Sunday, May 28, 2006

Would it be Helpful in Keeping a Job if Your Teacher were a Nobel Laureate?

The Washington Post reported:

"Treasury Secretary John W. Snow, who has presided during a period of strong economic growth but at times seemed out of sync with President Bush, has informed the White House that he will resign in the coming days after three years as the nation's chief economic officer, a source close to Snow said..."

Read the story here.

Apparently, being a student of Nobel Prize winner Jim Buchanan back in the 60s at UVA did not help Snow keep his job. Here is an old story which mentions John as Jimmy Buchanan's student.

Marvel of the Market System

F. Hayek once used the word "marvel" to describe the operation of the market mechanism. Too abstract?

Take a look at the T-shirt on the left, read this and I reassure you you will be as impressed by the market as Hayek did decades ago.

And if you want to buy the T-shirt, here is where you should go.

Uncle Bus Goes Global

This is from NYT:

HONG KONG (AP) -- A six-minute film showing a grumpy man scolding a fellow Hong Kong bus rider for interrupting his phone call has become one of the most popular videos online.
''Bus Uncle,'' as the film is commonly known, has been viewed nearly 1.7 million times on the video Web site -- the second most-viewed video on the site in May as of Thursday -- spawning spoofs and new slang drawn from the ranting subject's emotionally charged soliloquy...

Read the whole story here.

See also my previous posts on this theme, here and here.

Game Theory, More Abstract than You Think

Is game theory useful? Yes, you say, at least knowing it got you an A in your graduate micro course. May be, and just may be, working in this area may help you publish in one of those high-fashion magazines (a term coined by UCLA economic professor Axel Leijonhufvud) like JET or Econometrica one day.

OK let me try this, is game theory useful in the real world, like helping us make better business decisions...

Uuuu...Mmmm...Well....Let's see...I am sure that there are examples...but I cannot recall at the moment...

Those are the exact responses of a panel of game theory pros when confronted with such a question, read more here.

HT to Pete Klein for the pointer.

Thursday, May 25, 2006

Uncle Bus

I blogged about this the other day, and now the saga more here.

Wednesday, May 24, 2006

Corruption: Does Culture Matter?

Brilliant political economist from the Columbia Business School Ray Fisman's answer to that question is YES.

Here is the abstract of his paper:

Corruption is believed to be a major factor impeding economic development, but theimportance of legal enforcement versus cultural norms in controlling corruption is poorlyunderstood.

To disentangle these two factors, we exploit a natural experiment, the stationing ofthousands of diplomats from around the world in New York City. Diplomatic immunity meansthere was essentially zero legal enforcement of diplomatic parking violations, allowing us toexamine the role of cultural norms alone. This generates a revealed preference measure ofcorruption based on real-world behavior for government officials all acting in the same setting.

We find tremendous persistence in corruption norms: diplomats from high corruption countries(based on existing survey-based indices) have significantly more parking violations.

And here is the paper.

Hayek must have this in mind when he coined the term Spontaneous Order

Picture the following scene:

A young guy, a middle-aged man, both riding on a bus. The young guy patted the shoulder of the middle-age guy trying to let him know that he was talking way too loud. The middle-aged man became all worked up, stood up and started yelling at the young guy not knowing that everything was taped by a fellow passenger on the bus...

Pretty lame stuff you say. Sure, but that is exactly the point that I am trying to make here.

How come such a lame movie has so far viewed by more than 2 million pairs of eye-balls?

The reason is that, without anyone doing the planning, a proliferatoin of different versions of the original video is created soon after the original video is uploaded on the net. Now the video has a rap-song version, one with English subtitle...Watching the video has now become an artistic event for fellow internet viewers as a result of this collective creative exercise without a central art director.

That very phenonmenon must be what Hayek has in mind when he coined the term spontaneous order.

For those readers who do not understand Chinese, here is the version with English subtitles. (Warning: Strong language)

Sunday, May 21, 2006

Lies, Damn Lies and Statistics

Gerald W. Bracey dug out the source behind three numbers in today's WP: 600,000, 350,000 and 70,000. These are, allegedly, the number of engineers produced in 2004 in China, India and the United States, respectively.

