he must rely upon reason.Is this true? Or are there in fact hyper-rationalists in economics? Maybe, of course, Mises is qualifying his statement by referring only to "judicious rationalists."
From page 103:
The attempt has been made to attain the notion of a nonrational action by this reasoning: If a is preferred to b and b to c, logically a should be preferred to c. But if actually c is preferred to a, we are faced with a mode of acting to which we cannot ascribe consistency and rationality. This reasoning disregards the fact that two acts of an individual can never be synchronous. If in one action a is preferred to b and in another action b to c, it is, however short the interval between the two actions may be, not permissible to construct a uniform scale of value in which a precedes b and b precedes c. Nor is it permissible to consider a later third action as coincident with the two previous actions. All that the example proves is that value judgments are not immutable and that therefore a scale of value, which is abstracted from various, necessarily nonsynchronous actions of an individual, may be self-contradictory.I take this to mean that, in accordance with neoclassical choice theory, preferences must be logically consistent (a>b and b>c implies a>c). However, temporality renders testing this claim in the real world impossible.
I have a few more quotes I'd like to discuss but will save them for the comments if conversation doesn't take off. I have deliberately avoided quotes from the uncertainty chapter since we discussed subjective probability at length last week. Feel free to bring it up if you have questions or comments though.
Next week, we will cover chapters 8-11 (again, roughly 70 pages). Happy reading!
Thursday, May 28, 2009
- The proposal would raise the tax from its current level of $2.60 to $52.21 per barrel.
- It would move Oregon from a position of being one of the most favorable states for beer taxes to the worst, trumping Alaska by one-third.
- The impact on a pint of beer in the state would be an increase between $1.25 and $1.50.
Does anyone have any update on this? The underlying WSJ article is from tax day, April 15. The bill is question is House Bill 2461; here's the text of the bill. Note the provision for the outlay of the revenues:
(2) Moneys in the Alcohol Impact Remediation Fund are continuously appropriated to the Department of Human Services to be distributed in each calendar quarter as follows:
(a) 15 percent for the purpose of funding section 8 (1) and (2), chapter 14, Oregon Laws 2008.
(b) The remaining balance in the fund shall be used as follows:
(A) 6 percent for statewide alcohol and drug use prevention initiatives;
(B) 14 percent for other alcohol and drug use prevention purposes;
(C) 72 percent for treatment of alcohol and drug addiction; and
(D) 8 percent for alcohol and drug recovery support services.
For what it's worth, Section 8 (1) and (2) deals with drug programs in jails (though is deftly written to allow syphering to jail funding in general).
The Oregon Legislature website shows the bill as introduced without any further action. This is a promising sign; the website gives the following as an outline for their in-session dates:
When is the Oregon Legislative Assembly in session?
Oregon has biennial sessions, with the Assembly convening on the second Monday of the every odd year. Oregon has no set ending date for regular sessions. An average regular session runs six months.
Here's the Facebook group against the tax, and here's an online petition. Here's a story on the angry locals, and here's an opinon claiming that there's no evidence that a 1900% tax increase "would cause job losses..."
As a side note, check out Travis' blog Champion Economics.
Tuesday, May 26, 2009
I figure the calculus is as follows:
Cost of housing Gitmo detainees: $X
Cost to Hardin for housing Gitmo detainees: < $X
Benefit to local politicians behind the arrangement: Priceless!
It's also interesting to note that it's the local, not state-level, politicians that are in favor of the move.
The subjects of the book are Bloomington scholars, the context is public choice, and Aligica and Boetke are authors...how can it be anything but excellent?
Sunday, May 24, 2009
Mr. Melvin is at the center of a dozen or so citizen snoops who have spent the past two years filling in the blanks on the map of one of the world's most secretive countries. Seeking clues in photos, news reports and eyewitness accounts, they affix labels to North Korean structures and landscapes captured by Google Earth, an online service that stitches satellite pictures into a virtual globe. The result is an annotated North Korea of rocket-launch sites, prison camps and elite palaces on white-sand beaches.Check out the site.
