Exhaustion

On Tuesday, I took 4 hours off and was afraid that I’d have to work extra on Friday.  As of today, I’m 5 hours over, thanks to working 25 hours in the last two days.  Unfortunately, that means no post tonight.  I’ll try to have a couple of interesting ones tomorrow to make up for it.

Promising To Bite The Hand That Feeds You

Ezra Klein wants a handout from big papa government.  He promises in return that he and newspaper reporters would keep muckraking.  Mark Hemingway points out good reason to doubt this:  a major conflict of interest.  Matt Welch notes how ridiculous the concept is, from start to finish.  Klein has poor assumptions—particularly that news provision is a public good and that federal subsidization of news does not have a distortionary effect.  For the first case, it’s obvious that reporting is a private good:  you can exclude individuals from seeing your reports.  And people are willing to pay money to procure news; they just aren’t willing to pay for 20th century style reporting institutions, and entities like CraigsList and eHarmony have broken the near-monopoly of classified and singles advertising, meaning that newspapers can’t charge high prices to groups of individuals desiring these services in order to subsidize newspaper readers any longer.

Michael Moynihan, as though the beatdown weren’t enough, gives a flying elbow by pointing out how absurd the claim is that the Swedish press is full of attack dogs is.

So to sum things up, people are still willing to pay for news, but they won’t pay enough to re-create the 1930s style.  In fact, they never have been willing to do this; instead, they make up for losses on the news production side by charging extra for additional services and using advertisement.  These additional services have been off-loaded to third parties which will specialize in these services either for free, or for a certain fee.  People switch to the new services because they provide additional value (such as focusing on a particular subset of a market, creating a greater level of interaction between individuals, etc.) or come at a lower cost.  Newspapers have been stuck in their 1930s style of news procurement and have not innovated.  Many of these newspapers are now failing because they are losing revenue streams.  Having the government make up for these lost revenue streams will create a greater conflict of interest between reporters and the federal government.  Instead, news procurement agencies should modernize to reduce costs.  One potential way to reduce costs is to, instead of printing out broadsheets daily, going to an electronic-only format.  Alternatively, news procurement agencies could offer new services that people would like.  But most importantly, we should leave the market open for innovators.  The 1930s style of newspaper is not the end-all and be-all of news procurement; it is not the perfect measure toward which we must always steer ourselves.  Innovation in news procurement and distribution will lead to new methods, some of which will be profitable.  They may go in a strongly different direction than what we saw Back In The Day, but they will do a better job of satisfying the desires of the public than Klein’s suggestion.  How do I know?  Simple:  because people are actually willing to pay news procurement and distribution agencies that satisfy their needs, whereas we know for a fact that they won’t with the current setup, seeing as how Klein’s begging the government to coerce people into paying his salary.

P.S. – I should also point out that there is a time inconsistency problem with Klein’s argument.  He says that even after the government pays for his salary, he’ll promise that he and all the other folks in the industry will not be muzzled.  The problem, however, is that even if we believe that he is truthful today, the incentives will change when it comes time to criticize the government.  Say that Barney Frank is the chairman of the Congressional committee responsible for subsidizing newspapers.  These newspapers are much less likely to run op-eds or stories critical of Frank because if they run them, Frank will not like this and will use his pull to cut funding for that critical newspaper.  Even with “transparent rules,” Congressmen and bureaucrats know how to twist the rules (or how to write the rules with loopholes in place from the beginning).  And if the newspaper is dependent on taxpayer largesse, cutting off funding at a future date would be even scarier than not having taxpayer funding today.  The reason is that today, there is still the opportunity to innovate, whereas if you go down the federal funding path, the people in charge will specialize in soaking up as much federal funding as possible and will not be as strong in the realm of innovation.  So when the federal government controls the pursestrings of news procurement, they own the news procurement, as even if reporters want to break an interesting story, the suits in the main office will look at the potential impact that will have on their bottom line.  This is similar to the old story of how advertisers can kill or alter articles.  To the extent that this is true now, it would certainly fit the case if the federal government is providing a great deal of the funding.  C. Edwin Baker has more on a slightly different topic, but it applies very well to this.

