Preferring a Pound of Cure

Voters prefer a pound of cure to an ounce of prevention, Bryan Caplan notes, citing Andrew Healy's recent paper:

Using comprehensive data on natural disasters, government spending, and election returns, I show that voters reward disaster relief spending but not disaster prevention spending. This aspect of voter behavior creates a large distortion in the incentives that governments face, since the data show that prevention spending substantially reduces future damage.
[...]
Given mean annual prevention spending of $195 million and mean disaster damage of $16.5 billion, the regression estimates that a $1 increase in prevention spending resulted in a $8.30 decrease in disaster damage, and this estimate captures only benefits that occur in the five years from 2000-2004.

Africa is giving nothing to anyone -- apart from AIDS

Irish write Kevin Myers speaks the unspeakable, and says that Africa is giving nothing to anyone — apart from AIDS:

No. It will not do. Even as we see African states refusing to take action to restore something resembling civilisation in Zimbabwe, the begging bowl for Ethiopia is being passed around to us, yet again. It is nearly 25 years since Ethiopia's (and Bob Geldof's) famous Feed The World campaign, and in that time Ethiopia's population has grown from 33.5 million to 78 million today.

So why on earth should I do anything to encourage further catastrophic demographic growth in that country?
[...]
Sorry. My conscience has toured this territory on foot and financially. Unlike most of you, I have been to Ethiopia; like most of you, I have stumped up the loot to charities to stop starvation there. The wide-eyed boy-child we saved, 20 years or so ago, is now a priapic, Kalashnikov-bearing hearty, siring children whenever the whim takes him.
[...]
Within 20 years of the [Irish] Famine, the Irish population was down by 30 [percent]. Over the equivalent period, thanks to western food, the Mercedes 10-wheel truck and the Lockheed Hercules, Ethiopia's has more than doubled.

Alas, that wretched country is not alone in its madness. Somewhere, over the rainbow, lies Somalia, another fine land of violent, Kalashnikov-toting, khat-chewing, girl-circumcising, permanently tumescent layabouts.

Indeed, we now have almost an entire continent of sexually hyperactive indigents, with tens of millions of people who only survive because of help from the outside world.
[...]
How much morality is there in saving an Ethiopian child from starvation today, for it to survive to a life of brutal circumcision, poverty, hunger, violence and sexual abuse, resulting in another half-dozen such wide-eyed children, with comparably jolly little lives ahead of them? Of course, it might make you feel better, which is a prime reason for so much charity. But that is not good enough.

For self-serving generosity has been one of the curses of Africa. It has sustained political systems which would otherwise have collapsed.

It prolonged the Eritrean-Ethiopian war by nearly a decade. It is inspiring Bill Gates' programme to rid the continent of malaria, when, in the almost complete absence of personal self-discipline, that disease is one of the most efficacious forms of population-control now operating.

If his programme is successful, tens of millions of children who would otherwise have died in infancy will survive to adulthood, he boasts. Oh good: then what?

(Hat tip to Dennis Mangan.)

The Depressive Realism Economy

Arnold Kling calls it The Depressive Realism Economy:

There are psychologists who argue that healthy people tend to have an inflated view of their abilities and how they are regarded by peers. In contrast, these psychologists contend, there is a tendency for depressed people to accurately assess where they stand. This hypothesis is called “depressive realism.” It explains our current economic gloom.
[...]
It now appears that we were living in a dream world a few years ago, with oil prices unsustainably low and house price inflation unsustainably high. Reality is less pleasant.

In theory, a student who suffers a blow to his or her self-esteem can continue to work hard and learn. In practice, educators worry that this will not happen.

Similarly, the asset revaluations that represent blows to our economic self-esteem could be shrugged off by workers and businesses. We still have all of the capital equipment and know-how for the U.S. economy to continue growing.

However, a significant reallocation of resources is required. For example, we need fewer construction workers. During the boom, the housing stock grew faster than the rate of family formation. It will take several years for this excess housing inventory, which some economists estimate may be as much 3 million units above its normal level, to be occupied.

Educational credentials that seemed useful four years ago may not be as valuable during the current transition phase.

Kling sees the problem through the unorthodox lens of macro without aggregate demand:

Orthodox Keynesian macroeconomics says that the cure for economic pessimism is for government to create an illusion. Congress can cut taxes or the Federal Reserve can print money in order to make people feel more prosperous.

What government cannot do, however, is figure out how to reallocate workers to new industries in a way that reflects long-term reality. Government does not know whether the journalism graduate should wait patiently for a relevant job or whether he needs to find a different career path.

Adapting to the reality of higher energy costs and an excess housing stock requires myriad complex adjustments, some of which may be obvious but many of which are subtle. Chances are, it will take several years to complete the transition. Meanwhile, there is little, if anything, that policymakers can do to hasten that process.

The Water Shortage Myth

David Zetland debunks The Water Shortage Myth:

As it stands, Los Angeles households pay $2.80 for the first 885 gallons they use per day. That's enough water to fill 18 bathtubs. The next 18 tubs cost $3.40, which is only 20% more. Most L.A. households don't even see this price increase, since the average household of three uses just 350 gallons — about seven bathtubs — each day. For that water, the household pays only $35 a month. If they use twice the amount, the bill merely doubles.

I propose a system where every person gets the first 75 gallons, or 1.5 bathtubs, per day for free but pays $5.60 for each 75 gallons after that. Under my system, the monthly bill for the average household of three would come to $95.

My system is designed to reduce demand rather than cover costs. Revenue paid by guzzlers would cover the costs of those who use only a small amount of water. Any leftover profits could be refunded to consumers or used to enhance the quality or quantity of the water supply.

Incidentally, his system wouldn't reduce demand — it would reduce the quantity demanded. His system actually reduces supply — the amount provided at a given price — but that doesn't sound good to non-economists.

Economics of a POW Camp

R. A. Radford, writing in Economica in 1945, explains the economics of a POW camp, including the cigarette currency, which arose spontaneously:

Although cigarettes as currency exhibited certain peculiarities, they performed all the functions of a metallic currency as a unit of account, as a measure of value and as a store of value, and shared most of its characteristics. They were homogeneous, reasonably durable, and of convenient size for the smallest or, in packets, for the largest transactions. Incidentally, they could be clipped or sweated by rolling them between the fingers so that tobacco fell out.

Cigarettes were also subject to the working of Gresham's Law. Certain brands were more popular than others as smokes, but for currency purposes a cigarette was a cigarette. Consequently buyers used the poorer qualities and the Shop rarely saw the more popular brands: cigarettes such as Churchman's No. 1 were rarely used for trading. At one time cigarettes hand-rolled from pipe tobacco began to circulate. Pipe tobacco was issued in lieu of cigarettes by the Red Cross at a rate of 25 cigarettes to the ounce and this rate was standard in exchanges, but an ounce would produce 30 home-made cigarettes. Naturally, people with machine-made cigarettes broke them down and rerolled the tobacco, and the real cigarette virtually disappeared from the market. Hand-rolled cigarettes were not homogeneous and prices could no longer be quoted in them with safety: each cigarette was examined before it was accepted and thin ones were rejected, or extra demanded as a make-weight. For a time we suffered all the inconveniences of a debased currency.