His conclusion:

"Statistics that end up as conventional wisdom even when they're wrong usually become popular by being presented as fact in a highly visible and respected source -- such as a cover story in Fortune or a National Academies report."

Read more here.

But who is to blame?

The news reporters who do not bother to check the accuracy of their numbers. Or the consumers of those numbers, like you and me?

If the responsibility is on us, the consumers, to verfiy the authenticity of the numbers, how much time can we spare each day for doing that? Time constraints imply that we are extremely easy to be misled by such statistics. Our decisions which are based upon at least partially on those statistics will be similarly affected as well.

Will competition among different papers ensure that reporters do their checking but citing statistics? One can only hope so, but I doubt it.

Also puzzling is why reporters are not as diligent in checking their numbers as one would expect.

To build up credibility and reputation (or simply to protect these attributes in the case of renown reporters), one would expect the reporters have the right incentives to do their checking. Is it because a number that is intended to stir up emotions of the readers matters much more in boosting sales than an accurate one? Afterall, the readers have no time to figure out the number's authenticity anyway.

Wednesday, May 17, 2006

Hobbsian Jungle, Russian Style

"In Russia's early transition days, amid the collapse of authority and resulting lawlessness, organized crime groups wielded great influence. Teams of armed thugs used to carry out takeovers, arriving at a businessman's door with little to back them up but the threat of violence, even murder. Indeed, contract murders reached a frequency of more than one a day in the mid-1990's.

Later, law enforcement, from the tax police to special forces units, played a role in forcing transfers of property in the scramble for assets of the former Soviet state.

In what became known as "masky shows," police officers, their faces often hidden behind ski masks, swarmed into a business to intimidate employees and force concessions from owners. The headquarters of the Yukos oil company, for example, were the scene of a series of high-profile masky shows. .

Now, the trend in business crime in Russia is decidedly white-collar — with the faking of documents, hiring of lawyers or payoff of judges — but no less insidious, Mr. Matthews and other business owners say."

That is from a story in NYT, read more here.

Questions I have:

1) What prompted the change in the form of property takings? Was it endogenous to some other changes in institutions?

2) Why companies did not hire private protective agencies to protect them from predators? One answer might be that only large firms had the resources to do so, but not for most mid and small size concerns...

Monday, May 15, 2006

A Tale of Entrepreneurship and Success

In this fascinating story, the tale of the rise and success of Southwest Airline is told through the recollections of its founders.

Thursday, May 11, 2006

Why John K Galbraith Didn't Get the Nobel Prize

"Nobel prizes are sometimes awarded to scholars who are wrong for the right reasons, but almost never to those who are right for the wrong reasons."

Here is Bob Frank on John Kenneth Galbraith.

Wednesday, May 10, 2006

Ballooning Red Tape

"A report to be released this week by the Mercatus Center at George Mason University and the Weidenbaum Center at Washington University finds that the feds have also been on a regulatory rampage that needs squelching.

From 2001 to 2006, the number of federal regulatory personnel has risen by one-third (or 66,000 more snoopers); regulatory budgets are up by 52% after inflation; and the Federal Register -- which prints all that regulatory verbiage -- has climbed by more than 10,000 pages."

That is from today's edition of WSJ, read more here.

Monday, May 08, 2006


My former teacher Tyler Cowen wrote in his blog:

"If you want to read one book on how the economics profession works, this is it."

Read more here.

The book he is referring to is David Warsh's Knowledge and the Wealth of Nations.

Chicago's Bob Lucas wrote:

"David Warsh does a marvelous job with the story of Paul Romer and the new growth theory. His description of what Paul did is accurate and exciting, and it gives a great sense of the way theoretical economics is done today and of how it contributes to advances on the questions that Adam Smith and David Ricardo posed 200 years ago.”

For more info about the book, check this out.

