Wednesday, February 28, 2007

What is it with LaRouche?

Today as I surfaced from the Foggy Bottom metro, I heard angels singing. And they were wearing sandwich boards that read "Global warming? Global Fraud." There were about 5 of them. And there were 3 or 4 others handing out Lyndon LaRouche literature, and people were taking it. Maybe it's just a DC thing, but I run in to these people fairly often. They're generally young, in their 20s, and look a little bit hippy but not over the top. I've spoken to a few, and they seem non-crazy. The literature, on the other hand, is quite crazy. LaRouche's big idea is to build an international rail network. He idolizes FDR. From today's handout, in an article titled "How FDR Reversed the 1933 Banking Crisis," there's this quote by FDR:

The New Deal was fundamentally intended as a modern expression of ideals set forthe one hundred and fifty years ago in the Preamble of the Constitution of the United States - 'a more perfect union, justice, domestic tranquility, the common defense, the general welfare and the blessings of liberty to ourselves and our posterity.' But we were not to be content with merely hoping for these ideals. We were to use the instrumentalities and powers of Government actively to fight for them.

All I can figure is that the severity of the Depression made FDR and his generation blind to the ideas which inspired the Founders, i.e. natural rights to life, liberty, and property. The Founders intended to strictly limit government, because they recognized that coercion is the primary means of government, and so it is antithetical to liberty. These eternal truths were swept aside by the wake of the Depression, and now we're stuck with an endless parade of charlatans and well-meaning dreamers. I just wish the dreamers would get themselves a real dream.

Tuesday, February 27, 2007

Congratulations to Al Gore

For all those like me, who missed the Oscar's, but not really, here is the highlight: Al Gore's acceptance speech. And, courtesy of the Drudge Report, we get a peek at the Gore mansion:

Gore’s mansion, [20-room, eight-bathroom] located in the posh Belle Meade area of Nashville, consumes more electricity every month than the average American household uses in an entire year, according to the Nashville Electric Service.

Thanks to Dave Thompson for the pointer.

Addendum: More choice words from Joanna. Smarm-scapade? And I vote for couch surfing as the social movement most worthy of Hollywood's praise. Wouldn't it be great to surf on Leo Dicrapio's couch?

Saturday, February 24, 2007

With us or against us

Playing soccer today, I found myself asking, where is the self-interest? Economists assume humans are, for the most part, rational and self-interested. And when we're not, it's called altruism, or sympathy, or commitment, and it's modeled as an exception to the rule of individual utility maximization.

As Larry Iannaccone quotes David Friedman, this is "false, but useful."

But on the soccer field, it's not even useful. You can't predict how things will unfold by assuming each player is maximizing his shots on goal, his saves, his assists, etc. You can say he is maximizing his utility, but what the hell is that? His utility is almost completely determined by the team's objective, which is to win. And this is of course at odds with the opposing team's objective. By thinking of group interest, you can predict, to some extent, which way he'll push the ball. He'll pass to his own team mates, he'll shoot on the opponent's goal, etc. He won't take the ball and do cool tricks with it, generally, unless it serves the objective of winning.

Now, not to fret, my fellow libertarians and economists, I still think in most situations we are largely self-interested. For instance, within the firm, we are largely motivated by our wages. And within the nation, we are largely motivated by our self-interest, be it money or whatever. But not entirely. For instance, voting is a mystery when viewed as self-interested behavior. Where's the payoff? But it makes sense when viewed as satisfying the group interest, where the relevant group may be one's nation, political party, neighbors, friends, or office mates. Within the family, group-interest and self-interest are probably about equally important, and also quite intertwined.

The bottom line is I think we should, in many cases, model behavior as a combination of self-interest and group-interest. And, to make it mathematically tractable, assume the two are separable, so it's a nice linear combination.

Many questions arise:
1) How do we weight these interests for various groups? Where do we get the data to make that determination?
2) What is the optimal size of the group? Is it whatever it is? How did we arrive at 11 for the size of a soccer team? And is the EU appropiate as a political or even economic unit?
3) Are some groups detrimental (I'm thinking of nations)? Is that because of the size? Or because of the tendency of politicians to screw with the economy? Cliques can be very limiting, and often innovation comes from the outside, a'la Granovetter's Strength of Weak Ties. On the other hand, forming associations helps to alleviate public goods problems, and facilitates networking, and allows Smithean specialization and the division of labor.
4) To what degree are various groups substitutes for each other, e.g. the State for religion? And to what degree are they substitutes for individual interests? How do groups shape individual interests, and vice-verca? This week I saw Jack Citrin present this paper, which indicates that ethnicity, i.e. identifying primarily with one's ethnic group, and nationalism are to a large degree substitutes, with nationalism largely replacing ethnicity over time among immigrants.