Machine-made cigarettes were always universally acceptable, both for what they would buy and for themselves. It was this intrinsic value which gave rise to their principal disadvantage as currency, a disadvantage which exists, but to a far smaller extent in the case of metallic currency; – that is, a strong demand for non-monetary purposes. Consequently our economy was repeatedly subject to deflation and to periods of monetary stringency. While the Red Cross issue of 50 or 25 cigarettes per man per week came in regularly, and while there were fair stocks held, the cigarette currency suited its purpose admirably. But when the issue was interrupted, stocks soon ran out, prices fell, trading declined in volume and became increasingly a matter of barter. This deflationary tendency was periodically offset by the sudden injection of new currency. Private cigarette parcels arrived in a trickle throughout the year, but the big numbers came in quarterly when the Red Cross received its allocation of transport. Several hundred thousand cigarettes might arrive in the space of a fortnight. Prices soared, and then began to fall, slowly at first but with increasing rapidity as stocks ran out, until the next big delivery. Most of our economic troubles could be attributed to this fundamental instability.

Our Electric Future

Andy Grove, former CEO of Intel, argues for Our Electric Future — with illustrations by John Hersey:









I find his history more compelling than his proposed future:

In the early 1970s, President Nixon kicked off Project Independence, defining a national goal in his State of the Union address: “At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.”

The failure to meet that goal was dramatic.

After Nixon, president after president set similar goals. Every target was missed. We became more and more dependent on imported petroleum. Net energy imports doubled between 1970 and 1980, and then again by 1990.

The onion conundrum

The onion conundrum is only a conundrum to those who claim that speculators cause volatility:

The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders (and not the new farms sprouting up in Wisconsin) were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics' belief that futures trading diminishes extreme price swings. Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April.

The volatility has been so extreme that the son of one of the original onion growers who lobbied Congress for the trading ban now thinks the onion market would operate more smoothly if a futures contract were in place.

How Much Does It Cost You in Wages if You Sound Black?

I don't think this headline conveys the right idea, but it describes an interesting study. How Much Does It Cost You in Wages if You Sound Black?

As part of a large longitudinal study called the National Longitudinal Survey of Youth, follow-up validation interviews were conducted over the phone and recorded.

Grogger was able to take these phone interviews, purge them of any identifying information, and then ask people to try to identify the voices as to whether the speaker was black or white. The listeners were pretty good at distinguishing race through voices: 98 percent of the time they got the gender of the speaker right, 84 percent of white speakers were correctly identified as white, and 77 percent of black speakers were correctly identified as black.

Grogger asked multiple listeners to rate each voice and assigned the voice either to a distinctly white or black category (if the listeners all tended to agree on the race), or an indistinct category if there was disagreement.

Then he put this measure of whether a voice sounded black into a regression (the standard statistical tool that economists use for estimating things), and came up with the finding that blacks who “sound black” earn almost 10 percent less, even after taking into account other factors that could influence earnings. One piece of interesting good news is that blacks who do not “sound black” earn essentially the same as whites.

(It turns out you don’t want to sound southern, either. Although pretty imprecisely estimated, it is almost as bad for your wages to sound southern as it is to sound black, even controlling for whether you live in the south.)

The headline implies a certain causality, but that's not necessarily the case at all:

It is possible that there are many other characteristics that differ between blacks who do or do not “sound black” that Grogger cannot control for in his regressions. It does seem likely that the biases at work would make his estimate an upper bound.

Japan Sees a Chance to Promote Its Energy-Frugal Ways

Japan Sees a Chance to Promote Its Energy-Frugal Ways — which it pursued even when energy prices were low:

With its towering furnaces and clanging conveyer belts carrying crushed rock, Taiheiyo Cement’s factory looks like an Industrial Revolution relic. But it is actually a model of modern energy efficiency, harnessing its waste heat to generate much of its own electricity.
[...]
Kawasaki Heavy Industries, which makes the waste heat generator at the cement factory in Kumagaya, started developing the technology in 1979. But the generators were too expensive to sell outside Japan while energy prices were low. But overseas orders took off three years ago, after energy prices began rising.

Since then, the company has sold 64 units, mainly through a joint venture in China.

“Japan rushed to embrace these technologies back in the 1980s,” said Katsushi Sorida, head of the waste heat plant department at Kawasaki Plant Systems, a subsidiary that markets and installs the units. “Now the rest of the world is finally catching up.”

I suppose the rest of the world is "catching up" because it finally makes sense to spend massive resources to reduce energy waste.

Japan's forced-conservation regulations led it to use less energy when energy was cheap:

According to the International Energy Agency, based in Paris, Japan consumed half as much energy per dollar worth of economic activity as the European Union or the United States, and one-eighth as much as China and India in 2005. While the country is known for green products like hybrid cars, most of its efficiency gains have been in less eye-catching areas, for example, in manufacturing.

Corporate Japan has managed to keep its overall annual energy consumption unchanged at the equivalent of a little more than a billion barrels of oil since the early 1970s, according to Economy Ministry data. It was able to maintain that level even as the economy doubled in size during the country’s boom years of the 1970s and ’80s.

Japan’s strides in efficiency are clearest in heavy industries like steel, which are the nation’s biggest consumers of power. From 1972 to 2006, the Japanese steel industry invested about $45 billion in developing energy-saving technologies, according to the Japan Iron and Steel Federation.

The results are visible at the Keihin mill on Tokyo Bay, run by Japan’s No. 2 steelmaker, JFE Steel. Massive steel ducts snake from the blast furnaces and surrounding buildings. These capture heat and gases that had previously been released into the air or burned off as waste. Now, they are used to power generators that produce 90 percent of the plant’s electricity. (The plant’s main fuel remains the coal used to heat its huge blast furnaces.)

Such innovations allow the mill to produce a ton of steel using 35 percent less energy than it did three decades ago, said Yoshitsugu Iino, group leader of JFE Steel’s climate change policy group. Mr. Iino calculates that if the global steel industry adopted Japanese conservation measures, it could reduce carbon emissions by some 300 million tons a year.

GM mosquito 'could fight malaria'

GM mosquito 'could fight malaria':

In the team's experiments, equal numbers of genetically modified and ordinary "wild-type" mosquitoes were allowed to feed on malaria-infected mice.

As they reproduced, more of the GM, or transgenic, mosquitoes survived. After nine generations, 70% of the insects belonged to the malaria-resistant strain.

A detail seemingly meant to terrify non-scientists:

The scientists also inserted the gene for green fluorescent protein (GFP) into the transgenic mosquitoes which made their eyes glow green.

This helped the researchers to easily count the transgenic and non-transgenic insects.

Over on the Freakonomics blog, they seem most concerned about the Ellsberg Paradox, and whether we prefer measurable risk to immeasurable uncertainty, but I'm more concerned that life-saving aid only causes more misery in any impoverished land without enough food to go around.