Friday, May 22, 2009
Of all tyrannies a tyranny sincerely exercised for the good of its victim may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated, but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.
Rather than summarizing these chapters yet again, I thought it would be more fruitful to discuss some of the questions I had while reading. Feel free to add your own questions and comments; hopefully we can get a good discussion going.
The biggest question I had while reading these two chapters concerned subjective probability. On page 23, Mises makes it clear that individuals are capable of acting in accordance with (objective) probabilities.
Sometimes we succeed in acquiring a partial knowledge so that we are able to say: in 70 per cent of all cases A results in B, in the remaining cases in C, or even in D, E, F, and so on. In order to substitute for this fragmentary information more precise information it would be necessary to break up A into its elements. As long as this is not achieved, we must acquiesce in what is called a statistical law. But this does not affect the praxeological meaning of causality. Total or partial ignorance in some areas does not demolish the category of causality.Then, on page 37, he explains that an individual's beliefs about reality matter.
A peasant eager to get a rich crop may—according to the content of his ideas—choose various methods. He may perform some magical rites, he may embark upon a pilgrimage, he may offer a candle to the image of his patron saint, or he may employ more and better fertilizer. But whatever he does, it is always action, i.e., the employment of means for the attainment of ends. Magic is in a broader sense a variety of technology. Exorcism is a deliberate purposeful action based on a world view which most of our contemporaries condemn as superstitious and therefore as inappropriate. But the concept of action does not imply that the action is guided by a correct theory and a technology promising success and that it attains the end aimed at. It only implies that the performer of the action believes that the means applied will produce the desired effect.If individuals are capable of using probabilities and their perception of reality (which is not necessarily equivalent to reality) is the driving force behind purposeful action, why doesn't it follow that their perception of the probability of a given event is more important than the actual probability that the event occurs? Or, put differently, if individuals can be systematically biased about "theory" and "technology," why can't they be systematically biased with respect to the outcomes they anticipate?
Bryan Caplan makes a strong case for subjective probability. Walter Block counters; as does Jorg Guido Hulsmann. Caplan responds.
Next week, we will cover chapters 3-7 (again, roughly 70 pages). Happy reading!
Thursday, May 21, 2009
"I had no remorse whatsoever about my overdose-- but I was pissed off at myself for having died."
"It was an amazing show, and all went off well...until the next night, when the country experienced a sudden military coup just after we left for Colombia."
"I can't say that I was surprised when the audience started rioting."
I've heard from interviews of other members of Guns N' Roses that due to their early popularity and waiting on signing with a label (which is consistent with the story that Slash tells), the band was in a position to sign a very favorable deal once they put the pen to the paper. I was hoping for a bit more of the business details of the deal, myself, but the book really doesn't get too far into the contracts. Slash does mention, however, that GN'R spent a goodly portion of their substantial earnings during their mammoth two-and-a-half-year, 192-show Use Your Illusions tour. Plenty on the relations between Slash and Axl Rose as well; all in all, it's an enjoyable, though surprisingly long, read.
- Pete Leeson's The Invisible Hook. You could poke around the internet for a few minutes and find more in depth reviews; nonetheless, it's a great book that will be assigned to my Micro Principles class in the fall. It's a great example of applying usually-tepid textbook concepts to an interesting subject, and bringing alive economics in the process. I'm hoping that my students read this book and are able to apply economic concepts to non-traditional areas. That's the goal, anyway.
- It's a tax that is hard to see, which is likely why it is politically popular. Doesn't seem like your new dictator would be concerned about being popular with his new servants. Perhaps he did care, as he planned to incorporate them into Greater Germany.
- It encourages vertical integration, and a heavy top-down approach sounds very much like the Nazi economy. Yet, if the Fuhrer wanted a vertically integrated industry, it seems that he would have just commanded it.