Here are a few of the more common groups I can think of:
1) Geographic - a) Nation, b) Region, c) State, d) City, e) Neighborhood
2) Economic - a) Currency union, b) Trade linked, and free-trade zones
3) Politics - a) Party, b) Issues
4) Language and Cultural heritage
5) Physical attributes - a) Ethnicity, b) Color, c) Gender, d) Other features
6) Intellect - a) College degree, b) Conversational skills, c) Comedic skills, d) Analytical skills, e) Social skills, f) Cultural interests - theater, art, music
7) Income - a) Job status, b) Other signs of wealth
8) Company/Firm
9) Sports team - a) Participant, b) Spectator
10) Religion - a) Denomination, b) Church

Friday, February 23, 2007

Learning economics from The Beatles, lesson 3

Why did The Beatles, and so many other great musicians, come along in the 1960s? I think the answer lies primarily in technology, which advanced at an unprecedented rate in the post-war period. The electric guitar was still an unproven instrument, until Jimi Hendrix came along. Many other supply side technologies came to revolutionize the music business, e.g. the advent of the transistor lead to higher quality studio mixing and recording equipment and techniques. Likewise, on the demand side, advances in radio, TV, and the stereo LP facilitated a thick market in music. The spread of the English language also can't be ignored, and The Beatles experienced this as both a cause and effect of their success.

As with any technology, these were adopted at differing rates. The early adopters were mainly baby boomers in the West. Thus, it is no coincidence that The Beatles came from what was once the most economically advanced country in the world. And they weren't alone. Remember the British invasion? Here is a list showing the top music exporters in 1997. Note that it looks a lot like a list of today's richest countries (not per capita, just total size in GDP). Or the richest in 1970. (The only exception is North Korea coming in at #30 on the music list. Maybe Curtis can explain that one.)

The lesson is that change implies diversity. In this case, technological change made for a diversity of musical output, both in quality and quantity. If you want to be uncharitable, The Beatles can be seen as monopolists who used technology as a barrier to entry, just as the "robber-barons" did a century ago in the fast-changing oil and railroad industries. But we are not uncharitable with musicians, and we shouldn't be with other productive enterprises.

So, from this and the previous lesson we see that prosperity, change, and diversity all go hand-in-hand. Think about that the next time your local politician recommends stabilizing prices, or setting a minimum wage, or capping CEO salaries. Insisting on equality of outcomes means the destruction of diversity, and with it prosperity. And when the State enforces it through coercion, we have lost our liberty as well.

Addendum: Tyler's latest NY Times article covers much the same ground, and the next lesson on status and culture. This is what happens when you read someone's blog for 3 years. And take his macro and industrial organization classes.

Correction: Though there were plenty of good musicians in the 1960s, The Beatles were and are singularly huge, selling more than 4 times as many albums as #2, Simon and Garfunkel. No other decade is like that, having one completely dominant player. Maybe Elvis in the 1950s, but he recorded only about 20% of his albums then. Roughly 1/3 of his biggest hits were in the 1960s. And The Beatles soon swamped him. Here is an attempt to put together world-wide record sales. Here is the more systematic RIAA data, which I've put in a chart shown below. In the first tier, on the left, it shows the top artist in each of 5 decades. Elvis is the blue bar, The Beatles are light purple, Led Zeppelin is yellow, Billy Joel is green, and Garth Brooks is dark purple. Yes, popular music has really gone down hill. (Thanks to Jason for the comments which made me do the research.)

Wednesday, February 21, 2007

Why do we invest in useless health care?

Robin stumped us with this in health econ class. Here's a first cut:

Investing in health care is inefficient ex post, but ex ante the uncertainty is so great that trading $ for health care makes sense. The uncertainty arises from the mystery of the human body, and from rapid, and eratic medical innovation. Thus, there is some chance, however slim, that the average benefit will increase in the future. If someone values 1 year of additional life at $100M, and the average benefit of $1M of health care is zero, but there is a 1% chance that the average benefit will become 1 year of additional life, then the costs are $1M and the benefits are 0.01*1 year=0.01 year=3.65 days=$1M. Thus, assuming risk neutrality, it makes sense to invest because this someone is betting on innovation. Further, it makes sense to spend more money as time goes on, since medical technology is always improving. And this is what we see, that the bulk of health care $ are spent in the last 6 months of life. Also, there's little incentive to save up for the future at that point.