Monkey Trading

I remember reading in The Sensory Order how the brain, upon observing an object or phenomenon, attempts to classify it according to its theories of operation.  Hayek would repeatedly mention that this happens not only in humans, but also in “higher-order animals.”  I thought that this description was curious, especially because (if I recall) he noted that it might be possible for these higher-order animals to perform functions such as trade.

Well, if my memory of Hayek’s writing is correct, it seems that he was right on that.  Monkeys, it seems, appear to understand the idea of trade, but more importantly, they also seem to understand the concept of monopoly prices.

Because They Didn’t Screw It Up Enough The First Time

“Stimulus” 2:  Electric Boogaloo.

Revolutionary Wisdom

I’m currently reading The Peasant Prince: Thaddeus Kosciuszko and the Age of Revolution, by Alex Storozynski.  Aside from learning quite a bit about an unhearlded hero of the American Revolution, there is a bit of deep wisdom snuck into a letter Kosciuszko wrote to Horacio Gates regarding General Louis Lebeque Duportail, chief engineer in the American forces.  What both Kosciuszko and the American forces did not know was that Duportail was an untested engineer who had graduated from the French engineering academy very shortly before coming to America, and thus had no real military experience, instead going solely off of his university education.  Kosciuszko, however, guessed this, as his letter to Gates notes:  “I discover in Conversation that this Gentlemen … [had little experience] because he believe that it is the same thing upon the paper as upon the Ground.  We must always have the works according to the Ground and Circumstance but not as the paper is level and make the works accordingly” (Storozynski, 70).

In other words, abstract notions and concrete implementations must necessarily differ, as the latter depend upon the particular circumstances of that implementation.  The French engineers (Louis de la Radiere, in particular) wanted to build a vast Vauban-style fortress in New York, whereas the better idea was to use the natural land formation to create smaller fortresses right at a choke point into the Hudson.  The American revolutionaries had an idea of this, but the French did not.

Nock Online

Here are a few works by Albert Jay Nock, for those days in which you feel like you’re part of the Remnant…

Political Notes

- I don’t have that much to say about what’s going on in Honduras, though if this article is correct, the Obama administration is riding the horse backwards on foreign policy.  My priors regarding the truth of this article are fairly high, given Obama’s previous foreign policy positions (not just Iran, but also selling out Israel and Mexico/Canada) and the fact that Honduras’s potential El Presidente is an acolyte of Hugo Chavez.

- Whenever we talk about a lack of democracy, we have to talk about the EU.

- America’s Official Jews are trying to do for us what Canada’s did for them.  Hopefully we won’t need an Ezra Levant and can defuse this silliness before it gets anywhere.  Alan Potash has things completely messed up.  I am not one of those “you must protect the most extreme free speech in order to protect all the rest” types (as I pointed out last week), but I do believe in very wide berth in terms of freedom of speech, and for the exact reason Volokh points out:  you end up with a very slippery slope and it becomes easy to redefine “racist” to mean “whatever I don’t like.”  In fact, I’d argue that this is how “racist” is used today, just the same way that “fascist” is used.  We should protect the freedom of such people to print their trash, and should similarly protect the freedoms of others to denounce, ignore, or rebut (with “rebut” my highest preference) what they write.

