Consider the following piece in the Daily Telegraph, which may begin making the rounds:
Scientists find ‘law of war’ that predicts attacks: Scientists believe they may have glimpsed a “law of war” that can be used to predict the likelihood of attacks in modern conflicts, from conventional battles to global terrorism. … The European Consortium For Mathematics in Industry was told today that an international team has developed a physics-based theory describing the dynamics of insurgent group formation and attacks, which neatly explains the universal patterns observed in all modern wars and terrorism. The team is advising the United Nations, the Pentagon and Iraq. …
Most remarkable, “or the case of modern insurgent conflicts, our results are in close agreement with observed casualty data.” “What we found was really quite startling,” said Prof Johnson. “Although wars are the antithesis of an ordered system, the datapoints for each war fell neatly on to a straight line.” The line meant they obeyed what scientists call a power law. The “power laws” describe mathematical relationships between the frequency of large and small events.
This finding is remarkable given the different conditions, locations and durations of these separate wars. For example, the Iraq war is being fought in the desert and cities and is fairly recent, while the twenty-year old Colombian war is being fought in mountainous jungle regions against a back-drop of drug-trafficking and Mafia activity. This came as a shock, said the team, since the last thing one would expect to find within the chaos of a warzone are mathematical patterns. …
“We can use the power-law distribution to accurately predict the likelihood of different sized attacks occurring on any given day. This is useful for military planning and allocating resources to hospitals. .. “The fact that the power-law distribution seems to be constant across all long-term modern wars suggests that the insurgencies have evolved to find an ideal solution to the problem of how to fight a stronger force. … “Unless this structure is changed then the cycle of violence in places like Iraq will continue,” said Dr Gourley.” We have used this analysis to advise the Pentagon, the Iraqi government and the United Nations.”
This one has all the ingredients: a few economists, some physicists, a couple of papers on arxiv, power laws, media coverage, and of course the thrilling sense that no-one has noticed anything like this before. Except, of course, they have.
Unlike national central banks, the Bank for International Settlements doesn’t have to worry too much about the effect of its statements on business and consumer confidence or on the possibility of political flak. Hence, it has usually tended to give a less rosy view of the economic outlook than other official and quasi-official institutions. The latest assessment is particularly gloomy .
The full annual report has the cheery title “The unsustainable has run its course and policymakers face the difficult task of damage control” (Overview here).
The money quote:
Perhaps the principal conclusion to be drawn from today’s policy challenges is that it would have been better to avoid the build-up of credit excesses in the first place. In future, this could be done through the establishment of a new macrofinancial stability framework, which would call for both monetary and macroprudential policies to “lean against the wind” of the credit cycle
It’s hard to disagree with this, but equally hard to imagine such a framework (reminiscent of the “new global financial architecture” proposed in the late 90s) being introduced without the stimulus of a truly dire financial crisis.
From “Inside Higher Ed”:http://insidehighered.com/news/2008/06/11/iraq today
The missteps in Iraq are well documented by now. … Among those success stories is the American University of Iraq, a Western-style institution in the war-torn country’s northern region that promises to “lead the transformation of Iraq into a liberal and democratic society. … The university’s lofty aspirations, as espoused on its Web site, make the selection of its first chancellor all the more puzzling. Owen Cargol, who took the helm at AU-Iraq in 2007 and resigned in late April of this year, had a checkered past that could have been revealed to university organizers with a simple Google search.
… Cargol’s 2001 resignation stemmed from allegations made by a Northern Arizona employee who alleged that Cargol, while naked in a locker room, grabbed the employee’s genitals, the Arizona Republic reported. In a subsequent e-mail to the employee, Cargol described himself as “a rub-your-belly, grab-your-balls, give-you-a-hug, slap-your-back, pull-your-dick, squeeze-your-hand, cheek-your-face, and pat-your-thigh kind of guy.” Cargol, who at the time was a married father of two children, went on to say that he was a “sensual kind of guy” who hoped the employee could “feel comfortable enough with me (and others) to reciprocate the same level of playfulness and affection,” the newspaper reported.