The cracks are showing

The cracks are showing, The Economist says:

For the past few years it has been hard to ignore America’s crumbling infrastructure, from the devastating breach of New Orleans’s levees after Hurricane Katrina to the collapse of a big bridge in Minneapolis last summer. In 2005 the American Society of Civil Engineers estimated that $1.6 trillion was needed over five years to bring just the existing infrastructure into good repair. This does not account for future needs. By 2020 freight volumes are projected to be 70% greater than in 1998. By 2050 America’s population is expected to reach 420m, 50% more than in 2000. Much of this growth will take place in metropolitan areas, where the infrastructure is already run down.
[...]
America has a grand tradition of national planning, from Thomas Jefferson’s vision for roads and canals in 1808, which influenced policy for the next century (and led to America’s first transcontinental railway) to Dwight Eisenhower’s Federal Highway-Aid Act of 1956, which created the interstate system. Such plans stand in stark contrast to the federal government’s strategy today. America invests a mere 2.4% of GDP in infrastructure, compared with 5% in Europe and 9% in China, and the distribution of that money is misguided. The more roads and drivers a state has, the more federal money it receives, explains Judith Rodin of the Rockefeller Foundation, which funds infrastructure research. This discourages states from trying to cut traffic. And because the petrol tax pays for transport projects, if America drives less, there is less money for infrastructure.

I'd hardly call it misguided to base interstate highway funding on "petrol" taxes, or to base maintenance funding on how many roads and drivers a state has.

Now basing other transportation funding on "petrol" taxes, sure, that doesn't make much sense — but funding them at all often makes little sense:

Even worse is the influence of the pork-barrel. Only around 20 states use cost-benefit analyses to evaluate transport projects; of these, just six do so regularly. Alaska’s “bridge to nowhere” is an infamous result of this sort of planning. But it is not exceptional. Two months after the bridge collapsed in Minneapolis, the Senate approved a transport and housing bill that included money for a stadium in Montana and a museum in Las Vegas.

It's not just transportation infrastructure that's crumbling — although that is definitely crumbling:

America’s ageing water infrastructure is sorely underfunded: the Environmental Protection Agency forecasts an $11 billion annual gap in meeting costs over the next 20 years. One heavy storm can cause ageing urban sewerage systems to overflow. Last summer an 83-year-old pipe in Manhattan burst, sending a geyser of steam and debris into the air. Competition for water itself has become vicious. Georgia and Tennessee are in an all-out brawl over it.

America’s transport network is similarly dysfunctional, says a recent Urban Land Institute report. Important gateways, such as the ports in Los Angeles and New York, are choked. Flight delays cost at least $15 billion each year in lost productivity. Commutes are more dismal than ever. Congestion on roads costs $78 billion annually in the form of 4.2 billion lost hours and 2.9 billion gallons of wasted petrol, according to the Texas Transportation Institute. Although a growing number of Americans are travelling by train, the railways are old. America’s only “high-speed” train runs between Boston and Washington, DC, on an inadequate track.

How can all this be fixed? In January a national commission on transport policy recommended that the government should invest at least $225 billion each year for the next 50 years. The country is spending less than 40% of that amount today.

Of course, we shouldn't be surprised that all sorts of groups find that the government should spend more money — generally federal money spent in a few cities or states.

The Return of Thomas Malthus

Robert Kaplan — himself something of a Malthusian — discusses The Return of Thomas Malthus:

Malthus was born in 1766 with a harelip and a cleft palate. He studied mathematics, history, and philosophy at Cambridge. Partly because of his speech defect, he decided to go into the church and live a somewhat reclusive life in the country. One of the most tranquil and cheerful of men, Malthus never minded interruptions, especially by children, to whom he would give his full attention. But this thoroughly decent man was humiliated by the literary and intellectual grandees of the age. The poet Shelley called him "a eunuch and a tyrant" and the "apostle of the rich," simply because of his matter-of-fact empirical observation that society will always have rich people and poor people. Charles Dickens, Friedrich Engels, William Wordsworth, and Samuel Taylor Coleridge all heaped abuse on poor Malthus.

So what did Malthus say that was so terrible? He challenged the conventional view of human perfectibility that was in fashion during the aftermath of the French Revolution and the approach of a new century. He wrote in the realist spirit of Thucydides, Edmund Burke, and America's Founding Fathers. He worried that leisure time and prosperity would produce as much evil as good, and that mass happiness would always elude society. He was a profoundly moral philosopher sensitive to the travails of the human condition. His specific theory — that population increases geometrically while food supplies increase only arithmetically — was eventually proven wrong, because the settlement of the New World and the Industrial Revolution would add significantly to agricultural output. And our current interest in Malthus may, too, prove short-lived if a new green revolution, for example, sweeps Africa.

Al Fin recently emphasized a point that needs plenty of emphasis: We're not all in the same boat. In the first-world countries of North America, Europe, and Asia, technological progress and economic growth far outpace population growth, so standards of living can continue to rise.

In the third-world countries of Africa, on the other hand, extra lives saved are just more mouths to feed. They're caught in a Malthusian Trap, where the marginal benefit of one more unskilled laborer is less than the cost of food.

Sure, a lack of food — or the high price of food — is the proximate cause of their woe, but what they need is not more food so much as greater productivity — and less reproductivity, I suppose.

(Hat tip to Coming Anarchy.)

The rise and fall of European and Arab cities

Maarten Bosker, Eltjo Buringh, and Jan Luiten van Zanden look at 1000 years of urban history and examine the rise and fall of European and Arab cities:

There were striking differences between the two urban systems that reveal interesting insights into the socio-political situation in the two regions. Cities in the Arab world were on average much larger than those in Europe, and the size of the “primate” city — the megapolis such as Baghdad, Damascus, Cairo or Istanbul — was much bigger; a fact that is indicative of a predatory state and low trade openness. Europe, on the other hand, developed a very dense urban system, with relatively small principle cities. Big cities in Europe were quite often located near the sea, being able to optimally profit from long-distance trade, whereas the largest cities in the Arab world were almost all inland.

The sociologist Max Weber introduced a distinction between ‘consumer cities’ and ‘producer cities’. Using this classification, Arab cities were — much more than their European counterparts — consumer cities.

The classical consumer city is a centre of government and military protection or occupation, which supplies services — administration, protection — in return for taxes, land rent and non-market transactions. Such cities are intimately linked to the state in which they are embedded. The flowering of the state and the expansion of its territory and population tend to produce urban growth, in particular that of the capital city.

In Europe cities are instead much closer to being producer cities. The primary basis of the producer city is the production and exchange of goods and commercial services with the city’s hinterland and other cities. The links that such cities have with the state are typically much weaker since the cities have their own economic bases. It is this aspect that accounts for the fact that Arab cities suffered heavily with the breakdown of the Abbasid Empire, while European cities continued to flourish despite political turmoil.

As I mentioned to Arnold Kling, predation might be a strong term for providing law and order and being the one who reaps the surplus.

(Hat tip to Tyler Cowen.)

The history of America since 1980

Tyler Cowen cites Brad DeLong's history of America since 1980:

1. The end of the Cold War
2. Other winner-take-all factors that have, in combination with education, pushed American income polarization back to Gilded Age levels.
3. The failure of American taxpayers to support their state and local governments in expanding funding for public education — and the impact of reduced public education effort in sharpening the distinction between rich and poor.
4. The computer revolution in productivity growth.
5. The rise of China (and soon, we hope, India) as industrial powers.
6. The extraordinary social liberalization of America — if you had told any Republican in 1980 that 2008 would see (a) a Negro with an Arabic-Swahili name beating a veteran fighter pilot in the presidential polls and (b) gay marriage as the big cultural issue of the day, said Republican would have blown several gaskets. And if you had said that this would have been the result of an "Age of Reagan" said Republican would have melted down completely.

