Model mood swings?

In yesterday's NY Times, Robert Shiller writes about mood swings ("An Echo Chamber of Boom and Bust"). In particular, "... the business cycle is tied to feedback loops involving speculative price movements and other economic activity -- and the talk that these movements incite." Yes, there are mood swings among investors and consumers. No one can model them. And, Shiller suggests, we do not know how to bring them into economic models anyway.

If particles had mood swings (not original), one can wonder at the progress that physics could ever make.

Mark Thoma at Economist's View and his commenters discuss all of this, but I cannot see that we are any further along than this discussion by Guy Sorman: He cites Gerard Debreu saying, "that the only thing economists cannot do is predict. This is not quite true: Economists can predict that a bad policy will necessarily lead to a catstrophe." (p. 5).

More Big Mac news

When introducing students to international currency exchange rates and purchasing power parity, The Economist's Big Mac Index is usually a nice discussion starter.

As useful (to me, at least), when teaching about the problems of making welfare comparisons, is Cox and Alm's Myths of Rich and Poor, where they reveal how many hours the average worker had to toil some years ago vs. now to buy, say, a three-pound chicken (and many other items they include).

Now it seems that these two expository devices have been brought together. The Economist (August 29) reports results of a UBS study that tabulates "How many minutes to earn the price of a Big Mac?".

Uh, oh. Chicago and Tokyo are at the top, where the least toil buys a Big Mac. If there are international food police (at Interpol?), what will they do with this? Tokyo residents are a lot slimmer than most Chicagoans.

How to make a lot of money

Paul Krugman finds reasons to be optimistic about the prospects of inter-city high-speed rail -- in some U.S. corridors: "we’ve got a bigger potential market for fast rail than any European country."

Call me crazy, but most comparisons with Europe and Japan are misleading. Most Americans are so used to driving their cars within cities that they are not likely to abandon them between cities. Our experience with urban transit experiments offers a worthy lesson. Since 1970, public transit's market share has declined almost continuously, from about 3.5% (all trips) tpo about 1.5% -- while transit subsidies rose almost continuously.

What would a betting man say about the prospects of HSR?

Here is a report that challenges the California HSR lobby. Official 2030 ridership projections are higher than for comaparable systems in Europe and Japan. When airline competition for the LA-SF run heats up, these fares have been known to plummet.

The Simon-Ehrlich wager is well known. Is there anyone out there willing to bet real money on these HSR ridership foreacasts? How about the forecast's authors?

As creepy as it gets

Blood libel against Jews was once a European staple and contributed to the ugly fact that Nazi exterminators found eager accomplices in most of the countries they occupied.

But we now see that the blood libel made a round-trip to the middle east and back to Europe -- as a thinly disguised anti-Zionism.

How else to explain the fact that a leading Stockholm daily reports (on the basis of only old hearsay evidence) that Israeli troops kill Palestinians to harvest their organs?

No one knows how many crazies this inspires to wreak mayhem on innocents.

There are many honorable Swedes, but this is creepy. There were also many honorable Germans in pre-WW II Germany. Neither has the excuse that conspiracy believers in the Third World (unfortunately) have -- that they are primitives.

Look around

The Economist has this on spatial "clustering."

Agglomeration economies and growth economics are slowly coming together in the literature -- as they must in a non-agricultural economy.

Chris Webster and Lawrence Lai have written about the "spatial order" -- as one of five spontaneous orders. This makes great sense as we are describing the continuous evolution of supremely complex and organic systems.

These systems resist central planning, which is moderately ironic because "smart growth" is all the rage. But one only has to take a close look at the similarities of urban forms in the developed nations (Europe and the U.S. in this cite), to see that policies are trumped by preferences. Here is a case where international comparisons are the place to start.

Pay them!

Many who travel to third world destinations find themselves in a shake-down where some street cop wants cash to let the gringo/gringita on his/her merry way. The standard explanation is that salaries are so low that this is the only plausible remedy.

Now this from Germany. Large numbers of university professors have been found taking bribes from their doctoral students. And why do they sink to this? Because, they say, they are so poorly paid.

Yikes! Many universities across the US (including the University of California system) are now implementing pay cuts for faculty.

Perhaps Becker-Posner were right: It's much better to dig into endowments.

Call it stimulus

Ed Glaeser has published some posts that describe a sensible cost-benefit analysis of a high-speed rail line between Dallas and Houston. He finds that it is likely to be hugely cost-ineffective. I am not surprised, but I am also convinced that findings like this do not matter. There is a political coalition behind these planning-disasters-to-be and that's all that matters. Baptists and bootlegers.

In his most recent post, Glaeser looks for evidence that there would, nevertheless, be land use impacts. He concludes that these are unlikely.

If patronage on the HSR is low, how can there be any ancillary impacts? Would non-riders gravitate to stations they do not use? Not in non-negligible numbers. But if they did, planners would have invented the costliest land use policy ever.

But costs don't matter. Call it stimulus.

Fear or fantasy?

