Tuesday, November 29, 2005

Pondering Walter Williams: God's Priorities

Today I again refer to Walter Williams' list of questions for us to ponder.

Question 92. d) Why do you think that the commandments: "Thou shalt have no other Gods before me" and "Thou shalt not make unto thee any graven image...." are the two more important amoung the Ten Commandments, in the eyes of God?

There are really two different but related ways to answer this: for monopoly and for legitimacy. Monopoly power is probably the one WW is thinking of so let's start with that.

The first cited commandment is a way to clear out all existing competition. "Dump all your other objects of worship." The second is to establish a lasting monopoly, a barrier to entry. "Not only can you not keep your objects of worship, you can't make any more." Remember, "thy God am a jealous God."

Without competition, God gets final say on everything. Pretty sweet deal.

But it is also possible that God's pursuit of monopoly power wasn't power for its own sake but for legitimancy. It's hard to get everyone to follow the rules if some people think the rule-maker could be wrong. Thus we see God not only as the one true deity but as the ultimate moral authority (even though he gets jealous at times). Weird.

Monday, November 28, 2005

Clarification On MR

Tyler Cowen is having us, his students, write up our own questions for our final to post in the comments section of his blog. After contributing my question, I later scanned the other ones until I came across this one by Brad DeLong:
The United States, with a GDP of some $12 trillion a year, currently has a current-account deficit of $750 billion a year composed of a $750 billion trade deficit and a balanced flow of factor incomes. Making your own rough back-of-the-envelope projections of U.S. GDP growth and of real interest and profit rates over the next twenty years, answer the following question: If the trade deficit stays constant as a share of GDP over the next twenty years, how large--both in 2005 real dollars and as a share of U.S. 2025 GDP--will the current-account deficit be in 2025? Why might one argue that this trade deficit is "unsustainable"?

I thought this question was funny, not because it's a bad question (it's a good one in fact) but because a) Brad DeLong is not a student in our class and b) the nature of the question is very different from the topics we've been covering and from the other questions that were asked.

A couple of lines down I noticed the comment, "Brad DeLong is one of your students? Weird."

Naturally I thought this was very funny because I was thinking the exact same thing so I replied, "Yeah and given his question I can tell you he's been skipping class." The point of the comment was to establish what I found to be an hilarious juxtaposition between what he thought we were focusing on (projected growth calculations) and what we were doing (pretty much everything besides that).

It would appear not everyone thought this way. Robert Schwartz commented "Say something snarky about Brad Delong and your post will be taken down on this blog and his." To be sure, Prof. Schwartz, I don't mean it as "snarky," merely good humored.

The whole episode speaks to the immense confusion I feel when I think about the hierarchial nature of academia--a place where ideas are supposed to flow freely. There are things to say about that, but it's a post for another time.

Sunday, November 27, 2005

Sticking It To Stigler

George Stigler wrote a piece on the economics of information sometime back inwhich he described reasons that determine the scale of cost of search (as in for the best price of a product). He listed several relevant factors: the number of buyers and sellers, the ratio of price of good to income and the geographical size of the market.

It annoys me, though, that he paid no attention to technological development as a factor, which can increase the size of the market but at the same time can increase the amount of search. Lo and behold while I was reviewing old micro final exams I stumble onto this sentence we're asked to comment on:

"According to the search model of George Stigler, the rise of the Internet should increase the amount of time that consumers spend searching for good prices."

The move is technically ambiguous because while sellers and buyers have increased (more search), the geographic area has also increased (less search). The second part isn't important, though, because the whole point of considering the geographic size is to include the cost of moving from place to place, which has actually decreased. But the author only talks about geographic change, not effective geographic change.

Seeing this question, I found myself shaking my fist at the paper loudly saying, "Damn you Stigler for not including technological change in your determining criteria for the cost and amount of search a consumer endures for the pursuit of the best price of a particular good or service."

I wonder how long I've been such a big economics dork?

Thursday, November 24, 2005

Try Buying Nothing For a Day. I Dare You.