- Deters economic development more than other taxes. This approach might make sense if you think wealth is a fixed amount, then you want to discourage it. I doubt Hitler would have this understanding of the GSR, especially in the 1930's-40's.
Tuesday, May 19, 2009
Interesting, though, is the assumption that all performance should be the same across different game scenarios. Spring training sees high offensive output not only for favorable weather/atmospheric conditions but, as is speculated, due to the lack of pressure to perform. Pressure within a game changes as well, and if hitting is a function of pressure, then it would be necessary to adjust the assumptions accordingly. Of course, as more important at bats have more pressure, at bats with more runners on base should (in general) lead to the batter receiving better pitches. Whether you're facing a starter or reliever matters, too. It's not possible to extricate a one-way influence from all of this, but I'm not convinced that the null hypothesis should be that all of the averages should be equal.
With currency, it's all about confidence, especially since they're starting with fiat from the get go. Right now, it's hard to imagine, say, World of Warcraft gold gaining any sort of real world traction, but fifty years ago it would be similarly difficult to imagine being able to buy goods with a plastic card. If there is convertability between virtual and established currencies, and virtual currencies are better managed in terms of inflation, is it that hard to imagine people wanting to protect their assets?
It is worth mentioning that PayPal was started with at least the partial intention to allow users to protect themselves against the erosion of value of their own currency, if they so chose.
And I liked this line: "The solution has been for each social network or game that uses its own currency to appoint a money manager. Hi5, for instance, employs a staff economist for this purpose." I think I missed their ad in the JOE last year.
"The game of Blackjack has two important features that make it ideal for this purpose. First setting aside the issue of card counting, it is easy to categorize optimal play in every conceivable situation and document departures from optimal play in an unambiguous way. This is because there is a well-publicized solution to the game, known as the Basic Strategy, that had been widely accessible to card players since the 1950s. Indeed, many card playing guides offer steps for learning the basic strategy. Second, and more importantly, blackjack players place bets in the fame before they make strategic decisions. Therefore, in all but a few situations, the bet is essentially a sunk cost once play begins, and the optimal strategy is independent of a players level of risk aversion. This fact allows us to identify the role of regret avoidance independent of other behavioral biases, such as risk aversion, status quo bias, or other common explanations."
Their data consists of over 4,300 hands of blackjack played in a Las Vegas casino. The authors make use of an optially-based game management system, Mindplay, that tracks not only all bets and choices made during play, but does so in a non-intrusive manner. Players strategies remain unaffected by the data collection.
The authors find that when players make mistakes, they are four times more likely to do so by failing to act rather than making an unnecessary and suboptimal choice. The omission bias results are robust to other factors such as player's bets, number of other players at the table, and the running count of high and low cards remaining in the deck.
Possibly the more important results indicate that those who followed the basic strategy won 48.1% of the time compared to deviators who won 36.6% of the time. "A total of $123,000 changed hands in during the pilot study. Players that followed the basic strategy won a total of over $60,000, while they lost only about $56,000 following the basic strategy. In contrast, only $3,000 was won, and over $6,000 lost in hands that deviated from the basic strategy. Of these, passive mistakes lost over $2 for every dollar won, while aggressive mistakes lost only about $1.50 for every dollar won. Therefore, passive mistakes are not only more common, they are more costly."
Punch Line: Player's incur substantial losses by playing too conservatively. This bias exists even for large stakes players and becomes more severe after aggressive play.
Lesson: If you are going to play, brush up on Basic Strategy (I like the Blackjack trainer here) before heading to Vegas and stick to it!