Via Larry Solum, an interesting article by Sarah Waldeck on private university endowments in the US. She analyses the data, arguing that it is more informative to look at endowment:expense ratios than absolute endowment sizes (on the ratio ranking, Harvard is #9 and Grinnell #1, whereas on endowment size Harvard is #1 and Grinnell #25). Waldeck points out that taxpayers subsidize these endowments (by giving substantial tax deductions to donors) and suggests that one reason universities benefit from largesse is that they find it easy to absorb large amounts of money and so are attractive to donors. They also, unlike foundations for example, have no obligation to spend the money! She is pretty convincing that there is no good literature defending the accumulation of endowments. But, like Solum, I am a bit skeptical of some of her proposals for taxing and regulating endowments. In particular, in so far as her aim is to lower tuition across the board, that seems a regressive measure: regulating endowments so that they lower tuition ends up reducing the price of an elite education for children of the wealthy (most of these schools already have incredibly low true tuition for children from non-wealthy families). Solum:
Amartya Sen turns 75 later this year (on November 3rd, to be precise), and we are going to celebrate this. In academic style, of course. “Kaushik Basu”:http://people.cornell.edu/pages/kb40/ and “Ravi Kanbur”:http://people.cornell.edu/pages/sk145/ have edited a 2-volume Festschrift, aptly called “Arguments for a Better World“:http://www.oup.com/uk/catalogue/?ci=9780199239993. I am not sure when Sen is going to read those 1400 pages, but that detail shouldn’t spoil the party. And Basu and Kanbur are also organising, together with the Institute for Human Development “a conference”:http://amartyasenconference.net/ to celebrate his birthday. That event will take place in New Delhi on the 19th and 20th of December. “The Call for Papers”:http://amartyasenconference.net/call-4-paper.asp, which so far I haven’t seen circulating, is only open to young economists and social scientists, with ‘young’ being defined as those under 40. It’s a pity, though, that political philosophers are not invited to submit papers, given Sen’s important contributions to that field.
Sorry for putting up a second plug in successive posts, but it seems as if, after the usual delays, quite a few things of mine are coming out that might be of broader interest than most of my academic work. I’m a contributor to a new book, Uncertainty and Risk: Multidisciplinary Perspectives, edited by Gabrielle Bammer and Mike Smithson. It’s discussed in this piece on the ABC website, which talks about Rumsfeld and ‘unknown unknowns’, a topic I’ve talked about before (here at CT and here on my own blog).
There’s lots of interesting views of uncertainty, in all sorts of fields, from statistics to jazz. You can watch a slowTV video (parts 1 and 2) or hear a more complete podcast of the book launch, with a public lecture on uncertainty and intelligence (in the CIA sense) by Michael Wesley.
One thing that is, unfortunately, certain is that the price of the book will be far too high for all but the keenest readers, so you’ll probably have to wait for it to reach the library if you want to read it – there’s not even “Search Inside” on Amazon.
It’s regularly stated that the size of the average (new) American home has doubled since 1950, and implied that this increase has continued fairly steadily over the intervening decades. This seems a bit surprising given that (on standard measures) real wages for large groups of workers have not increased since the 1970s. Some, but not all, of the story can be explained by the fact that a fixed stock like housing takes a long time to adjust and so would continue to improve in response to the big increase in both income and equality that took place from the 40s to the 70s. And of course, the top quintile of the income distribution is doing well, and they have a big influence on the market.
But that still leaves a puzzle I think. Here’s one little piece. As far as I can tell, the statistical basis for the statement comes from the National Association of Home Builders and compares the houses being built today with those built by Levitt and others in the 1950s. But not everyone lives in houses. To get the full story you’d need to take account of apartments (I haven’t looked at this).
Even more important, though, are manufactured homes (aka trailers). There are about 8 million of these up from essentially zero in the 1950s. They constitute about 8 per cent of the housing stock now (housing around 19 million people), which must imply a substantially larger proportion of homes built each year. Although they can be quite large, most are a lot smaller than the average home built on-site. Taking manufactured homes into account would substantially lower the size of the average new home. It would also fit the income data, showing rising inequality, a lot better.
I’ve been remiss in replying to this post by Megan McArdle, but today I’ve finally gotten around to it. This will be a really long post, so don’t say I didn’t warn ya.
McArdle basically argues two things: that 1) the minimum wage has a disemployment effect, and 2) that monopsony is not a persuasive model for the labor market (or at least for the low-wage retail sector). First I’ll deal with the evidence on the minimum wage. McArdle mentions the famous 1994 Alan Krueger and David Card study which looked at the impact of a 1992 increase in the minimum wage on employment in fast food establishments in New Jersey. Krueger and Card found that in that case, contrary to what standard theory predicts, the increase in the minimum wage did not decrease employment.
Very reasonable criticisms of that study have been made. McArdle summarizes:
The original study was a phone study; when another study asked for actual payroll records, they found the same result the standard model would predict: fast food employment dropped in New Jersey. Additionally, as Kevin Murphy has pointed out, the survey started long after employers knew that a minimum wage hike was coming–he compares it to assessing a midnight curfew by comparing the number of teenagers on the street at 11:59 to the number on the street at 12:30.
In response, Krueger and Card did another study that looked at the impact of that same minimum wage increase on employment in fast food establishments in New Jersey. To counter the previous criticisms from economists like Kevin Murphy who said that their data was problematic and that they’d got the timing wrong, this time they used a more reliable data source (employer data from the Bureau of Labor Statistics) and looked at the data over a longer time period. And guess what? This new analysis confirmed their original findings: the increase in the minimum wage did not lead to a decrease in employment.