These are small numbers, and if they're realistic, that may partly explain why the RAND Study showed zero marginal benefit of health care. But even if there truly was zero marginal benefit over this period of time (seven years, 1975-1882), I think it was not irrational to expect innovation. Using the numbers above, that would mean an innovation occurs only once every 100 years, and so maybe no significant innovations were picked up during the RAND Study.

Correction: Here is the other first cut.

Tuesday, February 20, 2007

A politician I don't hate

Just the opposite, I think I'm smitten, like one of those guys Tyler was talking about.
Here's some background, from the Washington Post review of her new book:

In the first scene of Infidel, Ayaan Hirsi Ali is a child of 5, sitting on a grass mat. Her grandmother is teaching her to recite the names of her ancestors, as all Somali children must learn to do. "Get it right," her grandmother warns. "They are your bloodline. . . . If you dishonor them you will be forsaken. You will be nothing. You will lead a wretched life and die alone."

Thus begins the extraordinary story of a woman born into a family of desert nomads, circumcised as a child, educated by radical imams in Kenya and Saudi Arabia, taught to believe that if she uncovered her hair, terrible tragedies would ensue. It's a story that, with a few different twists, really could have led to a wretched life and a lonely death, as her grandmother warned. But instead, Hirsi Ali escaped -- and transformed herself into an internationally renowned spokeswoman for the rights of Muslim women.

The break began when she slipped away from her family on her way to a forced marriage in Canada and talked her way into political asylum in Holland, using a story she herself calls "an invention." Soon after arriving, she removed her head scarf to see if God would strike her dead. He did not. Nor were there divine consequences when, defying her ancestors, she donned blue jeans, rode a bicycle, enrolled in university, became a Dutch citizen, began to speak publicly about the mistreatment of Muslim women in Holland and won election to the Dutch parliament.

But tragedy followed fame. In 2004, Hirsi Ali helped a Dutch director, Theo van Gogh, make a controversial film, "Submission," about Muslim women suffering from forced marriages and wife beating. Van Gogh was murdered by an angry Muslim radical in response, and Hirsi Ali went into hiding. The press began to explore her past, discovering the "inventions" that she had used to get her refugee status. The Dutch threatened to revoke her citizenship; the American Enterprise Institute offered her a job in Washington. And thus she came to be among us.

Look out. If I'm at all normal, we'll be changing the Constitution one day to make her President.

Addendum: Here is her totally unreasonable time slot on Book-TV.

Monday, February 19, 2007

Learning economics from The Beatles, lesson 2

The Beatles were most adept at ripping off various styles, from Buddy Holly to Bob Dylan to Harry Nilsson to you name it. Without these influences, The Beatles would be boring and unremarkable.

In the same way, the most successful economies have copied other successful economies. For instance, Scotland in the 17th century was among the poorest backwaters of Europe. In 1707 it unified with England and slowly adopted the English language. By 1800 Scotland was among the richest countries in Europe and a major center of the Enlightenment.

This is how globalization works. We trade with each other, we learn from each other, we copy each other, we recombine in unique ways, and we prosper as a result. We don't all become the same, as prosperity implies constant change in unpredictable ways. The Beatles didn't become mere copies, they became something entirely unique.

Here is the first lesson.

Keeping the Soviet dream alive in DC

Hard to believe the DC Convention Center is losing money:

Nearly four years ago, city officials opened the $850 million Washington Convention Center with a string of superlatives. The largest publicly financed project ever built in the city, they said, would attract more than a million visitors a year, fill hotels and set off an economic boom.

Instead, convention attendance is dropping, the surrounding neighborhood is yet to be transformed by the promised new development, and conventioneers are filling fewer hotel rooms than expected.

The number of hotel rooms booked is especially significant because it is the most accurate measure of performance, and last year hotel convention bookings missed projections by 13 percent. Bookings are likely to fall short of projections by 24 percent this year and 29 percent next year.


The city's solution is to increase its investment, pressing ahead with plans to build a $550 million hotel next to the convention center, financed in part with a $135 million tax subsidy from the city, which convention center officials expect to be repaid with tax revenue generated by the project. The rest will be privately financed.

