What's Wrong with That?

A. A story in the paper indicated that the government would soon announce a tax cut;

B. The stock market index went up on that very same day;

C. An editorial writer at a prestigious international paper attributed the stock market's performance to that story.

What's wrong with that?

Answer: Other factors might have caused the rise in the stock market index, not the news about the possible tax cut.

And the editorial is found in Wall Street Journal. I kid you not.

Read it for yourself here.

Books, More Books

1. The Conscience of a Liberal by Paul Krugman.

2. Memoir of Nobel prize winner Jim Buchanan, a new and expanded version of what used to be called "Better than Plowing".

3. In Defense of Monopoly.

Is It Possible to Explain Human History in 7 Chapters?

Yes, according to a forthcoming book by Nobel prize winner Doug North, Stanford political scientist Barry Weingast and U of Maryland economics professor John Wallis.

Manuscript could be downloaded here. Thanks for Dani Rodrik for the pointer.

海盜經濟學

林行止專欄今天提到學弟 Peter Leeson 有關海盜經濟學的研究，有興趣的讀者可上他的網站下載論文。

The Tyranny of the Market?

When fixed costs are substantial, markets provide only products desired by large concentrations of people. As a result, people are better off in their capacity as consumers when more fellow consumers share their product preferences.

Small groups of consumers with less prevalent tastes, such as blacks, Hispanics, people with rare diseases, and people living in remote areas, find less satisfaction in markets. In some cases, an actual tyranny of the majority occurs in product markets. A single product can suit one group or another. If one group is larger, the product is targeted to the larger group, making them better off and others worse off.

The above is from Joel Waldfogel's forthcoming book The Tyranny of the Market. (有看林行止專欄的對 Joel 應不會陌生，他就是批評聖誕節交換禮物的傳统是浪費的那位經濟學家。)

Questions to Joel:

1) I just fail to see how the fact that others' wider product range compared with mine will affect my welfare. For that to go through, it seems you need to have a very specific kind of utility function.

2) Wouldn't there be incentives in the market to lower those fixed costs so that more consumers with preferences at the tail end could be served?

Best Book Review I Have Read Today

In the same interview, Ms. Klein also tellingly remarked, "I believe people believe their own bulls---. Ideology can be a great enabler for greed."

When it comes to the best-selling "Shock Doctrine," that is perhaps the bottom line on what Klein herself has been up to.

That's from a book review on Naomi Klein's Shock Doctrine by my former teacher Tyler Cowen in the New York Sun. More here.

A New Phase of Financial Globalization?

No, yes? Read it for yourself here.

"Econometrics is in deep Trouble"

This line pretty much summaries McCloskey and Ziliak's position on the current usage of signifinant tests in econometrics:

"If McCloskey and Ziliak are right—that merely “statistical,” Fisherian significance is scientifically meaningless in almost all the cases in which it is presently used, and that economists don’t recognize this truth of logic, or act on it—then econometrics is in deep trouble."

The paper is part of a (an on-going?) debate between McCloskey/Ziliak and Kevin Hoover/Siegler.

I like this bit of the paper best (on the response of the academic elites to the McCloskey/Ziliak thesis) :

One eminent econometrican told us with a smirk that he agreed with us, of course, and never used mechanical t-testing in his own work (on this he spoke the truth). But he remained unwilling to teach the McCloskey-Ziliak point to his students in a leading graduate program because “they are too stupid to understand it.”

Another and more amiable but also eminent applied econometrican at a leading graduate program, who long edited a major journal, told us that he “tended to agree” with the point. “But,” he continued, “young people need careers,” and so the misapplication of Fisher should go on and on and on.

Bill Easterly on ABD

Highlights:

-- United Nations Conference on Trade and Development, a body that has long distinguished itself by promoting all the bad ideas that stifle both trade and development.

-- But any Asian leader who hasn't already figured out that trade should be mainstream after Asia's world-historical trade explosion is past the point of rescue anyway.

-- Successful trade booms (and the accompanying infrastructure demand) come about through letting free market entrepreneurs run wild to find things foreigners want rather than consulting ADB bureaucrats on designing a "national development strategy."

-- All of which goes to show that the ADB's fundamental problem is that it needs advice from successful Asian countries more than they need advice from it.