China's Banks: Safest Place to Put Your Savings

Today's edition of WSJ reported that China is planning to launch a deposit insurance scheme similar to that found in the US, read more here.

Wait a minute you say, aren't Chinese banks already have implicit guarantee of some sort?

Indeed. Afterall, they are all state-owned banks, aren't they?

Hong Kong: A "Premier Knowledge Economy"

I know Hong Kong is fast shaping up as a leading "knowledge economy" when I learn about the following facts yesterday:

A guy with a high school diploma working as a lab technician earns US $ 5,385 dollars per month, and a guy with a Ph.D. in economics from the U.S. earns US $ 5,256 a month.

If such mismatch between talents and jobs can occur in a supposedly free market economy, one cannot even begin to fathom similar losses incurred under a centrally planned economy.

Thursday, May 04, 2006

When Government Means Theft

"A new government in Bolivia, anxious to win public support, charges the big foreign oil companies with fraud and confiscates their local properties. The move generates applause among Bolivian citizens and attracts attention throughout Latin America.
The year: 1937.

Seven decades later, Latin America is experiencing another wave of nationalist fervor, fueled by old resentments and rising energy prices. Inspired in part by the economic nationalism of Venezuelan leader Hugo Chavez, new Bolivian President Evo Morales celebrated his 100th day in office Monday with a reprise of 1937: charging foreign oil firms with corruption and sending troops to seize control of the oil and gas fields."

Read more here.

As if Coase's 1960 piece never exists

"It doesn't have to be complicated. Estimate the monetary cost of the negative externalities associated with gasoline use, set the appropriate tax, and then do nothing else. The market price then sends the correct signal to investors about how to take advantage of new opportunities in alternative energy."

No, no, no, I did not take this passage straight out from Pigou's "Economics of Welfare." It is from a post written by economist Andrew Samwick at his blog, read more here.

Frankly, I am shocked by the fact more than 40 years after publication of "The Problem of Social Costs", there are still economists out there who buy into the whole Pigovian taxation approach in dealing with "externalities."

But does the term externality have any economic meaning at all?

Back in the 1970, Professor Steven Cheung wrote in "The Structure of a Contract and a Theory of Non-exclusive Resource", Journal of Law and Economics:

"The process of arriving at a useful concept of analysis is not only slow andpainful, but may also go astray and attain nothing useful. Someone begins withone example or observation, followed by a theory which is intuitively plausible.A theoretical term associated with a vague concept is coined. Examples of aseemingly different type emerge, which call for another theory. The process goeson. As examples and theories continue to accumulate, the different categoriesunder the same heading of analysis serve only to confuse and each associatedtheory becomes ad hoc. Such has been the fate of the concept of ‘externality.'"

That still rings true today!

Wednesday, May 03, 2006

When an Economist Meets a Politican

"The advice you have given me, sound that it may be, is essentially from the economic point of view, and I have told you, on many occasions, that I cannot always follow this advice as I am a politician and must gamble on the future."

That was what Ghana's Nkrumah told Arthur Lewis, a Nobel Prize winner in economics, while Lewis was the former's economic adviser.

The passage appears in a book on Arthur Lewis entitled "W. Arthur Lewis and the Birth of Development Economics."

Tuesday, May 02, 2006

Desperate Mickey

Hong Kong Disneyland turns out not to be a tourist magnet.

In a bid to attract more visitors, they have tried almost everything. Yes, I mean everything.

They have gotten rid of senior staff (or they quit on their own depending on whether you are looking at the matter from a shareholder or an employee perspective), they have tried issuing new tickets that allow visitors to use the same ticket to enter the venue twice, they have tried to be nice to the unions (yes, the unions) and now they try to be nice to the cab drivers!

Cab drivers, you ask. Yes, cab drivers I answer.

Here is the latest from SCMP:

"The city's 50,000 taxi drivers were invited to join the free ticket promotion in Tung Chung, Susan Chan Shou-san, publicity director of Hong Kong Disneyland, said yesterday."

Read more here.