With Thanksgiving winding down there's growing anticipation in the streets and homes of DC. I'm surrounded by an edgy silence. It's like a simmering Jamaican soup, calmly sitting on the stove but possessing enough fire and passion to melt the coldest of hearts. I can feel the energy in the air; it's absolutely palpable.

Tomorrow is one of the biggest shopping days of the year: Black Friday, so named as it tends to bring retailers into the fiscal black. It is an exciting day and while I prefer to avoid the crowds I do like to stop by the malls and breathe in the wonderful ordered chaos. It's a holy pilgrimage for economists.

And now that I live in a real city, I might get lucky and spot some "Buy Nothing Day" protesters. I doubt I'll actually see any because the Adbusters group doesn't seem to protest consumerism in the US (but they seem to be very popular in Europe in Canada). Their rather ambitious goal is to buy nothing on Black Friday to protest the evils of people purchasing gifts for their friends and family. The horror, the horror.

I really hope to see them so I could tell them they are hypocrites. They didn't “buy nothing” that day. Virtually nobody "buys nothing." Here's a list of things at least one protestor will buy tomorrow.

-Car maintenance (depreciation)
-Lighters (for the cigarettes)
-Butane (for the lighters)
-Markers (they carry big signs)
-Posters (again, the signs)
-Clothes/Shoes (depreciation)
-Bus/cab/subway fares
-Cell phone minutes
-Pay toilets

No doubt people will say that they didn't buy those things today, but I argue they did otherwise their entire protest is meaningless. If we define "buying" as merely the exchange of money between hands then buying doesn't happen nearly as much. You don't buy something if you paid with a credit card (you write the check much later). Since I doubt the make the distinction between credit cards and cash, they must mean "buying" to be "engaging in an activity that promises payment." Consumption. Because of the protesters activities tomorrow, they will or did buy certain goods and services. In every relevant way, they are buying things. Ironically, you are less of a consumer if you stay at home and watch TV.

Say what you will about the mall-shoppers tomorrow. At least they are being honest.

Wednesday, November 23, 2005

A World Without Patents

This past weekend I went to the SEA conference in DC and had a wonderful discussion with economist Howard Baetjer of Towson University.

Howie wrote a wonderful article in the Review of Austrian Economics called "Capital As Embodied Knowledge" (pfd here). Capital, he says, get its value because it's infused with knowledge, thus other people can use it even if they don't understand the technology. I can use my car even though I can't even change my oil. If I had no knowledge of how computers work, I could still use one just fine.

We got to talking about patents and how screwy they are. For a long time I always figured patents as a necessary evil. Yes, they are subject to terrible abuse but I couldn't think of an alternative to protecting intellectual property. He suggested re-enginneering, say software, to encrypt it better so its patent is protected.

This is where it gets really interesting. I realized that what he's proposing is the seperation of service (what the technology does) and technology (how it works). This is what patents basically do: seperate service from technology. Patents allow people to enjoy what a technology does but disallow the replication of that technology. Firms cannot "reverse-engineer" a patented item (usually). But if there were no patents, they could (and do).

In a world without patents, the costs of reverse engineering is their grace period (not the length of the patent). Thus, I propose firms will adjust their behavior to get the most out of the technology they developed.

First, they will attempt to make it as hard as possible to reverse-engineer the product by doing extra work to seperate service from implementation. I call this practice "black-boxing" because you want to turn your product into a "black box;" all the people know is what comes from it (the service), not how it works (implementation). We can imagine firms hiding circuts, creating false relays, adding "self-destruct" programs (overheat the circuts if the case is broken) and maybe even coating the inner-casing with a tough structure that's physically hard to remove.

Second, firms will engage in multi-incremental technology growth. With patents, marketing the absolute latest makes sense because no one else can make that technology. Without patents, firms will not release a product the moment they perfect the slightest improvement because that will be easy to reverse-engineer. Instead we'll likely see new products that not only contain generations of a particular improvement, but several of them at once. With all these leaps in one product, it becomes exponentially more complex to figure out how it works. (Think of the difference of giving a six-shooter to the founding fathers and giving them a machine gun.)

Third, firms will reduce their prices faster for new technology because they want to get a bigger foot in the door. With patents, they have greater monopoly power (because they know when their power ends). Without patents, their length of their monopoly power becomes uncertain; it would be as if they are competing with a company even before they replicate the technology.