Someone please explain how DC officials are supposed to be experts, or even average, at the convention and hotel business. Likewise for the baseball and stadium business.

Sunday, February 18, 2007

Maximum overdrive

Congratulations, Metrobus. You've really hit your stride. Three women plowed over in one week. Two were on Valentine's Day. Fantastic.

Are we ready to question the wisdom of granting monopoly status to Metro?

Friday, February 16, 2007

Learning economics from The Beatles

So I just got Anthology 3, and can't believe how these guys still captivate me. I figure you can learn all of economics by thinking about The Beatles. Here's the first installment, and feel free to offer your own lessons.

Lesson 1: What are the odds that 4, or 3, or even 2 musical geniuses would find themselves together in a small town? Answer: slim to none. It is more likely that one genius inspired the rest to raise their level of performance. Probably John Lennon was the original genius, but soon the others came to match his talent, especially the young and formative George Harrison. Even George's final album, 32 years after the break up, is pretty outstanding. This is how human innovation works, largely through peer effects. And this is why so much of human accomplishment has occurred in the West.

Addendum: To clarify, the mechanism at work here is not merely hero worship, but rather peer effects, or more precisely, acculturation, or self-acculturation, as Tyler has called it. That is, John inspired George, who inspired John. John need not be a genius for the group to produce great music. In fact, the first few albums are not great, that only happened later, which suggests acculturation as opposed to genius.

Wednesday, February 14, 2007

Optimism in New Orleans

The drugs are working for Super Saint. Here is his encore. If you appreciate this kind of art, or want to help rebuild New Orleans one Super Saint at a time, buy one of Blake's t-shirts. I especially like this, this, and this one.

Monday, February 12, 2007

French culture from an English perspective, chicks in politics edition

Tyler discusses the possible effects of a female French president. I just don't see this as very much different than the current arrangement. Chirac is a fruit.

Sunday, February 11, 2007

Someone's been reading Jane Jacobs

Ryan Avent at the DCist reminds us that it is diversity which makes great cities. Unfortunately, DC ain't one of them:

almost no one, other than the President of the United States, makes his home among the office blocks of downtown and the Golden Triangle. And it shows. Despite being the single densest employment center in the metropolitan area, holding more Greater Washingtonians at any one time than any other place in the region, the streetscape is strikingly--sometimes shockingly--bleak.

I would add that Adams Morgan continues to be the most vibrant neighborhood in town precisely because its residents have steadfastly fought off various ill-conceived urban renewal efforts by government. The one that slipped by is the Marie Reed Learning Center, an awful eyesore and dead space which nearly cuts Adams Morgan off from Dupont Circle to the south and U street to the southeast.

What is missing in Adams Morgan is daytime businesses, and that, I'm afraid, is because the resident activists lack consistency in their fight for diversity. It's really just a few anti-business Nazis, some of whom I know, who have made it difficult for any large business to move in. Just ask Harris Teeter.

The bottom line is that zoning regs are pure evil, and the enemy of diversity. They are vestiges of the high modernist era, a time in which social planners arrogantly disregarded the interests of the Everyman, the man on the street, as it were, and pretended to have an elite access to and interpretation of information. But the high modernists are dead. Can we not move on now?

Saturday, February 10, 2007

Lying liars

Robin lists 10 ways to detect lies. I think he knows this is a lie, that it is of no use. Those who read the list, already know it. Those who skip it are not interested in finding the truth anyway. I think all of us live on lies to some extent, and some more than others. I fancy myself as a truth seeker, and I think Robin does too (just look at the names of our blogs, for God's sake). Libertarians generally see themselves as crusaders. And it turns a lot of people off. My mother says I sound like Jesus, and she doesn't mean that as a complement.

But I know I couldn't live without lies. For instance, when I was taking economics at Lund in Sweden, they treated me like royalty, I suppose just because I'm American. One young Swede once blurted out in class, "But you're brilliant!", referring to me. I didn't take him too seriously, since he barely knew me, but it's something I'll not soon forget either. It feeds the ego, even if it is a lie.

Last night a friend told me some horrible stories about her on-again, off-again relationship with a pathological liar. She seemed to truly wonder how she could swallow so many lies. I suspect they served a purpose. He's a salesman who knows what the customer wants. Or, alternatively, we can blame him, via a kind of Say's Law of lies, ie the supply creates the demand. Regardless, it is clear that both sides gained something. At least in the short term, the lies expanded the opportunity set.

