When Black Is White

Today's word of the day from dictionary.com is virago. It has two meanings.

1. A woman of extraordinary stature, strength, and courage.
2. A woman regarded as loud, scolding, ill-tempered, quarrelsome, or overbearing.

"Virago" gets the reward for the most ambiguous word in the world.

Fads and Fortunes

While re-reading Fischer Black's Noise, I was reminded of his theory of business cycles: economics downturns are due to firms poorly estimating what people want. When this mismatching occurs at a great scale, recession hits.

Tyler Cowen isn't much of a fan of this theory; by the law of large numbers, the successes should cancel out the failures. I've argued this point with him, saying that the LLN only works if the agents are independent. It makes sense that they are not--entreprenuers don't live in vacuums. He reasonably asked, "What sort of connection between all these agents is so strong that it could intitate such a downturn?" To that I had no answer.

I still don't have one per se, but I just thought about the other side of the equation.

The LLN argument only works if both the firms and the consumers are independent. I may not be able to nail down a common link between firms but cultural exchange is something consumers do in abundence. Personally, I've been introduced to (and in some cases became obsessed with) restaurants, televison shows, movies, music, games, books, food, clothes and so forth. I've also shared most of these new wonders with others.

These sort of information linkage mechanisms create crowding around a particular good or service which leaves average or unadvertised alternatives without a market. Because Mike introduced me to Firefly, I spend time and money on it; a void is filled that I might have filled with some other substitute. Ideas that would have been consumed or supported are crowded out by more popular ones. Failure occurs; money is wasted. Fads (fashionable products that are later abandoned) aggrevate the downturn because these once-popular goods fail (thus any resources spent on expanding the line are also wasted).

This could help explain why the business failure rate for fashionable products (clothes, restaurants, television shows) is so much higher than industrial products (to which popularity plays less of a role). As someone who wrote a guide on dining in the DC area, this is an argument I'm sure Prof. Cowen can at least appreciate.

Finding Dollar

Tyler Cowen's suggestion that for our upcoming macro test, we study "every waking hour" is proving to be actually kind of fun (thus far). One thing it got me doing is looking up stuff I've always meant to look up.

At the top of that list are non-US countries that use the dollar for their local currency. Whenever I get in a dicussion about why the trade deficit doesn't matter (because countries can't spend our money domestically, thus it ends up back here), these exceptions always enter the conversation. Now I finally have memorized which ones they are.

-East Timor
-Ecuador
-Marshall Islands
-Palau
-Federated States of Micronesia
-Northern Mariana Islands
-El Salvador
-Lebanon (Lebanon also has the Lebanonese pound which is used interchangably with the dollar at a rate currently pegged 1500 to one.)

All countries that have an extremely mild (except Ecuador which I count as "very mild") impact on the global economy.

First Look at RBC

In studying for my macro exam Monday, I've decided to summarize some macroeconomic theories for this next week of blog postings (as well as be active on Wikipedia).

Most of the theories we've encountered pertain to the business cycle. Ideally, a business cycle model exhibits three key ideas: it's persistent over time, sectors of the economy move together and there are changes in the labor supply. Because real business cycle theory does best with these, it is most popular.

Of course that doesn't mean it's very accurate. RBC, developed by Robert Lucas, Finn Kydland and Edward Prescott, is deeply rooted in rational expectations and independent of money supply. Indeed, people do not make mistakes in this economic model; downturns happen with productivity shocks. As people adjust to productivity shocks, the economy recovers. Thus all changes are exogenous.

I think that last point is one of the weakest points of RBC. All changes are exogenous? If all shocks are exogenous, then where does technology come from? Does that mean that people who are working on new technology are not included? Or just those technology-pursuing activities? But shouldn't they be included because it's rational to pursue technology? Technology shocks are both endogenous and exogenous in RBC; it can't be both.

There are other problems, mostly labor related. It also has zero predictive power; what counts as a "productivity shock?" How do you weight shocks against each other? How long does a shock last?

Yet it's still the mainstream theory. Go figure.

The World Wide Way?

Today I discovered the Global : Ideas : Bank, a website dedicated to posting users' random ideas for the world to see and discuss.

I was almost going to put it aside and sign up later (so I could comment) when I saw this entry (safe to say I signed up soon after):

The Problem:
Most of the time when we are surfing internet, we face the problem of find the information we need(What we are looking for).
The Social Invention:
A standard layout for website should be created which enforce the new website development to follow that standard layout. I than way [I think this way (?)] we will alway find the information more quickly and without any sort of hasle of search again and again.

Also some sort of engine can be develop which shows the information on the web site in a consist manner (Embebed with the internet browser). [sic]

Very fitting that just minutes before I had re-read The Idea Trap.

The End of Serenity?