Fourth, all of these things will encourage corporate espionage, and that's just cool.

Fifth, there will be more focus on technology with greater originality and novel approaches. Reverse-engineering such technology is harder because you're less certain where to start.

All of these things would, of course, increase the costs for firms, (just like removing a licensing law increases the costs). I do not think firms will embrace this change in law. However, it is possible it could work in their favor if they black-box and spy well enough.

If You Ever Thought Your State Was Sad

At least you're not from Idaho. Earlier this month, Maddox gave a nice rant about his potato-farming neighbor. The most telling bit of evidence is the recent resolution the Idaho house passed to commend the movie, Napolean Dynamite, which was filmed in the state.

Here are some of the things they cite as why they honor the film.

"tater tots figure prominently in this film thus promoting Idaho's most famous export"

"Uncle Rico's football skills are a testament to Idaho athletics"

"Napoleon's bicycle and Kip's skateboard promote better air quality and carpooling as alternatives to fuel-dependent methods of transportation"

"Pedro's efforts to bake a cake for Summer illustrate the positive connection between culinary skills to lifelong relationships"

"Kip and LaFawnduh's wedding shows Idaho's commitment to healthy marriages"

"Napoleon's tetherball dexterity emphasizes the importance of physical education in Idaho public schools"

There are many more but the best part of the list concludes with
any members of the House of Representatives or the Senate of the Legislature of the State of Idaho who choose to vote "Nay" on this concurrent resolution are "FREAKIN' IDIOTS!" and run the risk of having the "Worst Day of Their Lives!"

This is where your tax dollars are going.

Monday, November 21, 2005

Seeing the Light

Have you ever heard of Rattenberg, Austria? Yeah, neither have I. Not until today at least.

With a population of 440, it's the smallest town in Austria and exists in perpetual darkness during the winter months. With the looming shadow of the romantically named Rat Mountain blocking their sun, the people are naturally upset.

Founded in the 1300s, the town's dismal placement made sense because it helped defend them against marauders. (Though I thought the best defense would be on the mountain, not behind it, but what do I know?) Marauders aren't common anymore so naturally adjacent towns sprang up when the region stablized.

Instead of taking the cue and moving, the people of Rattenberg have decided to build an array of thirty mirrors to redirect sunlight to their town. Keep in mind, this won't be the whole town; only certain areas will be bathed in light.

Granted, that would look really cool from a distance but then you look at the $2.4 million dollar price tag. It's about $5500 per person, and that doesn't include maintainence.

The EU plans to foot half the bill meaning people smart enough to live in cities with sun are paying to bring the sun to those too cheap/lazy/stupid to move one town over.

In the US we have these things called ghost towns. Austria should remember some communities deserve to wither and die.

Friday, November 18, 2005

Delaying The Action

For reasons I don't quite remember (I think it had something to do with how old great writers were when wrote their great works), Chris Nelson, someone else and myself were wondering how old Adam Smith was when he wrote The Wealth of Nations. This was several months ago.

I saw Chris this evening at the SEA conference during an IHS gathering and he reminded me of my task. Belated, here are the results.

Adam Smith was baptized June 5, 1723 (exact birthday unknown).

He published The Theory of Moral Sentiments in 1759 when he was about 36.

He published The Wealth of Nations in 1776 when he was about 53.

I guess that gives hope to the procrastinators.

Thursday, November 17, 2005

Miracle Whipped

There may be fairies at the bottom of the garden. There is no evidence for it, but you can't prove that there aren't any, so shouldn't we be agnostic with respect to fairies?
--Richard Dawkins

Last night during the Caplan-Iannaccone debate about the rationality of religion, Prof. Iannaccone made a rather amazing argument for a trained mathematician: he told us miracles proved themselves.

A virgin birth is a crazy idea because every other birth at that time was non-virginal. "But that's the whole point," Iannaccone said. "It's a miracle."

Is that all you need, Professor? Someone to tell you something amazing is happening? If I tell you I've seen those fairies Dawkins refers to, will you build altars at your garden? Will I be your new God?