The same kind of self-deception is behind many of our most cherished institutions. You atheists will immediately think of religion. Indeed, Larry Iannaccone has used this same language, claiming that religion exists in large part because it expands the opportunity set, from the mundane to the transcendent. He does not, however, call it self-deception, since we simply have no evidence one way or the other as to the existence of God.

Another example is democracy and the whole notion of the State. We all know the politicians are lying to us, and yet many of us continue to vote for them. It is a kind of religion for the voter, since he is basically ignorant of the evidence on government effectiveness. For libertarians, of course, this whole arrangement is appalling, because we've seen the evidence and it doesn't look good.

The same applies to health care. The best evidence indicates that, on average, doctors really don't help much at all. Yet, we treat them as experts, and insist on policies which subsidize health care and health insurance.

As Robin pointed out in class this week, this is essentially no different than our faith in financial "experts." We gladly fork over millions of dollars in fees to pay for actively managed mutual funds, when, on average, they do worse than index funds.

The list goes on and on, from academia to the main stream media.

So why do we believe experts, even when the preponderance of evidence contradicts them? Why do we believe lies? And why do lying institutions prosper in prosperous economies? Do lies somehow make the world go round? Or are they just the baggage of civilization, an unfortunate and unavoidable human condition? Perhaps, just as Fischer Black's noise traders provide liquidity in financial markets, lies and those who trade in them provide a kind of liquidity in the extended order.

Addendum: Women, you're in trouble. Apparently, only criminals are good at detecting lies.

Wednesday, February 7, 2007

Auf wiedersehen Herr Professor Doctor

Tyler points to a NY times story on how Germans, especially doctors, are voting with their feet and moving to places like Canada, Switzerland, Brittain, and the US.

And here is more on medical tourism.

Diapers are the new Tang

Just when you thought NASA was not worth a shit:

Nowak wore diapers used by astronauts to drive the 950 miles without taking a bathroom break so she could challenge Air Force Capt. Colleen Shipman at the Orlando International Airport, police said.

Here is the article from Scott McCabe, who is fast becoming my favorite journalist.

In other news from the Examiner, Marion Barry is trying to extend the smoking ban to cars. Does this include crack smoke?

Correction: It's a toss up between Scott McCabe and this guy.

Tuesday, February 6, 2007

Enlightenment 101

Emory University, apparently responding to my post on academic atheism, has hired the Dalai Lama. Holy shit. Is he tenure track? This definately presents a serious challenge to George Mason's own Center for the Economic Study of Religion.

Monday, February 5, 2007

A look inside the sausage factory

Some exerpts follow, but read this whole article on electricity deregulation in Virginia. It's a lesson in public choice.

If the legislature doesn't act, Dominion will be free of regulation in 2010, the result of previous action intended to give consumers a choice in their electric companies. But competition that was once predicted has not materialized, giving rise to fears that rates for electricity could soar even higher without the changes. That's what happened last year in Maryland, where utility rates in some areas rose as much as 75 percent.


After nearly a decade of marching toward deregulation, Virginia is now racing the other way.

And here's (some of the) special interests:

Now, the tough decision shifts to lawmakers, many of whom have received tens of thousands of dollars in gifts and campaign contributions from Dominion over the years.

The company gave almost $560,000 to candidates in 2006 and has given about $3.8 million since 1996, according to the Virginia Public Access Project, which tracks campaign fundraising. In addition, several lawmakers own more than $250,000 worth of Dominion stock, which hit a new high Friday after the House committee approved the legislation.

The company also takes advantage of state laws allowing lobbyists to offer gifts to lawmakers during the legislative session. In 2006, the company spent $7,245 on sporting events for lawmakers, according to the Virginia Public Access Project. It spent $5,545 on meals, $4,808 on airfare, $3,646 on hunting and fishing, and $750 on theater shows.


But critics say the campaign donations help grease the way for new regulations that could guarantee profits for the company worth billions of dollars over the next several decades.

And here's the hopeless and economically illiterate voter:

"How much authority will the State Corporation Commission have to act to make sure that rates are fair?" Carlin asked. "That's the bottom line."

I feel like Jack Nicholson in the psychiatrist office asking, "What if this is as good as it gets?"

Update: Looks like they voted to protect the monopolist, and screw the voter. Hmm, I wonder why "competition that was once predicted has not materialized"?