It’s unclear whether we are bound for a Post-American World in the near future, but it seems pretty clear that we are bound for a world in which the US dollar is no longer the unique ‘reserve currency’. The combination of chronically large trade and budget deficits and willingness of the US monetary authorities to tolerate sustained inflation means that decisions by national central banks to hold US dollar reserves are now driven by a desire to preserve the existing order rather than by calculations of risk and return. In the long run this can’t be sustained.
If the US dollar can no longer satisfy the requirements of a reserve currency, what are the alternatives? I can see two possibilities.
It’s ironic that this James Surowiecki piece about Toyota’s success came out this week, given the fact that the the latest financial report from Toyota (via Megan McArdle) shows a substantial decline in profits. The decline is being blamed on “a stronger yen and soaring raw-materials costs.” Truck sales in the U.S. have also been down.
Whatever problems Toyota is currently having, Surowiecki points out that Toyota has “long been the auto industry’s most profitable and innovative firm” and that this year it may become the sales leader, as well. What have been the secrets to Toyota’s success? Surowiecki points to innovation, and in particular, Toyota’s vision of “innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis.”
Crucial this philosophy is
the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible. According to Matthew E. May, the author of a book about the company called “The Elegant Solution,” Toyota implements a million new ideas a year, and most of them come from ordinary workers.
Though other companies have tried to duplicate Toyota’s techniques, they have had limited success, due in large part to the fact that “most companies are still organized in a very top-down manner.”
Though none of Toyota’s North American plants are unionized, their factories in Japan are, as are many of their factories elsewhere in the world. And Japan is where Toyota developed its innovative managerial techniques. The right-wing argument about unions is that “work rules” and lack of flexibility will inevitably stifle innovation and lower productivity. In fact, Ann Coulter’sarm candy loves to make this point, over and over. But Toyota’s success would appear to contradict this theory. And in fact, there is much evidence that contradicts the old conservative myths about the subject.
The results of this new study on pain assessment by Princeton’s Alan Krueger and SUNY Stony Brook’s Arthur Stone are for the most part not particularly surprising. As it turns out, economic inequality impacts practically every dimension of human existence; even physical pain is unequally shared. For example, the Krueger/Stone study found that respondents with low socio-economic status experienced “significantly higher pain occurrences and severity.” For instance:
The average pain rating is twice as high for those in households with annual incomes below $30,000 as for those in households with incomes above $100,000.
And
Participants with less than a high school degree reported twice the average pain rating as did college graduates.
Occupational status seems to play an important role, given that
the average pain rating for blue collar workers is 1.00 during work and 0.84 during nonwork, and for white collar workers it is 0.61 during both work and non-work episodes.
And in an interview, Krueger said, “Those with higher incomes welcome pain almost by choice, usually through exercise,” he says. “At lower incomes, pain comes as the result of work.” [click to continue…]
Surfing over to Charles Dodgson‘s site yesterday, I happened upon Elizabeth Warren’s lecture on the squeeze on the American middle class since the 1970s. Then you could bring up a family on one income; now you can’t. Then non-discretionary spending made up a smaller proportion of household spending; now, it dominates. Result: if a parent loses their job or gets sick, bankruptcy looms. I didn’t expect to sit watching a YouTube video for whole hour but I was riveted by the story Warren tells with the consumption statistics.
I was kind of reluctant to blog this too. After all, there are others at CT who do sociology or economics or family policy and I don’t do those things. And I’m not an American resident either. Still, it struck me as pretty compelling. I wonder how similar the change has been in the other OECD countries?
I was pretty much stunned into silence by the proposal for a gasoline tax holiday put forward by John McCain and Hillary Clinton (not that it matters but I’m not clear which of them came up with it first – can anyone set me straight on this). I won’t bother repeating all the reasons why this is a terrible idea ( when Tom Friedman has your number, I’d say your number is up).
Just a couple of observations. First, I find it hard to see how anyone serious can support either McCain or Clinton after this.
Second, the fact that the proposal has lasted this long suggests to me that the chance of any serious US action on global warming after the election is not that great. Without the US, we won’t get anything from China and India either, so that means we’re setting course for disaster. Perhaps if Obama wins, he’ll be able to turn this around, but this episode has me very depressed.
Among the outcomes produced by a market economy, real wages are arguably the most important single variable for most people. With inflation rising around the world, and sensitive prices like those of food and petroleum going up a lot, most people’s living standards depend mainly on whether wages grow faster than prices. I got a couple of pieces of info on this today, which illustrate the difference between data and anecdote. [click to continue…]
One for the junior-birdman Hayekians, Coasians and such like:
Consider a finite quantity of a consumption good G, which is to be divided into two allocations G1 and G2 for two different agents with utility functions over G described as U1(G1) and U2(G2).
What would be the minimum information that a central planner would need to have about U1 and U2 in order to be able to calculate a Pareto efficient allocation G1/G2?
Answer after the jump – I just asked three economists this question and they all got it wrong. [click to continue…]