If a miracle is by definition unprovable and supernatural, how can we possibly tell if it's a miracle? We can't, which makes them rationally useless.

Fire At GMU

The Foundation for Individual Rights in Education announced today that it's challenging the recent activity of my new school, George Mason University. In late September, GMU student and Air Force veteran Tariq Khan protested some visiting military with a sign saying "Recruiters Lie."

Even though Khan's sign as forcibly taken by another student, campus police arrested the protester. Khan apparently violated GMU Policy 1110 which "applies to the sale and distribution of products, goods, food, beverages, services, and newspapers by GMU and non-GMU organization and individuals." The school cites the purpose for the rule: "to protect faculty, staff, students, contractors and University guests from commercial and non-commercial exploitation and harassment, preserve the aesthetic atmosphere of the University, avoid disruption of the University’s educational mission and to promote safety and security in University facilities and on University grounds."

I had no idea we needed protection from being told stuff.

FIRE's campus profile of GMU can be found here.

Wednesday, November 16, 2005

Captain Progress

I remember Captain Planet, that 90s cartoon about saving the environment. Then I learned economics and I cringe when I read some of their old plots. Consider this gem:
With landfills overflowing, Sly Sludge is ready to cash in on his new garbage reducing ray. But when the Planeteers threaten to expose his operation, Sludge shrinks them down and buries them in a sea of refuse. In jeopardy from toxic trash, and seagulls the size of jumbo jets, our heroes have to do some serious recycling in an effort to engineer their way out of their new "world of waste!"

Wait, reducing garbage is bad? Is it because he's making money or because he's not recycling? Talk about missing the industry for the firms.

I would love to make a comic about Captain Progress or maybe Captain Profit and the Profiteers. I'll develop this as the ideas come, but I'll need someone who can draw.

Dawkins Wisdom

If you have a few minutes today, I suggest scanning Richard Dawkin's entry at Wikiquote. His kernels of wisdom are near infinite. For example,

"Justifying space exploration because we get non-stick frying pans is like justifying music because it is good exercise for the violinists right arm."

Tuesday, November 15, 2005


"...perhaps in the absence of hurricanes and other phenomena that shift the demand for oil upward, prices naturally drop," said CF yesterday as she pointed out a trend we are all seeing at the gas pump: prices are falling.

But it would be wrong to claim that this short period is indictive of a larger trend, just as pundits were wrong when they screamed doomsday only a few months earlier as gas prices rose. What is causing oil prices to fall now is the result of a game of catch-up. It takes a good six months for petroleum to go from ground to gas station. Even though oil companies pumped more oil when gas prices started to rise, we are now only seeing those benifits; supply is merging with demand.

It's true that prices naturally drop, but we have to look at a much longer time period. Check out this graph from wtgr economics.

Note that oil prices were falling for about the fifteen years before the creation of OPEC in 1973 and have been stochastic ever since. A non-market organization made prices flucutate, it seems, not the market itself.

Consider now the role of tar sands and oil shales, two sources of oil the industry didn't consider profitable until not too long ago. The former source is pretty evenly split three ways between the Mid-East, Venezuela and Canada and makes up about 2/3 of the oil reserves in the world. The latter is mostly in the US--1.2 trillion barrels worth. Oil companies are extracting or planning to extract oil from these sources, a process that becomes more worthwhile as prices and volatility rises. As this production increases, OPEC will become less significant and prices will then follow the trend we saw in the pre-OPEC days. Imagine a newspaper headline in the year 2025 reading,

"Though NA Net Oil Exports Continue To Rise, Congress Worries About Falling Gas Prices"

Fricking Gas-Tastic.

Sunday, November 13, 2005

Windfall Tax Nothing But Hot Air

The Tax Foundation has a lovely graph describing the 1980s establishment of a windfall tax.

This is of course the statist's argument against the tax, which I think misses the point. The goal of government shouldn't be to make money but to create a framework within which others can make money.

Fandom of the Opera

Today I made the transition from Firefox to Opera web browser. Firefox was incredible when it was released. Tabs. Google search in the browser itself. Quick links. But now those revolutionary additions are the standard and imitation pushes the web browser product forward.