Tyler Cowen cited briefly why he doesn't expect a Serenity sequel: low box office. Since its release date (September 30, 2005), Serenity's total box office sales are $22.1 million domestic, $3.6 overseas. That's a $25.7 million revenue versus a $39 million production costs.

These numbers, however, are not perfect as they don't include earnings from preview screenings, and there was a lot of them. Too many, in my opinion; Mike, for example, saw the movie twice before it was even released. Combine this with the low rewatching value (thanks to the death of a certain character), I'm sadly not surprised by the numbers.

Presumably, the powers that be are including preview revenues and Joss will point out the (hopefully) strong DVD sales, but I'm not optimistic.

The Power of All of Them

North Dakota may be one of the first of a growing pool of states that will require licenses for selling on eBay.

According to this CNN article, "applicants must pay a $35 fee, obtain a $5,000 surety bond and undergo training at one of eight approved auction schools, where the curriculum includes talking really fast."

Thank God most people have at least half a brain; most of the slashdot comments recognized the stupidity of the law in all its forms.

But they overplayed the harm it does to the small businesses that use eBay as a forum for sales. Yes, the auctioneer schools benefit. Yes, the state benefits. But in the long run, the businesses benefit because it will make their competition (non-firms selling on eBay) virutally non-existent. Granted, this plan only works if most other states adopt similar rules.

I'm also constantly puzzled as to if people think some behavior is a good thing, why there needs to be a law that requires people to act certain ways. "Gordon Krance, president of the North Dakota Auctioneers Association, said the group has no position on whether people who are paid to sell others' goods on eBay should have an auctioneer's license. But he said sellers could benefit from attending auctioneering school."

If they'd benifit, then why do you need to force them to go?

Hat tip to Mike for the link.

Cost and Costlessness

Not more than a minute ago as I walked up the stairs to the office, a guy clearly from some student organization offered me a free T-Shirt. Barely thinking, I turned him down.

No doubt this was not his first rejection in this matter and I'm sure on several occasions he and his peers mused as to why anyone would refuse anything that's free.

Beyond the fact that I didn't know what organization was or what the shirt said (it was drapped over his sweaty shoulder, which was probably another reason I refused so quickly), I can think of several reasons why people would turn down free things, all of them related to non-pecuniary costs. For your benefit, sweaty guy, here they are.

1. I still have to carry the shirt. Granted shirts don't weigh a lot but space in my bag is limited.

2. I have to store it somewhere. Again, my dresser isn't that full but it's not so empty I won't have to move it out of the way of quality clothing.

3. If the shirt said something I didn't care for ("Fair Trade Now," "Rush X Faternity" or "I did your mom last night"), I get disutility from not only having it but from having touched it or even knowing it exists.

4. This goes double if someone I know saw me accept the tainted item.

5. Often accepting a zero-priced item includes an annoying rant about how great Y organization is and how I should join or otherwise support them. Sort of like telemarketers but harder to hang up on.

6. They weren't operating from one of the school's kiosks, thus making their organization all the more shady.

7. While the length of time is small, I could be doing something else when I'm grabing the shirt and finding a place to put it.

TANSTAAFL.

Who Hid the Master Plans?

Government can be surprisingly uncoordinated (even for government). In Alaska, they built a road to nowhere. In Arizona, a new school's short a road. Sounds like someone wrote the wrong state abbreviation somewhere...

Greatest Wikipedia Page Ever

There are over 450,000 Wikipedians. It only takes two to have a lame war.

Pondering Walter Williams: Price of Life

For our micro class, Prof. Walter Williams created a list of questions for us to ponder over the course of the semester. With our first test looming, I broke out the packet and came across this particularly interesting one:

30. a) Is life priceless? What evidence can you offer to support your contention?

My short answer is "No, because people die."

Granted, this is a little simplistic; sometimes people would pay anything to save someone but they can't because of natural or legal barriers. So my slightly longer answer is "No, because life-sustaining goods cost a finite amount."

Food, for example, costs a measurable number, even the healthy stuff. If life was priceless, then food would cost a great deal more. Indeed, nothing is priceless. When I went to the Natural History Museum and saw the Hope Diamond, I overheard a guard responding to a woman's question of the object's worth. "It's priceless," he said.

But we know the government doesn't think the diamond is priceless because if it did, they wouldn't risk showing it to the public; they would keep it hidden at all times to make it that much harder for thieves and revolutionaries. Similarly, if human life was priceless, we'd never risk leaving our homes and be 100% risk averse. We clearly are not so careful.

Crimminally Poor

Tonight, Bill Maher talked to Ann Coulter, author of such conversation-elevating books like How To Talk To a Liberal (If You Must) and Treason: Liberal Treachery from the Cold War to the War on Terrorism. She said a lot of crazy things but the one that really stuck out for me is when she said crime and poverty were unrelated.