Point 6 is the most amusing. Point 3 is the least supportable:

It is notoriously difficult to find a convincing link between educational expenditures and educational quality.

How rich people spend their time

Nobel Prize-winning behavioral economist Daniel Kahneman has looked at how rich people spend their time, and — surprising to some people — they spend less time doing pleasurable things, and more time doing compulsory things and feeling stressed:

People who make less than $20,000 a year, for example, told Kahneman and his colleagues that they spend more than a third of their time in passive leisure — watching television, for example. Those making more than $100,000 spent less than one-fifth of their time in this way — putting their legs up and relaxing. Rich people spent much more time commuting and engaging in activities that were required as opposed to optional. The richest people spent nearly twice as much time as the poorest people in leisure activities that were active, structured and often stressful — shopping, child care and exercise.

That all sounds highly skewed by using rich to mean high-income. Obviously people who are working very hard to make money have less leisure time. The question is, how do they spend their time once they've accumulated a lot of wealth and have a steady stream of investment income?

It’s mine, I tell you

Researchers have started studying the evolutionary roots of the endowment effect:

Owen Jones, a professor of law and biology at Vanderbilt University, and Sarah Brosnan, a primatologist at Georgia State University, suspect the answer is that, in the evolutionary past, giving things up, even when an apparently fair exchange seemed to be on offer, was just too risky. These days, as they discuss in a paper just published in the William and Mary Law Review, there are contracts, rights and other ways of enforcing bargains. Animal societies have none of these mechanisms. As Adam Smith observed in the “Wealth of Nations”, “nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.”

To put flesh on their idea, Dr Jones and Dr Brosnan have been trying to overcome Smith’s observation by training chimpanzees to trade. In 2006 Keith Chen of Yale University showed that capuchin monkeys could learn to do so, and also seemed to exhibit the endowment effect. Chimps, it turns out, can manage to truck too. In the chimp study, tubes of peanut butter and frozen juice bars were used. Both treats were designed to be difficult to eat quickly. This makes it possible for animals that would otherwise consume any food they were given at the first opportunity at least to consider the idea of an exchange.

When presented with a choice, 60% of the chimps preferred peanut butter to juice. However, when they were endowed with peanut butter, 80% of them chose to keep it instead of exchanging it for juice. It was as if the peanut butter became more valuable as soon as it was possessed. And an opposite endowment effect was observed when the chimps were given juice.

Observing the endowment effect in three primate species suggests it does, indeed, have deep evolutionary roots. Better still, before they started work Dr Jones and Dr Brosnan predicted that the strength of the effect would vary with the evolutionary salience of the item in question. Lo and behold, when they tried the same experiments using bone and rope toys, no endowment effect was seen. Food is vital. Toys are not.

Steffen Huck, an economist at University College, London, has an alternative hypothesis:

In societies with markets, customers can go elsewhere. But in a small, tribal society there may be no alternative seller. In that case, those who were reluctant to trade might get better prices. It may thus make sense for an owner to be psychologically predisposed to hold out for a high price as soon as someone else expresses interest in one of his possessions—something Dr Huck’s models predict would, indeed, be evolutionarily beneficial.

Choosing Wisely

Laura Vanderkam reviews Nudge and the idea of "libertarian paternalism" — a way of helping people choose wisely:

The classic example is saving for retirement. Most of us know that we should be saving more—but fully 30 percent of eligible employees fail to enroll in company-sponsored 401(k) retirement plans, even though employers tend to match employee deposits up to a point. Is this because the employees are too strapped to make contributions, even with the employer match? Apparently not, the authors say, citing data from the United Kingdom, where a handful of defined-benefit plans don’t require any employee contribution at all. They do, however, require employees to sign up. Scarcely half of eligible people do. “This is equivalent to not bothering to cash your paycheck,” they write—something that no rational economic actor would ever choose.

A better solution? Rather than requiring employees to opt in, require them to opt out. This changes the numbers dramatically. One 2001 study found that under opt-in 401(k) rules, barely 20 percent of employees had enrolled after three months of employment, and 65 percent had done so after 36 months. With automatic enrollment, 90 percent of new employees were participating shortly after joining their firms. “Never underestimate the power of inertia,” Thaler and Sunstein write. Drop-out rates are modest, suggesting that “workers are not suddenly discovering, to their dismay, that they are saving more than they had wanted.” In other words, on some level, people appreciate the nudge.

The examples of nudge-worthy situations abound. School cafeteria managers, rather than banning junk food, can put the apples at eye level and the Twinkies a little farther away. Utilities pushing conservation can put smiley or frowny faces on power bills, indicating whether a customer is using more or less energy than his neighbors. Universities, rather than getting hysterical about underage drinking, can put up signs noting that most students either don’t drink, or do so moderately. These nudges all recognize that human beings—as opposed to rational economic actors—are systematically biased about their choices. We are biased toward the status quo, toward things that are easy, and toward our notions of what everyone else thinks. “The picture that emerges is one of busy people trying to cope in a complex world in which they cannot afford to think deeply about every choice they have to make,” Thaler and Sunstein write. We are free to ignore the frown on the power bill, but if it gets us to turn off the lights, is it really a bad thing?

Peak Phosphorus?

Are we facing Peak Phosphorus?

In the past 14 months, the price of the raw material — phosphate rock — has surged by more than 700 per cent to more than $367 (£185) per tonne. As well as putting pressure on food prices, some researchers believe that the risk of a future phosphorus shortage blows a hole in the concept of biofuels as a “renewable” source of energy. Ethanol is not truly renewable if the essential fundamental element is, in reality, growing more scarce, researchers say. Within a few decades, according to forecasts used by scientists at Linköping University, in Sweden, a “peak phosphorus” crunch could represent a serious threat to agriculture as global reserves of high-quality phosphate rock go into terminal decline.

Because supplies of phosphates suitable for mining are so limited, a new geopolitical map may be drawn around the remaining reserves — a dynamic that would give a sudden boost to the global importance of Morocco, which holds 32 per cent of the world's proven reserves. Beyond Morocco, the world's chief phosphorus reserves for export are concentrated in Western Sahara, South Africa, Jordan, Syria and Russia.

Natural distribution of phosphorus could create a small number of new “resource superpowers” with a pricing control over fertilisers that some suspect could end up rivalling Opec's control over crude oil. The economic battle to secure phosphorus supply may already have begun. China, according to US Geological Survey estimates, has 13 billion tonnes of phosphate rock reserves and has started to guard them more carefully. Beijing has just imposed a 135 per cent tariff on phosphate rock exports to try to secure enough for its own farmers, alarming the fertiliser industry, as well as Western Europe and India, which are both entirely reliant on phosphorus imports. With America's own phosphorus production down 20 per cent over the past three years, it has begun to ship phosphorus in from Morocco.

American projections suggest that global phosphorus demand could grow at 2.3 per cent annually just to feed the growing world population, an estimate that was made before the growth of biofuels.

Few observers hold out hope of a discovery of phosphorus large enough to meet the continued growth in demand. The ore itself takes millions of years to form, and the prospect of extracting phosphorus from the sea bed presents massive technological and financial challenges.