Enter Opera, which recently became free. I wasn't too keen on switching browsers but after the 100th time of not being able to view media because I lacked the right plug in, I though I'd give it a serious shot. I'm now hooked. Opera has the following advantages.

1. It comes with all the plugins you'll need to view web movies, etc. This was a main reason why I switched as FF doesn't come with any.

2. I like to multitask when I'm online and to keep all the webpages straight, I want to group similar tabs together. FF puts the tabs in the order you've created them and won't let you switch. Opera does; it's very nice.

3. Adding bookmarks is less awkward in Opera than in FF; where you are putting a link is much more clear.

4. It might be my imagination but I think Opera runs faster.

There might be other things Opera has; I'm still exploring it. Not yet sure what the "rewind" and "magic wand" does yet. You can download Opera for free here.

NOTE: Mike just told me I've been using an old version of FF; the new one lets you move tabs. Didn't solve the other problems I have with it, though.

Saturday, November 12, 2005

I Completely Missed It

Walter Williams was on 20/20 on Friday. 20/20's been doing a weekly series about the seven sins and last night's was greed. Naturally they talked to my micro professor.

I was able to watch a segment of the episode on the 20/20 website which had him in it. I don't know if this was the extent of his participation or not but here's his quote:

Normally in our country those areas where people are motivated the most by greed are the areas we are most satisfied with. Supermarkets. Computers. FedEx. Those areas where people say we're motivated by caring are the areas of disaster in our country. Such as education. The post office. City garbage collection. Police services.

It reminds me of a book I'd like to write someday: The Ethics of Greed because greed generates the incentive that makes our economy work so well. And because it works so well, people can have greater freedom and choices, they live longer, they can do more with their lives, they are safer and they are happier (yes, happiness is hard to measure but I bet if you stuck one of those unhappy people in a third world country for a month, they'll stop complaining so much about rush hour). All of these things are what the great philosophers have been trying to accomplish for thousands of years (Plato's Republic comes to mind) and greed, the least likely of candidates, makes it possible (as well as the right institutions). How amazing is that?

Wednesday, November 09, 2005

Other People's Money

Was surfing Wikiquote and found these great words by Milton Friedman.

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.

-Fox News interview 2004

Monday, November 07, 2005

Bullets Aren't Economic-Proof

Last night on the West Wing, the live debate strayed to the topic restricting bullet sales the same way we restrict gun sales. It reminded of me of a Chris Rock bit where he proposed a high tax on bullets so people couln't afford to kill each other.

These sound like nice ideas, but they lack an anchor in reality. Bullets are little more than hunks of metal. If the state makes it hard to buy them, you can bet a black market will arise overnight. Mafias and gangs will sell bullets to fund their activities in the same way they sell drugs or they sold alcohol during prohibition. Artifically kicking up the price of bullets will move money away from the accountable law-abiding firms and into the hands of crimminals.

That's only the beginning. When it's worth it to learn how to make bullet and it's profitable to buy the equipment, it's a very short jump to making the bullets we really don't want people to have such as those that pierce armor. (Yes these bullets are circulated anyway but they will become much more common and easy to get.)

Alcohol, drugs, prostitution, guns; these are all things where there was some kind of government control on them and every single one of them got their very own black market. Why should we think bullets are any different?

Sunday, November 06, 2005

Vinick For President

I just watched the debates on NBC and Vinick is now my guy for President. His closing speech was a classic argument for libertarian values.

There was a lot of great ideas touched on the debate; my head is still swimming. One thing I did want to comment on was Vinick's take on the worldest poorest countries. He was right in the sense that a major hurdle for these downtrodden are the oppressive taxes they bear. And they bear them because the local governments have loan payments.

I would not doubt that, but there are even more core issues, most notably is that the governments themselves suck. They are not only havens for corruption, they deny the basic economic infrastructure needed for a successful economy. Creating a legal business is like pulling teeth so entrepreneurs are forced to establish costly illegal businesses. Thus, they can't secure loans. They can't advertise. They have to bribe countless people just to stay open, nevermind making a profit.