Sunday, February 4, 2007

Yet another book with the word "freak" in the title

This one on environmentalism, by John Berlau. Here is an interview:

How did the environmentalists make New Orleans more susceptible to flooding?

The Army Corps of engineers intended to construct floodgates to close off water from Lake Pontchartrain during storms. A lawsuit by the local environmental group Save Our Wetlands, assisted by the national Environmental Defense Fund (now Environmental Defense), sued the Corps of Engineers, saying that gates could threaten some fish species. The U.S. Attorney warned the federal judge that a delay could kill thousands of New Orleanians in a hurricane. Nevertheless, in 1977, a federal judge stopped the project.
The Corps had already done an environmental impact study that was approved by the EPA. A second study satisfying the judge’s requirements, such as examining the mating habits of certain fish, may have taken ten years, the Corps feared. So the Corps went with what was regarded as the second-best option, building higher levees.

Why should liberals and leftists be skeptical of the environmental movement?

I disagree with liberals on most issues, but I do believe that many of them care deeply about people. So they should be alarmed when environmental leaders put the welfare of animals and plants ahead of people.
Liberalism and environmentalism have only been strongly connected for about 40 years. Franklin D. Roosevelt had no particular fondness for pristine wilderness. He boasted proudly of the dams he built and proclaimed proudly, at the dedication of the Hoover Dam (then called the Boulder Dam), that humans were “altering the geography of a whole region” that had previously been “cactus-covered waste.” In the 19th century, Karl Marx and Friedrich Engels disagreed vehemently with the original population doomsayer Thomas Malthus. Sounding much like modern population control critic Julian Simon, Engels wrote that “it is ridiculous to speak of overpopulation,” because the progress of “science … is just as limitless and at least as rapid as that of population.”

The sad part is this guy is my age. So is Tim Carney, author of The Big Ripoff. Both of whom I met through the libertarian/conservative over-achiever network called AFF.

Religion in China

More evidence of what Peter Berger has called the "desecularization of the world":

If the party is still trying to keep its members atheist, it is fighting a losing battle.

What's interesting is there appears to be a fairly even split among the five recognized religions, at least according to the Chinese Foreign Ministry. Buddhism claims the most adherents (100M) and clergy (200,000), while Protestantism claims the most places of worship (55,000). I suspect this diversity is a major factor behind the government's shift towards religious freedom. That and apparently the government fat cats have figured out how to milk the religious, which probably means they favor the religions which tolerate bribery. But I think China is large enough that the religious diversity factor is sending them down the path towards a free market in religion. It may one day end up being more free than many European countries, which continue to favor an official state religion.

Saturday, February 3, 2007

Civilization and socialism

What I was trying to get at in the last post is a very simple point: cities are a civilizing force. Cities and civilization are intimately linked, and, indeed, the two words share the same root. Jane Jacobs' observation of this fact in Death and Life is only notable because she wrote it in 1961, when all of the received wisdom pointed the other way. From Lewis Mumford to Le Corbusier to Frank Lloyd Wright, the consensus was that cities are problematic, breed social ills, etc.

But Jane Jacobs was only reviving an old idea. Adam Smith in his Lectures on Jurisprudence identified the underlying mechanism that makes cities civilized. It is commerce. I quote at length:

Whenever commerce is introduced into any country, probity and punctuality always accompany it. These virtues in a rude and barbarous country are almost unknown. Of all the nations in Europe, the Dutch, the most commercial, are the most faithful to their word. The English are more so than the Scotch, but much inferior to the Dutch, and in the remote parts of this country they far less so than in the commercial parts of it. There is no natural reason why an Englishman or a Scotchman should not be as punctual in performing agreements as a Dutchman. It is far more reduceable to self interest, that general principle which regulates the actions of every man, and which leads men to act in a certain manner from views of advantage, and is as deeply implanted in an Englishman as a Dutchman. A dealer is afraid of losing his character, and is scrupulous in observing every engagement. When a person makes perhaps 20 contracts in a day, he cannot gain so much by endeavoring to impose on his neighbors, as the very appearance of a cheat would make him lose. Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does their character. They whom we call politicians are not the most remarkable men in the world for probity and punctuality. Ambassadors from different nations are still less so: they are praised for any little advantage they can take, and pique themselves a good deal on this degree of refinement. The reason of this is that nations treat with one another not above twice or thrice in a century, and they may gain more by one piece of fraud than by having a bad character. France has had this character with us ever since the reign of Lewis XIVth, yet it has never in the least hurt either its interest or splendour.
But if states were obliged to treat once or twice a day, as merchants do, it would be necessary to be more precise in order to preserve their character. Wherever dealings are frequent, a man does not expect to gain so much by any one contract as by probity and punctuality in the whole, and a prudent dealer, who is sensible of his real interest, would rather chuse to lose what he has a right to than give any ground for suspicion. Every thing of this kind is odious as it is rare. When the greater part of people are merchants they always bring probity and punctuality into fashion, and these therefore are the principle virtues of a commercial nation.