The answer, say crop scienctists, lies in better husbandry of phosphorus reserves: an effort that may require the creation of an international body to monitor the use and recycling of phosphorus.

I love the naked power grab in recommending an "international body" to "monitor" the use and recycling of phosphorus. Price signals should handle that job just fine — as long as governments don't nationalize reserves, put up export tariffs, etc. Sigh.

(Hat tip to Erik.)

Overpopulation Doomsday vs. Cornucopian Singularity

Are we facing an Overpopulation Doomsday or a Cornucopian Singularity? Al Fin makes the distinction most people want to ignore — we aren't all in the same boat:

Who is right — doomers or Kurzweil? It depends upon where you live. If you live in a nation or region with a very low average population IQ, you are apt to see many examples of the activity pictured in the photo above — subsisting on castoff and detritus. Generations of philanthropists, NGOs, religious charities, government aid and assistance, etc. have been lavished upon countries such as Haiti only to see them sink into violence and deprivation time and again. Below a certain point, average IQ determines what a society's destiny will be.

Nations of high IQ, such as Japan, South Korea, China, and European countries, have the potential of creating cornucopian worlds in the near future, if the political classes are sufficiently constrained. North Korea, Mao's China, the late USSR, etc. are examples of high IQ societies that allowed despotic governments to lead them into widespread misery and shortages of food and comforts.

I don't think you need to agree with his largely genetic argument to recognize that the "developing" world is not developing at anywhere near the rate of the "developed" world.

Distress, Moral Intuition, and Economics

In Distress, Moral Intuition, and Economics, Arnold Kling looks at the morality of raising prices when something becomes scarce, such as flashlights after a weather disaster:

The basic moral intuition is, "Don't take advantage of somebody when they are in distress," and I think it has broad implications. It explains usury laws. It also may explain the way we approach health insurance, which I call insulation.

Back in Biblical times, when somebody came to you to borrow, it was not to build a steel mill or start a social networking site on the Web. Chances are, if somebody needed to borrow it was because of an illness, a famine, or other disaster. Since people in that situation were in distress, moral codes developed that prohibited charging interest for loans. Charging interest would have meant taking advantage of people in distress.

Jews and Christians overcame their aversion to usury when they saw money being lent to businesses and governments, rather than to people in distress. Even today, however, if a destitute person is sick or hungry, religious authorities would frown on your charging interest on a loan to that person. In that sense, the moral opposition to taking advantage of a person in distress persists.

I suspect that the moral opposition to raising the price of flashlights after a storm reflects that same intuition. It's one thing to charge what the market will bear in the normal course of business. It's quite another to profit from distress.

When people seek health care, they are in distress. We are uncomfortable with having the service provider get a profit from that. So we insert a layer of insulation (the so-called insurance provider) in between the doctor and the patient. That alleviates what otherwise might be a sensation on the part of the doctor and the patient that the former is taking advantage of the latter's distress.

The trick for economists is to justify confronting people in distress with market prices. I think we can do that, but we have to persuade our fellow human beings (a) that people in distress should receive support from charity or government, not from suppliers of loans or flashlights or medical care; and that there are reliable mechanisms to ensure that people in distress will receive support from those alternative sources, so that placing the burden on suppliers is as wrong-headed as we always allege it to be.

Baby Bust!

In Baby Bust!, Kerry Howley notes that the world is panicking over birthrates again:

But while Demographic Winter uses Europe as the ultimate cautionary tale, Europe’s current demographics largely contradict the idea that more socially conservative societies tend to produce more children.

Religion? It is the most religious European countries, such as Italy, that have the continent’s lowest fertility rates; secular Norway is just under replacement level. Working women? European countries with the highest work force participation rates, such as Sweden and Norway, tend to have higher fertility than those with a comparatively small percentage of women working, such as Greece.

Cohabitation? France, where shacking up is a social norm, has a higher fertility rate than any of its immediate neighbors. Family instability? In a forthcoming book, Demographic Challenges for the 21st Century, the demographer Tomas Sobotka argues that divorce rates in Europe might be positively correlated with birthrates. “Many countries which have advanced furthest in the decline of traditional family and the spread of less conventional and less stable living arrangements,” he writes, “record relatively high fertility when judged by contemporary European standards.” Low levels of economic development coupled with social conservatism may well produce high fertility levels; but in modern Europe, it seems that the combination of a modern economy and social conservatism may produce some of the lowest fertility levels on Earth.

In the first half of the 20th century, demographers generally held that urbanization, industrialization, and education were the chief determinants of fertility decline. Later, neoclassical economists hypothesized that the rate of decline would correlate with the rates of increase in the opportunity cost of women staying out of the work force and in the relative cost of raising children.

The latter theory is useful “as a way to structure thinking,” according to the American Enterprise Institute demographer Nicholas Eberstadt, but, as with nearly every theory of fertility, there is much that it fails to explain. The relative cost of having children is indeed very high in Hong Kong, Japan, and the United States, but these countries have markedly different birth rates. Nor does it explain why the birthrate is lower north of the Canadian border than south of it.

Strangest of all, total fertility rates are dropping most rapidly in predominantly rural countries with low female literacy rates and few work force opportunities. Dramatic drops in South Asia and sub-Saharan Africa, absent much economic development, have come as a surprise to economists and demographers alike. In 1970, according to the United Nation’s Children’s Fund, Bangladesh’s total fertility rate was 6.4. In 2006 it was 2.9. Zimbabwe’s rate dropped from 7.4 to 3.3 during the same period.

The theory that economic development leads to fertility decline breaks down at the very first demographic data point on record. The first country to enter a sustained fertility decline was not England, the cradle of the industrial revolution. “It was France!” exclaims Eberstadt. “France was rural and poor and was very largely illiterate and, not to put to fine a point on it, it was Catholic. That kind of confutes a lot of things we think are supposed to connect between modernization and fertility change.”

Demographic panic, it turns out, is useful for pushing almost any government program:

A dearth of pregnancies is evidence that protections for workers are too few, social welfare allowances too small, public school days too short, mandated maternity leave too limited. Women want to fulfill their natural roles as mothers, goes the assumption, but dog-eat-dog capitalism stands in the way.

This got a chuckle out of me:

The contention that women aren’t having as many children as they’d like to is rooted in “desired fertility,” or the number of children women say they want as they enter their childbearing years. In Europe, as women increasingly choose to go childless, they continue to tell surveyors that they want two children. That disparity is sometimes deemed “unmet demand”; governments, goes the theory, must assist women in the quest to produce the children they say they want.

When the concept is framed this way, most of us have “unmet demand” for any number of goods — flat-screen televisions, yachts, MacBooks — that taxpayers fail to help us acquire.

An Econometrics Lesson

Arnold Kling offers An Econometrics Lesson:

I received an email from a reader who was very excited to find that over the past 70 years the correlation between excess health care inflation (the price of health care relative to the overall CPI) and the proportion of health care spending paid for by third parties was 0.92 (out of a maximum of 1.00)

I wrote back saying that correlation does not imply causation. He replied that he understood that, but still, with a correlation that high there must be something.