More this WSJ oped.

Chicago, MIT, George Mason University

[A]t Chicago, they say "Markets work well. Let's use markets."

At MIT, they say "Markets fail. Let's use government."

At GMU, they say "Markets fail. Let's use markets."

More here.

China's Alleged Pro-FDI Bias

The hypothesis of the existence of such pro-FDI bais in China originated from MIT professor Huang Yasheng.

Now some reseachers garner evidence indicating that such a bias does not exist:

"Recent arguments that China's FDI inflow is inefficiently large because weak institutions deter domestic investment while special initiatives attract FDI are thus either unsupported or not unique to China."

Read the paper here.

Terracotta Army

This is a very nice photo of terracotta army taken by Chris Lee up at HK Digital Vision. Check it out here.

The Economics of Private Army

The private security firm Blackwater is again on the news, here is a recent NYT headline story.


Are private security contractors really trigger happy cowboys as some pundits choose to believe they are?

Finally an insider says no. And this insider pretty much spells out the logic of why private security personnel is far more economically than formal military personnel.


Bottomline:

"[C]ontractors are cost-effective. Blackwater contractors, for example, are generally paid $450-$650 a day. More important, unlike U.S. servicemen, they usually receive no benefits and are paid only for the days they work."

Here is the story.

Question: I am curious whether the contractors or the companies which hire them pay for the ammunition used in the war zone. Who pays for ammunition, holding other factors constant, surely would determine the trigger pulling behaviour of the frontline private security contracters.

Life and Death

"There's a limit to how many times you can read how great you are and what an inspiration you are," he says, "but I'm not there yet."

Here is a sequel to an earlier post. Do pass it on, may be you would be able to help other folks.

Nice

On the left is excellent art work by Peter Selgin, the twin brother of George Selgin, another prominent Austrian monetary theorist and advocate of free banking.

Did Hayek and Robbins Deepen the Great Depression?

The answer is NO according to Larry White, one of the prominent Austrian monetary theorists and advocates of the free banking ideal.

Here is what Milton Friedman claimed they did, from Larry's paper:

I think the Austrian business-cycle theory has done the world a great dealof harm. If you go back to the 1930s, which is a key point, here you hadthe Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse.… I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.

What's the real culprit then?

Real Bills Doctrine.


Read Larry's paper here.

Greg Mankiw Cited Work By My Co-blogger

This is from Greg Mankiw's blog:

A Reading for the Pigou Club

Here is supply-side guru Arthur Laffer together with coauthor Wayne Winegarden:

Of the two primary policies being proposed to address global warming—the capping and trading of emissions and the taxation of emissions—we favor the taxation of emissions. We suggest that a pro-active environmental policy should include an appropriate carbon tax fully offset by a static dollar-for-dollar across-the-board reduction in marginal income tax rates. If implemented with taxpayer protections, this policy would mitigate many if not all of the adverse economic costs from reducing carbon emissions. (My Emphasis)

Here is the link.

Who's Wayne?

Not only did we attend the same graduate school but we were roomates for about 4 years. Wayne graduated a year ahead of me and we have the same professor serving as our dissertation adviser.

Wayne worked in Hong Kong for a couple of years before returning home to the US.

This is a profile of Wayne.

Property Rights Guru

Gary Libecap, formerly at U of Arizona, has now moved to UC Santa Barbara. Gary is an expert on property rights and US economic history.

An important point which Gary helps enlighten me in his work is why property rights might not always evolve in an efficiency-enhancing manner. His best work thus far, in my view, is certainly Contracting for Property Rights.

Now Gary has a new book out called Owen Valleys Revisited, more information about the book can be found here.

覆明：對不起，教授的文稿目前只在友儕間傳閱。

某教授的最後一堂課

While displaying photos of his bosses and students over the years, he said that helping others fulfill their dreams is even more fun than achieving your own.

More here.

教授

前天剛收到教授為高斯主辦的一個研討會所提交的論文，The Economic System of China, 長六十二頁，仍未及細看。

個人最喜歡是教授 74 年的 A Theory of Price Control，至少精讀了ニ、三十遍，最後一節到今天還是似懂非懂。