Upgrading Fedora 10

I received a message todaystating that Fedora 11 is available and I can upgrade to it automatically.  Previously, my philosophy on Linux installations has been to ride them as long as I possibly can and format/reinstall, as upgrades usually lead to problems.  Incidentally, this is also my Windows philosophy.  On the other hand, I wanted to try the system upgrade tool here.  I’m hoping that it will work through the night pretty much automatically and by tomorrow, I’ll have a shiny new OS.  We’ll see…

Economics Notes

- Zombienomics.  This obviously gets top billing in this set of notes…  I think that Shadow Banker has it wrong, though:  zombies will decompose.  This is not infinite life, but rather a major reduction in human capital (zombies don’t have any skills) in exchange for additional labor.  If zombies already exist, it’s worthwhile to try to incorporate them, but the part about converting people as a way of getting long-term labor won’t work—the bodies will decompose and eventually rot away.  According to the most truthful guide on zombies, you can expect this to occur within a period of three years.  In addition, given that zombies cannot operate tools (Hollywood fantasies to the contrary), their potential for valuable labor would be extremely low.  Say No To Zombies—join Humans First.

- New Zealand has KITT; we have Ben Bernanke.  No wonder they’re not at risk for major inflation…

- The Fatal Conceit lives on.  Arnold Kling’s line is beautiful:  “I love it when people who have never managed anything more than a government grant are convinced they can manage one sixth of the economy.”

- And also from EconLog is David Henderson pointing out that central planning in research is quite problematic.  People argue that research is a public good that would be “underprovided” in a free market.  I wrote about this previously (look for “research” as I know it’s a relatively long article) and disagree with that sentiment.  Henderson’s point is one reason why I believe this:  in a world where it’s expected that the government will fund research, government bureaucrats have to fall into one of two traps:  either they tend toward the “we won’t fund it unless you can prove that it will work” problem or the “we’ll just fund anything that comes along” problem.  Neither of these is a good thing, but because bureaucrats aren’t spending their own money, they don’t have incentives to get it right like private individuals do.

- I’m not kidding when I said that Waxman-Markey is Smoot-Halwey.  We have left-wingers talking about imposing tariffs, which will naturally end in retaliation and a significant reduction in global wealth.  And there’s a section which hasn’t even been filled in yet.  This is a major dereliction of Congress’s duty:  they’re voting on bills that they haven’t read and couldn’t possibly read because the bill is not even complete! We need a new Congress and new rules to stop this political malpractice.  I don’t expect that to happen, though—the incentives aren’t there.

- Bryan Caplan has an interesting post, pointing out that the “moral hazard and adverse selection” that automatically comes out of those who support government intervention in insurance markets doesn’t actually mean what they think it means.  Moral hazard, as Caplan notes, cannot be helped by government intervention.  And as for adverse selection, although there is a theoretical argument, in the practical case that we’re most aware of—auto insurance—the facts go entirely against the adverse selection argument:  instead of forcing the low-risk drivers to stay in the market, governments subsidize the high-risk drivers.  Furthermore, auto insurance (and most types of insurance) don’t follow adverse selection all that well because insurance companies live and die on information regarding client risk tendencies, so they have incentives to learn who’s high-risk and who’s low-risk.

- Why health care costs have exploded.  There seems to be some kind of trend…I can’t quite make it out, though.  You mean that when people spend other peoples’ money, they tend to spend more of it than when it’s their own?  I just don’t get it!

- Allan Meltzer is on the “Fed is not independent” bandwagon.  I’ve been ranting about that for a while, and I’m glad that someone of his stature is saying the same thing.

In The Papers: Defending Homo Oeconomicus

I’ve got my beefs with the idea of homo oeconomicus:  namely, it’s a caricature of humanity.  This is as old as the idea of homo oeconomicus itself, and something that economists recognize, even as they use the model.  Behavioral economics has, in recent years, become popular as a reaction to some of the assumptions of homo oeconomicus, such as pure rationality (in the sense that homo oeconomicus has unlimited computing capacity and full knowledge of all consequences of its actions).  There are two camps that have formed on this:  the first camp includes behavioral economists and argues that in order to further our understanding of the real world, we must model man in a more complex and serious manner; the second camp, however, follows from Milton Friedman’s view that as long as our models comport with reality, it doesn’t really matter how ridiculous the simplifying assumptions are.  And that’s exactly what homo oeconomicus is:  a simplifying assumption.