I'm sorry, but the inability to infer causation from correlation has nothing to do with the size of the correlation coefficient. It reflects the process generating the data. In a controlled experiment, you often can say something about causation. When you just observe some data, you cannot.

In addition, time series data (data that cover long time periods) are very subject to spurious correlation. Over time, data tend to follow trends. Any two trends are automatically correlated, whether there is a causal relationship or not.

When you look at data over time, it is important to ask yourself how many data points you really have. With a strong trend, you probably should just think of yourself as having two data points — the beginning and the end point. If there are a few sharp swings in the data, then you might have three or four effective data points. The fewer the number of effective data points, the harder it is to distinguish among alternative sources of causality.

That is why most macro-econometrics is junk science.

Naming a Univeristy of Chicago research center after Nobel Prize winner Milton Friedman has upset some of the faculty

The self-satire is almost too much. Naming a Univeristy of Chicago research center after Nobel Prize winner Milton Friedman has upset some of the faculty:

In a letter to U. of C. President Robert Zimmer, 101 professors — about 8 percent of the university's full-time faculty — said they feared that having a center named after the conservative, free-market economist could "reinforce among the public a perception that the university's faculty lacks intellectual and ideological diversity."

You see, the largely progressive faculty "fear" that naming the center after a "conservative" economist would imply a lack of intellectual and ideological diversity. It's almost as if diversity doesn't mean diversity...

Million-Dollar Babies

Preemies can cost 15 times as much to care for as full-term babies — in their first year alone — making some of them Million-Dollar Babies:

Preemies are a quickly expanding class of patients in the U.S., Britain, and other advanced nations. And the costs and technical challenges of caring for them are a growing source of controversy. Nearly 13% of all babies in the U.S. are preemies, a 20% increase since 1990. A 2006 report by the National Academy of Sciences found that the 550,000 preemies born each year in the U.S. run up about $26 billion in annual costs, mostly related to care in NICUs. That represents about half of all the money hospitals spend on newborns. But the number, large as it is, may understate the bill. Norman J. Waitzman, a professor of economics at the University of Utah who worked on the National Academy report, says the study considered just the first five years of the preemies' lives. Factor in the cost of treating all of the possible lifelong disabilities and the years of lost productivity for the caregivers, and the real tab may top $50 billion, Waitzman says.

In the U.S., corporations handle most of the financial burden. Employers generally cover some or all of the hospital charges in their health plans, and they also must deal with lost work hours of staff who spend weeks, sometimes months, attending to their premature infants. Corporations pay out nearly 15 times as much for babies born prematurely in their first year of life as for full-term babies, at an average cost of about $41,000 per child. For the earliest of the preemies, who are born in fewer than 28 weeks and spend up to three months in the hospital, the tab is higher. Says Waitzman: "The million-dollar babies are there."

Ryan was not a million-dollar baby, but he wasn't far from it. The cost for his first two months in the hospital exceeded $400,000, not including certain surgeries and procedures. Because Eric is a technology security expert at the U.S. Energy Dept. and Andrea is an intelligence analyst for a government contractor, the family had good health insurance through the Blue Cross Blue Shield Federal Employee Program. They could also navigate the government bureaucracy and get Ryan qualified for Medicaid, which covered the bills that Blue Cross didn't. To help pay for a nurse, they applied for another state program in Maryland. "We used to play a game: How many bills would we get?" says Eric. "We got up to 12 per day."

The trend points to more and more "heroic" rescues:

Technological breakthroughs are allowing physicians to save babies at younger and younger ages. Births at 28 weeks are now routine, and the outer edge of viability is 22 weeks. In the next three to five years, doctors could push the threshold to as low as 20 weeks, at which age the infants would weigh about 1 pound, measure 10 inches long, and require even more costly and complicated treatments.

No one wants to admit the enormous opportunity cost of keeping a preemie alive. Not only does preemie care cost a lot, but premature babies often have lingering medical problems and disabilities — and keeping a disabled child typically means having fewer other, healthy children.

Of course, the real reason for all these heroic measures is that they're making some folks a lot of money:

For hospitals struggling with cost overruns in other areas, NICUs can be havens of healthy revenue growth and profits. Children's National sets the goal of 4% profit margins overall, but NICU profits can be double that. Last November the hospital unveiled a $75 million tower that features various specialty units to treat heart and brain problems of preemies. Its expansion plans include a second NICU that will open in 2009. It will have 54 beds, boosting Children's total preemie capacity by 25%. All of the rooms will be private and will be equipped with Internet systems that allow neurologists to monitor brain function from their homes.

Inside Gate, India’s Good Life; Outside, the Servants’ Slums

I suppose some people find a headline like this — Inside Gate, India’s Good Life; Outside, the Servants’ Slums — profound and moving, a terrible indictment of a heartless system. I'll let them gnash their teeth at India's uneven economic growth:

When the scorch of summer hit this north Indian boomtown, and the municipal water supply worked only a few hours each day, inside a high-rise tower called Hamilton Court, Jaya Chand could turn on her kitchen tap around the clock, and water would gush out.

The same was true when the electricity went out in the city, which it did on average for 12 hours a day, something that once prompted residents elsewhere in Gurgaon to storm the local power office. All the while, the Chands’ flat screen television glowed, the air-conditioners hummed, and the elevators cruised up and down Hamilton Court’s 25 floors.

Hamilton Court — complete with a private school within its gates, groomed lawns and security guards — is just one of the exclusive gated communities that have blossomed across India in recent years. At least for the newly moneyed upper middle class, they offer at high prices what the government cannot, at least not to the liking of their residents.

These enclaves have emerged on the outskirts of prospering, overburdened cities, from this frontier town next to the capital to the edges of seam-splitting Bangalore. They allow their residents to buy their way out of the hardships that afflict vast multitudes in this country of more than one billion. And they reflect the desires of India’s small but growing ranks of wealthy professionals, giving them Western amenities along with Indian indulgences: an army of maids and chauffeurs live in a vast shantytown across the street.

I've been to Gurgaon, and it's obviously growing at a ludicrous pace, far faster then the government-provided infrastructure can grow:

The city’s population has nearly doubled in the last six years, to 1.5 million. The skyline is dotted with scaffolds. Glass towers house companies like American Express and Accenture. Not far from Hamilton Court, Burberry and BMW have set up shop.

State services, meanwhile, have barely kept pace. The city has neither enough water nor electricity for the population. There is no sewage treatment plant yet; construction is scheduled to begin this year.

Some odd commentary:

India has long lived with such inequities, and though a Maoist rebellion is building in the countryside, the nation has for the most part skirted social upheaval through a critical safety valve: giving the poor their chance to vent at the ballot box. Indeed, four years ago, voters threw out the incumbent government, with its “India Shining” slogan, because it was perceived to have neglected the poor.

I'm sure the "critical safety valve" of electoral politics will save India's poor. After all, it got them free color TVs.

Schools, Skills, and Synapses

James J. Heckman makes 15 points in his Schools, Skills, and Synapses (PDF):

1. Many major economic and social problems such as crime, teenage pregnancy, dropping out of high school and adverse health conditions are linked to low levels of skill and ability in society.


2. In analyzing policies that foster skills and abilities, society should recognize the multiplicity of human abilities.


3. Currently, public policy in the U.S. focuses on promoting and measuring cognitive ability through IQ and achievement tests. The accountability standards in the No Child Left Behind Act concentrate attention on achievement test scores and do not evaluate important noncognitive factors that promote success in school and life.