This speaks to an earlier part of the debate when Santos reminded us that the key to limiting illegal immigration was for the government to improve economic conditions. Of course since he's not running for President of Mexico, that was a worthless promise. Didn't even say how this would be accomplished. Now if he would listen to his opponent (or me for that matter) he'd have something to tell President Fox.

For those of you who didn't see the debate, I strongly recommend you find a copy and watch it. There was some great libertarian themes in it.

Saturday, November 05, 2005

Million Dollar Idea #906

I was reminded the other day about a conversation I had with an old undergraduate professor of mine. He insisted that greeting cards were Giffen goods--you buy more as the price increases. He reasoned that because the price is printed on the back of the card, people fearing being called cheap by a loved one go for the higher price.

What he's missing, of course, is that such reasoning is not holding all things equal. The value of the card went up because the price went up, thus they are completely different goods. The same could be said of shopping at buying designer jeans rather than Old Navy--the price has inherent value; it sends a signal.

Pushing the point even more yields a wonderful business opportunity (assuming my prof's greeting card purchasing concerns are common). Make very cheap greeting cards with a fake price on the back: say five dollars. Then, at the factory, put a sticker over the fake price with the real price on it: say fifty cents. Add instructions on the sticker: "Peel To Impress."

The only problem is success will be the mark of failure as brand name trumps all. But you could always come up with fake brand names and then put the real brand name on a sticker, too. It's genius!

Want more? Send me fifty dollars.

Thursday, November 03, 2005

Pecuniary Printing

Forbes posted this nice piece on Google Print by Nick Schulz from TCS. One of my favorite points:

The way the current copyright law works, I can take a book out from any library, read it and write a review of it for publication on the Web site I edit or in the pages of Forbes.com or anywhere else.

Google Print is just more of the same. To those that say people shouldn't make money off their work not only forget that's been true long before Google or even Amazon (reviewers have been doing this for a very long time) but they miss the big point. It doesn't matter. It is completely absurd to claim that getting a check for doing a job is morally worse than being compensated solely by the person's own sense of satisfaction.

Pecuniary gains and non-pecuniary gains both make people better off; the distinction is meaningless for this argument.

Wednesday, November 02, 2005

Why Dudes Become Ladies

Deirdre McCloskey is a wonderful economist, focusing on rhetoric (something we do need work on). Most interested in economics know that much. Slightly fewer people know that Deirdre was born Donald and underwent a sex change operation in the 1990s.

I was talking about this to a friend of mine yesterday who did not know this fascinating piece of economic trivia and we stumbled upon the question of what factors (besides the obvious) determine if a person engages in this expensive and life-altering surgery.

Donald, I pointed out, used to be a burly Scotish man. The last person you would except to become a woman. (And to my surprise, the transition went very well: pictures here).

But I remember watching TLC once and they had a thing about sex changes--some turn out to be very bad (person looks like a man in a woman's body) while others were so great the girl became a stripper.

I naturally starting thinking about what physical attributes might make the man-to-woman transition easier and see if it's a predictor. Height would be a big factor. Bone structure, too (but that's harder to measure). I'm not really familar enough with the procedure to guess beyond those.

So if we assume that the deep urge/feeling to become a woman is randomly distributed among the population we could check if the average height of transformed women is lower than the average height of men (though there may be a confounding factor there). We could also see if there's a correlation between the average height of a country and the percent of the men that undergo the procedure (though again there are confounding factors).

Hmmmm. Maybe I'll change my dissertation plans.

Tuesday, November 01, 2005

Check Out That Alpenglow

I'm having a dictionary thing lately.

Today's word of the day from dictionary.com is alpenglow. It means:

"A reddish glow seen near sunset or sunrise on the summits of mountains."

Note that's not any glow--only reddish ones--and it's not on the horizon of just any landscape--only mountain summits. The word comes from German words meaning "glowing Alps."

There's something to be said about the economics of language. Spontaneous order. Creative destruction. Technological development. Cultural evolution. Signs of wealth and poverty. If I was a language person, I would use foreign vocabularies to estimate the economic strength of the corresponding regions. But I have trouble with English as it is.

Anyone wanna test Cowen's Second Law (there's a literature on everything)?