Christopher Buckley's Boomsday was a fun read. Before anyone had heard of ObamaCare, the idea that the Federal government was on the hook for the care and feeding of a growing cohort of oldsters was well known. Buckley's spoof that end-of-life would become a political issue was perhaps slightly ahead of its time.

The President said this in his NY Times interview: "It is very difficult to imagine the country making those decisions through the normal political channels. And that's part of why you have to have some independent group that can give you guidance."

The Blogginheads discussion on this matter between Robert Wright and Ann Althouse went round and round. Wright mentioned that all insurers offer end-of-life counseling; Althouse thought that it's not the same if the insurer doing the counseling is the government.

This morning's WSJ includes "The Death Book for Veterans". The VAs "guidance" is chilling -- and this is not from Sarah Palin's imagination. Can we imagine a government that does not come up with counseling like this? Once upon a time we did.

The economist and the grocer

In today's NY Times, Richard Thaler writes that the "public option" of the health care "reform" platform is OK ... if. Count the number of times he uses "if".

In my view, it takes a grocer to come up with a more sensible plan. Here is John Mackey's plan. And this seems to be enough to launch boycott threats of Whole Foods.

Some of us plan to swoop in for the bargains if there is any sort of boycott.

Colleges and race

The WSJ's Naomi Schaefer Riley recently wrote about "The Real Path to Racial Harmony". It is about the odd practices of U.S. colleges and universities when it comes to race and ethnicity.

I have long been baffled by selective color blindness as practiced at my institution. Separate graduation ceremonies for blacks and hispanics (and perhaps others) are welcomed. But integration by edict is practiced in other areas, including assigning students from different racial groups to share dorm rooms. Is this coherent? What is supposed to be achieved? I have blogged many times about the obvious fact that tribalism is poison. Why sanction any of it? If indivdiuals are more comfortable with others of similar background, that is their free choice. But why give it any official sanction, esepcially when a more integrated society is the goal?

Joyce Carol Oates is now my favorite writer of American fiction. Her Black Girl/White Girl explores some of the problems encountered by two young college women who should never have been paired but it is a match that cannot be undone by anyone because of racial sensitivities.

Why not strive to de-emphasize race as much as possible? But that is not the way of modern higher education. The society has moved on. Now go with the momentum.

The most interesting thing I have read in a while

The Economist of August 8 includes "A link between wealth and breeding ... The best of all possible worlds? ... It was once a rule of demography that people have fewer children as their countries get richer. That rule no longer holds true."

This is one of the most interesting things that I have read in a long time. The demographic transition idea suggests that we get rich, stop breeding, and eventually disappear. I never liked that scenario. The new findings reported in the cited research are much more pleasing.

My colleague Richard Green recently blogged his critique of what he saw as weak claims that U.S. lifestyles will soon change in favor of higher density (and increased rentals) city living. Claims of such reversals pop up all the time and have always been wrong. If the news about fertility rates and wealth are right, then we have one more reason to doubt that settlement trends as we know them will reverse.

The ears have walls

William Easterly has this hilarious and poignant response to Queen Elizabeth's question about why economists did not predict the current economic problems. Your majesty, think about efficient markets. But can he explain it to Prince Charles?

Jason Zweig writes that "Data Mining Isn't a Good Bet For Stock Market Predictions" in today's WSJ. Also must-reading for the Queen. This one is also fun to read. He finds this in Mark Leinweber's Nerds on Wall Street:

Mr. Leinweber got so frustrated by "irresponsible" data mining that he decided to satirize it. After casting about to find a statistic so absurd that no sensible person could possibly believe it could forecast U.S. stock prices, Mr. Leinweber settled on annual butter production in Bangladesh. Over an 13-year period, he found, this statistic "explained" 75% of the variation in the annual returns of the Standard & Poor's 500-stock index.

By tossing in U.S. cheese production and the total population of sheep in both Bangladesh and the U.S., Mr. Leinweber was able to "predict" past U.S. stock returns with 99% accuracy.

Listen to the cavemen

I first visited China in the early 1980s and got caught up in the population debates. The American as well as the Chinese I encountered agreed that there were "too many mouths to feed". I thought that it was eerie that no one mentioned that there was not enough food due to nutty policies (and institutions).

That was before I had read any of the work of Julian Simon. Each mouth is attached to a brain and the "ultimate resource" (human creativity) combined with the proper institutions finds the way we escape Malthusian subsistence living. This work has to be on anyone's short list of great social science insights.

This morning's WSJ includes columnist William Gurn's discussion of a study that I had not seen by two University of Oregon researchers, titled "Reproduction and the carbon legacies of individuals." Gurn nicely evokes the Simon position in commenting on the paper.

"Footprint" analysis is a funny thing. It leaves aside just about everything that we know about basic economics. There are prices that convey information and provide incentives; there are incentivized buyers and sellers; they animate a dynamic economy, etc., etc., etc.

My favorite New Yorker cartoon is the one of the two cavemen sitting around a fire and puzzling over the fact that "Something's just not right -- Our air is clean, our water is pure, we all get plenty of exercise, everything we eat is organic and free-range, and yet nobody lives past thirty."