4. Cognitive abilities are important determinants of socioeconomic success.


5. So are socioemotional skills, physical and mental health, perseverance, attention, motivation, and self confidence. They contribute to performance in society at large and even help determine scores on the very tests that are commonly used to measure cognitive achievement.


6. Ability gaps between the advantaged and disadvantaged open up early in the lives of children.


7. Family environments of young children are major predictors of cognitive and socioemotional abilities, as well as a variety of outcomes such as crime and health.


8. Family environments in the U.S. and many other countries around the world have deteriorated over the past 40 years.


9. Experimental evidence on the positive effects of early interventions on children in disadvantaged families is consistent with a large body of non-experimental evidence showing that the absence of supportive family environments harms child outcomes.


10. If society intervenes early enough, it can improve cognitive and socioemotional abilities and the health of disadvantaged children.


11. Early interventions promote schooling, reduce crime, foster workforce productivity and reduce teenage pregnancy.
    


12. These interventions are estimated to have high benefit-cost ratios and rates of return.


13. As programs are currently configured, interventions early in the life cycle of disadvantaged children have much higher economic returns than later interventions such as reduced pupil-teacher ratios, public job training, convict rehabilitation programs, adult literacy programs, tuition subsidies or expenditure on police.


14. Life cycle skill formation is dynamic in nature. Skill begets skill; motivation begets motivation. Motivation cross-fosters skill and skill cross-fosters motivation. If a child is not motivated to learn and engage early on in life, the more likely it is that when the child becomes an adult, it will fail in social and economic life. The longer society waits to intervene in the life cycle of a disadvantaged child, the more costly it is to remediate disadvantage.


15. A major refocus of policy is required to capitalize on knowledge about the life cycle of skill and health formation and the importance of the early years in creating inequality in America, and in producing skills for the workforce.

Arnold Kling says that "Heckman is one of the most careful researchers on the topic, and this paper is an outstanding summary of his findings." He emphasizes a few points:

An important inference to draw from the paper is that trying to reduce economic inequality by, say, subsidizing more young people to go to college, is likely to be very ineffective. Even interventions at the primary school level are mostly too late.
[...]
One of Heckman's themes is that while IQ is difficult to change with intervention, it is possible to affect what he calls socioemotional skills, and those in turn will affect performance on test scores and overall achievement.

Inconspicuous Consumption

Thorstein Veblen coined the term conspicuous consumption; he "argued that people spent lavishly on visible goods to prove that they were prosperous":

“The motive is emulation — the stimulus of an invidious comparison which prompts us to outdo those with whom we are in the habit of classing ourselves,” he wrote.

This, it turns out, is quite true of the African-American subculture:

On race, the folk wisdom turns out to be true. An African American family with the same income, family size, and other demographics as a white family will spend about 25 percent more of its income on jewelry, cars, personal care, and apparel. For the average black family, making about $40,000 a year, that amounts to $1,900 more a year than for a comparable white family. To make up the difference, African Americans spend much less on education, health care, entertainment, and home furnishings. (The same is true of Latinos.)

It's not quite that simple though:

Since strangers tend to lump people together by race, the lower your racial group’s income, the more valuable it is to demonstrate your personal buying power.

To test this idea, the economists compared the spending patterns of people of the same race in different states — say, blacks in Alabama versus blacks in Massachusetts, or whites in South Carolina versus whites in California. Sure enough, all else being equal (including one’s own income), an individual spent more of his income on visible goods as his racial group’s income went down. African Americans don’t necessarily have different tastes from whites. They’re just poorer, on average. In places where blacks in general have more money, individual black people feel less pressure to prove their wealth.

The same is true for whites. Controlling for differences in housing costs, an increase of $10,000 in the mean income for white households — about like going from South Carolina to California—leads to a 13 percent decrease in spending on visible goods. “Take a $100,000-a-year person in Alabama and a $100,000 person in Boston,” says Hurst. “The $100,000 person in Alabama does more visible consumption than the $100,000 person in Massachusetts.” That’s why a diamond-crusted Rolex screams “nouveau riche.” It signals that the owner came from a poor group and has something to prove.

This nouveau riche phenomenon goes well beyond a few racial minorities in the US:

It suggests why emerging economies like Russia and China, despite their low average incomes, are such hot luxury markets today — and why 20th-century Texas, a relatively poor state, provided so many eager customers for Neiman Marcus. Rich people in poor places want to show off their wealth. And their less affluent counterparts feel pressure to fake it, at least in public. Nobody wants the stigma of being thought poor.

So, Veblen was right — but he was also wrong:

Or at least his theory is out of date. Given that the richer your group, the less flashy spending you’ll do, conspicuous consumption isn’t a universal phenomenon. It’s a development phase. It declines as countries, regions, or distinct groups get richer. “Bling rules in emerging economies still eager to travel the status-through-product consumption road,” the market-research group Euromonitor recently noted, but luxury businesses “are becoming aware that bling isn’t enough for growing numbers of consumers in developed economies.” At some point, luxury becomes less a tool of public status competition and more a means to private pleasure.

For today's affluent, success is about inconspicuous consumption:

In Veblen’s day, the less affluent scrimped on their homes in order to keep up appearances in public. “The domestic life of most classes is relatively shabby, as compared with the éclat of that overt portion of their life that is carried on before the eyes of observers,” Veblen wrote, noting that people therefore “habitually screen their private life from observation.” By contrast, consider David Brooks’s observation in Bobos in Paradise that, for today’s educated elites,

it’s virtuous to spend $25,000 on your bathroom, but it’s vulgar to spend $15,000 on a sound system and a wide-screen TV. It’s decadent to spend $10,000 on an outdoor Jacuzzi, but if you’re not spending twice that on an oversized slate shower stall, it’s a sign that you probably haven’t learned to appreciate the simple rhythms of life.

Virtuous or vulgar, what all these items have in common is that they’re invisible to strangers. Only your friends and family see them. Any status they confer applies only within the small group you invite to your home. And the snob appeal Brooks pokes fun at corresponds to the size of the audience. Many friends may see your Jacuzzi or media room, but unless you’re on HGTV, only intimates will tour your master bathroom. A slate shower stall may make you feel rich, but it won’t tell the world that you are. As peer groups get richer, the balance between private pleasure and publicly visible consumption shifts.

Caveman Chemistry

A few days ago, when I mentioned telegraphy without electricity and the time-travel novel Lest Darkness Fall, I didn't realize that Tyler Cowen had just launched a discussion on how to survive in A.D. 1000 as a modern American. When I read the comments though, I wasn't particularly impressed; most people clearly hadn't given the idea much thought before.

He followed up with another post asking, How far back could you go and still be useful?, and a commenter named Scott made a recommendation right up my alley — he pointed to a book — and website — called Caveman Chemistry. I have been interested in bootstrapping society for a long, long time, and I've never been able to find a decent book on practical chemistry from scratch. This could be the one.