Smith is focusing on commerce as the source of morality, but another interpretation is that it is human interaction generally that imparts morality. I like both, and don't see them as so distinct. I see commerce as simply a more exact and disciplined kind of human interaction.

It is for this reason that Europe, or any densely populated area, has numerous advantages. Europe has the additional advantage of being historically densely populated. The disadvantages are in politics, or collective action. Democracy, social democracy, and socialism are all correlated with civilization. In America, if not everywhere, cities are the bastion of left-wing politics. As far as I know, there is no such thing as a conservative city. It seems this is an inextricable condition of civilization, and one which Adam Smith did not foresee (as Dan Klein noted this week in class). Libertarianism may wax and wane, but socialism persists in one form or another. It is the baggage of civilization.

So I don't expect the libertarian dream to ever come true. Europe and America seem to be converging on a sort of mediocre social democracy. Countries like Ireland have rolled back the power of the state, while America pushes forward with ever more expensive public works, from Katrina relief to the Iraq War. But I don't see instability. Yes, the Medicare trainwreck looms large, but I expect we'll grow our way out of it, and maybe reduce benefits a bit.

In short, I think we are all locked in to a world wide growth rate of about 2% to 3%. The developing economies are growing faster, but they too will converge to this rate, as social democracy takes hold and achieves its equilibrium state.

Friday, February 2, 2007

Modern Drunkard

So, Robin Hanson again shocked us with the facts last night in health econ class. Most compelling to me, and all the undergrads who were there, is the apparent health benefits of drinking. This is different than all those reports about "one glass of wine per night turns out to be healthy." The statistical evidence indicates there is no upper limit on the health benefits of drinking, ie the more you drink, the healthier you are. Why does this not make the news? Well, you may have guessed that government and other paternalistic organizations don't like the message.

And I would agree, based on the reaction of the undergrads. I certainly didn't need this information in college. I almost wish someone had told me "drinking makes your stomach hurt, because everytime you take a drink I'm going to punch you in the stomach."

One wine hangover will convince anyone that drinking cannot possibly cause health benefits. So, Robin offered up an alternative explanation: drinking signals health. At least in part, people drink to signal their health. The last guy standing is the alpha male. Maybe that was my problem, I never figured out the standing part.

So this may explain why drinking is so prevalent on college campuses. Young'ns have a comparative advantage at drinking a tremendous amount without taking on that evil, drink-sodden look. Does this mean we should consider moving the drinking age up to 22, or 25? After all, it does appear to be a market failure, of the kind Robin was referring to in his signaling example.

At Sewanee, Max will remember the university banned kegs during our second semester freshmen year. The first semester was truly a drunkard's dream. Free beer everywhere. The ban made drinking beer a little more expensive. So we switched to whiskey. It was more fitting anyway, since Sewanee is located in the hills of East Tennessee, surrounded by distilleries. My point is that I doubt there is any good way to actively suppress such an effective signaling equilibrium.

In Europe, as we know, youth drinking laws are less restrictive. And youth drinking appears to be less of a problem. I speculate that this has more to do with alternatives to drinking, while the laws are of little consequence. Being surrounded by castles and art museums, as opposed to hillbillies and 'stills, the signaling in Europe occurs along more refined cultural dimensions. This factor alone may explain why K-12 produces better results in Europe, as I wondered in a previous post.

This illustrates another of Jane Jacob's major themes, which she focused on in The Death and Life of Great American Cities. It is that cities, as the highest form of human civilization, offer many more benefits than costs. In economic terms, the positive externalities, e.g. networking, far exceed the negative externalities, e.g. pollution. See more on this here.

I wonder if she knew about Robin's health stats that indicate city living takes 15 years off your life. Smoking only takes 3.

Bottomline: I'm not really sure where this leaves us. But it's happy hour at the Big Hunt.