Anyhow, I have a few papers which stick up for homo oeconomicus, either implicitly or explicitly.  The first paper is by Faruk Gul and Wolfgang Pesendorfer, entitled The Case for Mindless Economics (ungated version).

Abstract:

Neuroeconomics proposes radical changes in the methods of economics. This essay discusses
the proposed changes in methodology, together with the the neuroeconomic critique
of standard economics. We do not assess the contributions or promise of neuroeconomic
research. Rather, we offer a response to the neuroeconomic critique of standard economics.

In this paper, Gul and Pesendorfer defend standard economics against the critiques of neuroeconomists and psychologists, who argue that the model of homo oeconomicus does not take into consideration what happens in the brain.  This field tries to take psychological insights and apply them to economics.  Gul and Pesendorfer take a fairly pragmatic stance here, arguing that how people get to the decisions they choose is not a part of economics as such, and any information discovered by neuroeconomists indicating that people can make poor choices in selecting what they really want is secondary to the study of economics as a science of choices.  Standard economics does not depend on a person’s brain working in particular ways, as economics abstracts away from that.  In short, argue the authors, the field of neuroeconomics may very well be a good field for research and may turn up interesting things, but these authors are looking at a different piece of the social science world, and results in that field will not affect standard economics one way or the other.

Moving along, we have next David Levine’s Max Weber Lecture, Is Behavioral Economics Doomed? (ungated version)

There is no abstract to this, as it was a talk.  Levine’s talk focused on how standard economics gets a lot right.  Even though people do not live according to the model of homo oeconomicus, for example, Levine argues that standard economics gets voting pretty well (though Bryan Caplan would disagree).

Levine even defends standard economics against the ultimatum game critique.  Basically, the ultimatum game goes a bit like this:  you have $10 to split between yourself and a second person.  You choose the split, and the second person chooses whether or not to accept this.  If he accepts, you both take the money according to your split; if he refuses, neither of you gets a penny.  In either event, the game ends after this choice.  According to standard economic theory, you should offer the other person 1 cent, and the other person should accept because 1 cent is still better than nothing.  This is one of the games that behavioral economists use to critique the standard economic model.  Levine points out, though, that if you think about the game a bit longer, there is a good interpretation of the results in the standard economic framework, and that is the power of spite and the threat of retaliation, especially relating to multi-shot games.  In addition, Levine argues, people are searching out the equilibrium, so we tend to see multi-shot games ending closer to what standard economics would suggest:  a high take-home amount for the first person, but not quite 100%.

Finally, Elif Incekara Hafalir and George Loewenstein accidentally support homo oeconomicus in The Impact of Credit Cards on Spending:  A Field Experiment (ungated version).

Abstract:

In a field experiment, we measure the impact of payment with credit card as compared with cash on insurance company employees’ spending on lunch in a cafeteria. We exogenously changed some diners’ payment medium from cash to a credit card by giving them an incentive to pay with a credit card. Surprisingly, we find that credit cards do not increase spending. However, the use of credit cards has a differential impact on spending for revolvers and convenience users: Revolvers spend less when induced to spend with a credit card, whereas convenience users display the opposite pattern.

Basically, the authors have an experiment in which they tried to show that people will act irrationally if you have them use credit cards as opposed to cash:  they will spend more money if spending with credit than with cash.  In the results, however, they actually showed that there was no statistically significant difference between their control group and the group of individuals they attempted to entice into using credit cards as opposed to cash (by offering higher-valued Amazon gift cards as a reward for paying for lunch with a credit card).

And, to end this, I shall link to a blog post on a David Levine article.  It seems that people who want to dump homo oeconomicus are going to have to do a bit more than say that the simplifying assumptions are realistic; they’ll also have to show that more complex assumptions explain the world better, that these results directly affect utility-based choice behavior, and that they can explain a set of experimental results of which those that standard economics can explain is a subset.  Behavioral economics as it stands does not fit these characteristics, at least according to the papers above.