Few variables better correlate with crime; the research I've done on this matter suggests that poverty explains about 20% of the crime rate. Poverty was my best predictor (also checked execution laws, unemployment and education).

The two certainly makes sense; poor people have less to lose (for the case of robberies) and more to escape from (for the case of drug "crimes"). Some of them even have loads of free time. You could probably make the case that there's a confounding variable that's causing them both, but such are hard to come by. Both factors are pretty fundamental. Besides, that doesn't mean they are unrelated. A simple regression shows there's some kind of connection between the two, even in the unlikely event that it's an indirect relation.

I guess acknowledging a role of poverty bars Coulter from directly blaming yet another one of societies ills on liberals.

What's In a Name?

A few weeks ago, Prof. Williams opened our micro class with one of his random economic thoughts: do you own your reputation? Before you say "of course," ask yourself if you own other people's opinions about you as that's all a reputation is.

The concept is a little strange to wrap your head around because your actions strongly influence others' thoughts. When Tom Cruise acted like an arrogant prick with the Today Show's Matt Lauer a few months ago, the vast majority of the population started thinking of him as an arrogant prick. But that does not mean you own your reputation; if you did, no reputation would go bad. You can only influence it; the effects are ultimately determined by the minds of others.

Similarly, I ask "Do you know your name?" Before you shout back, "Of course, it's MY name!" recall that it's also YOUR reputation; if sementics were a determinant of ownership, I would own my parents. Anyone that's ever been to my house would know that is not the case.

A name is nothing more than a way for others to identify you. The only time you use your own name is to signal to people who you are. Just like repuation, you can influence what you are called, but the result isn't up to you. When P. Diddy renamed himself Diddy for the absurd reason that "the P was getting in the way" of his fans, we all went along with it. We chose to call him Diddy. Why should he own what other people choose to call him?

For contrast, suppose Castro wanted everyone to call him "His Holiness." Or if Mr. Bush declared his new name to be "Gandhi." I can't see society going along with it. You name is your name because that's what everyone chooses to call you. They just happen to call you the same thing.

I Speak, You Speak, We All Speak

Stumbled on this page about modern newspeak. My favorite entry:

Jungle - Replaced by Rainforest. A Rainforest is a happy place where Disney characters dance and sing ... a jungle is a scary place with lions, tigers, malaria and natives that want to cut off your head and boil it for dinner... who in their right mind would want to save that!?! (Original Emphasis)

What Would Julian Simon Say If He Saw Serenity?

He would cry, probably. At least at the beginning. Serenity, based on the cult-hit series Firefly, opens with a teacher telling the history their civilization. The story is Earth runs out of resources and the everyone travels to a new solar system to put down roots.

But Julian Simon points out that we'll never run out of resources. As raw inputs become more expensive, it becomes economical to develop alternatives. This has been the history of human civilization. And why doomsayers have claimed that we will run out of everything from food to flint, they have always been wrong.

But Simon isn't completely right. We won't have to abandon a resource-dry earth no matter what because his theory is contingent on free minds in a free society. If government controls resources (as it did in the USSR and as the US continues to do more of) we really could run out of resources. That is the great craziness of the doomsayers: they become right if we follow their advice.

Watch An Order Emerge

I love organization. I like putting things in their place and creating a framework to work in. But it's a bitch to implement and maintain. There's always exceptions, there's always new places to put more of the same thing. Thank God for wikis.

Wikis are web sites made up of pages than anyone can change, including pages for organization. Wikipedia, the world's largest encyclopedia, is easily the most famous of these sites. But few people know you can make your own wikis for any topic you'd like at wikicities. Currently there are over 500 wikis on wikicities.

After a long trial, I was finally able to launch my own wiki for the World of Darkness. (It's actually very easy to make a wikicity wiki; I ran into some trouble because I wasn't the only one to make a wiki for this.) The World of Darkness is a game series created by White Wolf publishing; my wiki is for fans to published their own ideas genre.

Today is the Wiki's first official day (I posted its existence on various forums early this morning) and already we see order emerge. All I did was advertise it a bit and establish a basic framework (mostly through example). Slowly I'm seeing people fill the holes I left as they contribute. To witness this world evolve, check out its recent changes page. (AtLastAwake is me.)

There is a lesson here that cannot be understated: wikis are economies in their own right. Motivation is generated not by the profit from a job well done, but the prestige from your fellows and the satisfaction of creation. There's no private property, but there's no scarcity either (granted there is some scarcity, but such exceptions have very close substitutes). I think one of the reasons people don't appreciate the beauty of spontaneous is that they can't witness order emerge from on high. Wikis, at least, are a close substitute.