Sunday, May 17, 2009
Real Estate Brokerage Earnings: The Role of Choice of Compensation Scheme
Richard Martin and Henry Munneke
One of the more interesting characteristics about the real estate brokerage industry is that workers are presented with a choice regarding the sort of compensation scheme under which they want to work. An overwhelming majority of workers choose what is referred to as a commission split scheme in which the salesperson splits any commission that they earn with a supervising broker that they generally are required to work under. In this case the firm provides office support and administrative services to the salesperson and, in return, the salesperson must split any commissions that they earn with the firm. Under the alternative compensation scheme, workers pay a substantial up-front “desk” fee to the firm and then are allowed to keep 100% of any commissions that they earn. In spite of the large volume of research on the determinants of real estate salesperson earnings, to our knowledge there are no studies analyzing the choice of compensation scheme and its impact on the earnings of real estate salespersons. This study uses data from the 2001 and 2003 Membership Surveys of the National Association of REALTORs® to analyze the impact of the real estate salespersons’ choice of compensation scheme on their earnings.
Ungated version here. Previous TPS discussion on realtor compensation here and here.
Friday, May 15, 2009
If you do not own the book already, the Mises Institute has a PDF of the 4th edition available for free. The Library of Economics and Liberty also offers an online version. Additionally, you can purchase a copy from FEE or Amazon.
I really hope some of you join me, especially if you've never read anything by Mises.
Wednesday, May 13, 2009
- "...Intel violated European antitrust laws by unfairly paying computer makers to delay or even cancel products that contained chips made by rival AMD."
1) On a humorous note, is this to say that there's a fair way to pay computer makers, but Intel just failed to do that?
2) On a more serious note, if accepting Intel's payment for not producing these machines reflects their revealed preference of being better off, how is this bad? Isn't the company choosing their best option, with voluntary action on all sides? There could be an issue of contracting to make machines with AMD processors in them that never got made, but that's an issue of contract violation between AMD and the computer manufacturers-- that doesn't concern Intel at all.
- "Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years..." How? If Intel's action kept competitors out of the market-- and that's a tenuous claim, at best-- then it took that action in the face of competition. It's competition that we need to focus on here, not direct competitors. A local river rafting company may have no direct competitors in the market for river rafting, but it is still forced to offer the best services due to substititution-- hiking, biking, or maybe just riding the river on your own accord. Similarly, even if they did keep competitors out of the marketplace, they are still subject to competition from a whole range of computer substitutes.
I also fail to see how Intel's action is really any different than simply buying every AMD-built computer and throwing it away.
- Though the most interesting part of the piece: "Intel's stock was up 16 cents in pre-market trading to $15.37 a share."
Tuesday, May 12, 2009
Consider the textbook by George Borjas. There are 11 pages covering the minimum wage. If he devoted pages in proportion to workers covered, then 11 pages on the minimum wage would correspond to 99 pages on licensing. Ehrenberg and Smith would give 72 pages to licensing. Hyclak, Johnes, and Thornton would give 135 pages to licensing. Instead, in each case, there is zero.Read the whole article, and take note of Tables 1 and 2.
Monday, May 11, 2009
As you can see, despite the benefit of professional garment makers and 500 man hours of labor, the suit is awful. The people behind this suit are also sincere, as they seem to think they are making a statement about our detachment from the manufacturing process. Congratulations to them, as their suit will now be used in economics courses (at least mine) to demonstrate comparative advantage and the importance of trade. This suit cost 20 people using 500 labor hours to make one (lousy) suit. Instead, we import them from someplace where the people are much more effective at making (nice) suits, and we use those 500 labor hours to do something else useful.
*Actually is only 92%, according to the makers. Not to mention they probably didn't locally produce their own needles, or countless other necessary tools they would have required.
Yet Target's actions suggest otherwise: Far from treating Ackman like a mere irritant, it is spending some $11 million to promote its own candidates -- money, Steinhafel notes, that would be better spent improving its business. "This is a very challenging economic environment," he says, "and it's unfortunate that we are having to invest our time in [fighting] a proxy contest."
As a side note-- I was unaware that Target was apparently competing well with Wal-Mart and the stats in the article are, upon a second reading, a bit misleading. The only fundamentals-related information shows Wal-Mart up on 2008 and Target down, and the bit on Target's relative edge in stock price gains likely benefits from a favorable choice in start and end dates. All in all, I think that's about as favorable a reading of the retail tea leaves as Target could hope for.