The incentives for violence in hockey

Tyler Cowen looks at the incentives for violence in hockey, discussed in a recent paper:

The level of violence in the National Hockey League (NHL) reached its highest point in 1987 and has reduced somewhat since then, although to levels much larger than before the first team expansions in 1967. Using publicly available information from several databases 1996–2007, the incentives for violence in North American ice hockey are analyzed. We examine the role of penalty minutes and more specifically, fighting, during the regular season in determining wages for professional hockey players and team-level success indicators. There are substantial returns paid not only to goal scoring skills but also to fighting ability, helping teams move higher in the playoffs and showing up as positive wage premia for otherwise observed low-skill wing players. These estimated per-fight premia, depending on fight success ($10,000 to $18,000), are even higher than those for an additional point made. By introducing a “fight fine” of twice the maximum potential gain ($36,000) and adding this amount to salaries paid for the team salary cap (fines would be 6.7% of the team salary cap or the average wage of 2 players), then all involved would have either little or no incentives to allow fighting to continue.

One commenter made some important points:

But they don't want to get rid of fights, and not just because of what the first poster said about nobody actually getting hurt in hockey fights (which is very true), and not because the league thinks that fighting brings in fans (which may or may not be true). It's because a lot of people believe that hockey fights are much safer than the alternative, which is an increased number of other, more dangerous penalties, like slew-footing ("accidentally" knocking another player down by sweeping their feet out from under them from behind, which at best ends in the player landing heavily flat on their back and at worst ends with them landing heavily on the back of their neck or head). I've been told that there's little to no fighting in European hockey because of official crackdowns, but that there are a whole lot more penalties like that. I don't know if this is true (I don't watch much European hockey), but it's another thing that I'd like to see an actual study on before the NHL tries to get rid of fighting.

Food Fight

Alex Tabarrok shares a story rich with irony — the Senate, led by Democrat Diane Feinstein, has finally voted to privatize its restaurants and food services, something the House did twenty years ago, which led to a sort of East and West Berlin of food services:

In a masterful bit of understatement, Feinstein blamed [millions of dollars in losses] on "noticeably subpar" food and service. Foot traffic bears that out. Come lunchtime, many Senate staffers trudge across the Capitol and down into the basement cafeteria on the House side. On Wednesdays, the lines can be 30 or 40 people long.

House staffers almost never cross the Capitol to eat in the Senate cafeterias.

The demagogues didn't want to face facts when Feinstein suggested privatization:

In a closed-door meeting with Democrats in November, she was practically heckled by her peers for suggesting it, senators and aides said.

"I know what happens with privatization. Workers lose jobs, and the next generation of workers make less in wages. These are some of the lowest-paid workers in our country, and I want to help them," Sen. Sherrod Brown (D-Ohio), a staunch labor union ally, said recently.

As the reporter noted, "The wages of the approximately 100 Senate food service workers average $37,000 annually."

When Feinstein warned "that if they did not agree to turn over the operation to a private contractor, prices would be increased 25 percent across the board," they voted to privatize.

Closing the Collapse Gap

In Closing the Collapse Gap, Dmitry Orlov argues that the USSR was better prepared for collapse than the US — and he expects the US to collapse soon. This is also the theme of his new book, Reinventing Collapse: The Soviet Example and American Prospects.

While I don't think a US collapse is unthinkable, and I do think such a scenario is a fascinating thought experiment, I can't place my faith in someone who sees obvious parallels between the US and USSR because they both were military and industrial superpowers, both tried to spread their ideologies around the world, both competed in the space race, etc.

Orlov saw what happened when Russia collapsed — when he visited family; he no longer lived there — and expects to see the same in the US:

We should certainly expect shortages of fuel, food, medicine, and countless consumer items, outages of electricity, gas, and water, breakdowns in transportation systems and other infrastructure, hyperinflation, widespread shutdowns and mass layoffs, along with a lot of despair, confusion, violence, and lawlessness. We definitely should not expect any grand rescue plans, innovative technology programs, or miracles of social cohesion.

Even before its collapse, the USSR was prone to shortages. The US is more likely to face high prices, without shortages — at least until the politicians institute price controls.

The collapse of the government left the Soviet command economy without direction:

When faced with such developments, some people are quick to realize what it is they have to do to survive, and start doing these things, generally without anyone's permission. A sort of economy emerges, completely informal, and often semi-criminal. It revolves around liquidating, and recycling, the remains of the old economy. It is based on direct access to resources, and the threat of force, rather than ownership or legal authority. People who have a problem with this way of doing things, quickly find themselves out of the game.

I have little doubt that Americans would skirt the law to make a buck, but I'm not sure it would play out the same as in the USSR, where everyone tried to sell off state property for their own gain.

Two of the "strengths" of the Russian system were its lack of home ownership and lack of private cars:

In the Soviet Union, all housing belonged to the government, which made it available directly to the people. Since all housing was also built by the government, it was only built in places that the government could service using public transportation. After the collapse, almost everyone managed to keep their place.

In the United States, very few people own their place of residence free and clear, and even they need an income to pay real estate taxes. People without an income face homelessness. When the economy collapses, very few people will continue to have an income, so homelessness will become rampant. Add to that the car-dependent nature of most suburbs, and what you will get is mass migrations of homeless people toward city centers.

When you build a system that doesn't take advantage of cheap oil, naturally you survive an oil shock much better.

Orlov also sees lumbering Soviet bureaucracy as a "strength":

Economic collapse affects public sector employment almost as much as private sector employment, eventually. Because government bureaucracies tend to be slow to act, they collapse more slowly. Also, because state-owned enterprises tend to be inefficient, and stockpile inventory, there is plenty of it left over, for the employees to take home, and use in barter. Most Soviet employment was in the public sector, and this gave people some time to think of what to do next.

Private enterprises tend to be much more efficient at many things. Such laying off their people, shutting their doors, and liquidating their assets. Since most employment in the United States is in the private sector, we should expect the transition to permanent unemployment to be quite abrupt for most people.

I don't think he appreciates the upside of creative destruction. Shutting doors and liquidating assets means reallocating resources to where they're more useful.

Anyway, you can see that a society that expected regular failure was better prepared for large-scale failure.

So what does Orlov recommend? Well, he assumes that no political party could get into power on a platform of preparing for collapse — a good bet — but recommends that a hypothetical Collapse Party take care of some things that the Soviets did not take care of:

I am particularly concerned about all the radioactive and toxic installations, stockpiles, and dumps. Future generations are unlikely to able to control them, especially if global warming puts them underwater. There is enough of this muck sitting around to kill off most of us. I am also worried about soldiers getting stranded overseas – abandoning one's soldiers is among the most shameful things a country can do. Overseas military bases should be dismantled, and the troops repatriated. I'd like to see the huge prison population whittled away in a controlled manner, ahead of time, instead of in a chaotic general amnesty. Lastly, I think that this farce with debts that will never be repaid, has gone on long enough. Wiping the slate clean will give society time to readjust. So, you see, I am not asking for any miracles. Although, if any of these things do get done, I would consider it a miracle.

I'm inclined to worry about the opposite nuclear problem: I'd make sure that nuclear power plants had enough fuel on-site to continue operations.

Orlov is also a nihilist on a personal level:

Certain types of mainstream economic behavior are not prudent on a personal level, and are also counterproductive to bridging the Collapse Gap. Any behavior that might result in continued economic growth and prosperity is counterproductive: th