Sunday, May 10, 2009
Perhaps even harder hit was America's blogging community. Trillions of pages of commentary and diaries of daily minutia have been forever erased.Watch the full report.
Nigeria was the first nation to report a full economic collapse from the internet crash. 94% of it's gross national product came from internet ventures.
Friday, May 08, 2009
"Conscious capitalism" can be dangerous, and its definitions and inclinations can vary quite a bit, not unlike when people talk about "social justice." But as long as "conscious business" remains a voluntary choice in the private sector, I don't have any issue with his stance. His take on education and foreign aid are spot on as well. And how can you not love this line?
"Due to Sachs’s prominence in the poverty alleviation debate, until he acknowledges the role of economic freedom in alleviating poverty, he should be regarded as the leading cause of poverty in 2025."
Tuesday, May 05, 2009
- I routinely purchase a 20 oz Coke from the vendor in our atrium at $1.78.
- I have the alternative of purchasing the exact same product from a machine in the business school next door, but at a price of $1.25.
- Walking to the B-school Coke machine requires (on average) an additional 160 seconds than if I had purchased it from the vendor. Unfortunately, it also requires (on average) an additional 142 paces. The route is not particularly scenic, nor crowded, so there isn't much in terms of disutility or utility from walking the route.
- Since I routinely buy the closer, more expensive Coke, I have revealed that my value of time preference is at least (1.78-1.25)/160 = $0.0033125 per second...or $0.19875 per minute....or $11.92 per hour.
- It takes usually about 90 seconds to purchase something from the vendor. If that vendor could find a way to cut another 30 seconds off that time, they could conceivably charge me almost another $0.10 for said Coke.
- Suppose a vending machine could be invented that would read my mind and make a Coke appear on my desk the moment I decided to get up and purchase one, cutting the time of Coke retrieval down to zero. We can infer that I would be willing to pay about $2.07 for that Coke.
Staff at local government offices in Hubei province were given the order in a move intended to set an example for the rest of the nation, according to state media.
And if they fail to smoke their way through 230,000 packs of locally-produced cigarettes, the officials could face fines.
Brands such as Huanghelou have been earmarked as part of the official quota.
"The regulation will boost the local economy via the cigarette tax," local official Chen Nianzu was quoted as saying in the Global Times.
That last sentance subtracted 19 months off my life, it was that painful.
Monday, May 04, 2009
- Here is a bit on the upcoming Supreme Court selection and the type of person we should be looking for. Do you necessarily want someone with trial experience? Seems that it wouldn't hurt, but if there's a tradeoff between trial experience and some other experience that serves the job better, is trial experience what we want to maximize? It raises the larger question of what we look for in Supreme Court judges (as an aside, is this different than lower level judges?); I'd think you'd want to maximize "constitutional knowledge," but just about every judge/lawyer should have a solid grasp of this, right? Is there that much of a variation in constitutional knowledge across those that practice law, independent of ideology (or does ideology necessarily play a role?)? I guess I'm just having a hard time figuring the exact kind of public servant we'd want here, and that surprises me. I'd like to see the lawyer contingent's thought on this one. (Hi Dana!)
- Oh, the reciprocal nature of externalities.
- Here's a bit on the sleeping and eating habits of certain countries; the study itself is here. The article mentions Spaniards-- I've been to Spain a couple of times now and I don't know when anyone sleeps there; children are out well into the night and I think the siesta is a thing of the past (at least in the larger cities).
Sunday, May 03, 2009
I found this particularly interesting:
According to Scott Torrence, vice president of Christie's wine experts program in Los Angeles, which helped Penfolds certify wines at the San Francisco event, adding wine from a different vintage is much more accepted in America than overseas. "In Europe most people who attend these types of events are either investors or wine merchants. Here in America, most are collectors who just want to make sure the wine is still drinkable."See! Europeans are only interested making money. We Americans just want to enjoy the wine.
Friday, May 01, 2009
Also: I wonder if they got IRB approval?