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In The Size of the Economy and the Distribution of Income in the Roman Empire, a careful paper published in the Journal of Roman Studies in 2009, Walter Scheidel and Steven Friesen estimate the size and distribution of the Roman economy at its demographic peak around the middle of the 2nd century c.e.

We conclude that in the Roman Empire as a whole, a ‘middling’ sector of somewhere around 6 to 12 per cent
of the population, defined by a real income of between 2.4 and 10 times ‘bare bones’
subsistence or 1 to 4 times ‘respectable’ consumption levels, would have occupied a fairly
narrow middle ground between an élite segment of perhaps 1.5 per cent of the population and a vast majority close to subsistence level of around 90 per cent. In this system, some 1.5 per cent of households controlled 15 to 25 per cent of total income, while close to
10 per cent took in another 15 to 25 per cent, leaving not much more than half of all income for all remaining households.

Thus, in Rome the top 1.5% controlled 15-25% of income while in the United States around 2007 the top 1% controlled 23.5% of income thus suggesting slightly more inequality in the United States. Scheidel and Friesen calculate a Roman Empire gini coefficient of .42-.44 again perhaps slightly less than the U.S. coefficient of around .4-.45 depending on source.

Interestingly, the Roman State did not manage to collect that much:

Given a GDP of somewhere
around HS17–19bn, annual state expenditure of approximately HS900m would have
represented an effective tax rate of approximately 5 per cent of GDP, which is the same as
for France in 1700. This finding confirms Hopkins’s claim that the imperial government
did not capture more than 5 to 7 per cent of GDP and that Roman taxes were fairly low.
The overall public sector share of GDP was somewhat larger depending on the scale of
municipal spending, while the overall nominal tax rate had to be higher still in order to
accommodate taxpayer non-compliance, tax amnesties, and rent-seeking behaviour by
tax-collectors and other intermediaries. Moreover, we must not forget that Italy’s immunity from output and poll taxes required the public sector share in the provinces to exceed
the empire-wide average. These various adjustments allow us to reconcile our GDP estimate with reported nominal taxes of around 10 per cent of farm output on private land
reported in Roman Egypt and somewhat higher rates in less developed regions where
enforcement may have been more difficult.

(Thus, despite the aqueducts Rome may not have done that much for the people after all.)

Hat tip to Tim De Chant at Per Square Mile who has further discussion.

One of the most consistent findings in educational studies of creativity has been that teachers dislike personality traits associated with creativity. Research has indicated that teachers prefer traits that seem to run counter to creativity, such as conformity and unquestioning acceptance of authority (e.g., Bachtold, 1974; Cropley, 1992; Dettmer, 1981; Getzels & Jackson, 1962; Torrance, 1963). The reason for teachers’ preferences is quite clear creative people tend to have traits that some have referred to as obnoxious (Torrance, 1963). Torrance (1963) described creative people as not having the time to be courteous, as refusing to take no for an answer, and as being negativistic and critical of others. Other characteristics, although not deserving the label obnoxious, nonetheless may not be those most highly valued in the classroom.

….Research has suggested that traits associated with creativity may not only be neglected, but actively punished (Myers & Torrance, 1961; Stone, 1980). Stone (1980) found that second graders who scored highest on tests of creativity were also those identified by their peers as engaging in the most misbehavior (e.g., “getting in trouble the most”). Given that research and theory (e.g., Harrington, Block, & Block, 1987) suggest that a supportive environment is important to the fostering of creativity, it is quite possible that teachers are (perhaps unwittingly) extinguishing creative behaviors.

From Creativity: Asset or Burden in the Classroom?, a good review paper. What the paper shows is that the characteristics that teachers use to describe their favorite student correlate negatively with the characteristics associated with creativity. In addition, although teachers say that they like creative students, teachers also say creative students are “sincere, responsible, good-natured and reliable.” In other words, the teachers don’t know what creative students are actually like.  (FYI, the research design would have been stronger if the researchers had actually tested the students for creativity.)  As a result, schooling has a negative effect on creativity.

My experience as a parent is consistent with the idea that teachers don’t like creative students but I try not to blame the teachers too much. Creative people, for better and worse, ignore social conventions. Thus, it can be hard for teachers to deal with creative students in a classroom setting where they must guide 20-30 students en masse. As Jonah Lehrer puts it:

Would you really want a little Picasso in your class? How about a baby Gertrude Stein? Or a teenage Eminem? The point is that the classroom isn’t designed for impulsive expression – that’s called talking out of turn. Instead, it’s all about obeying group dynamics and exerting focused attention. Those are important life skills, of course, but decades of psychological research suggest that such skills have little to do with creativity.

One hope I have for personalized learning, ala the Khan Academy, is that  teachers will not feel the need to suppress creative students when classroom dynamics do not require that all the students follow all the rules all the time .

Hat Tip: Erik Barker.

With clouds over Europe darkening, managers like Mr. Burnstein are increasingly turning their long-term focus to places with stronger currencies, like South America, Southeast Asia and Australia. When Metallica ended their “World Magnetic” tour in Australia a year ago, they played not just Sydney and Melbourne but also harder-to-get-to Perth.

“We’re a U.S. export the same way Coca-Cola is,” he said. “We look for the best markets to go to.”

“Right now Indonesia is on my watch list,” he smiled.

And get this:

Eight months before Metallica takes the stage in Germany, Mr. Burnstein decides whether the band should be paid in dollars, euros or a combination of the two. If exchange rates swing in a way that hurts Metallica’s earnings, he buys derivative financial instruments to lock in a preferred rate. Sometimes ticket prices are hiked to compensate for possible currency-related losses, though Mr. Burnstein shuns this strategy.

“Nobody is looking to make a foreign-exchange trade to make money, but you don’t want to be a loser,” the scraggly bearded manager said.

Here is one conclusion:

“A weak dollar is the best thing for American rock ‘n’ roll,” said Bill Zysblat, partner at RZO Productions, which has handled tours for the Rolling Stones and the Police.

The article is here, interesting throughout and for the pointer I thank Kanishka Kacker.

Brilliant!

Consider the innovative employment policy of the Internet shoe seller Zappos. At the end of a four-week training course, Zappos offers new employees a one-time offer of $3,000 to quit. In part, the company uses the offer as a screening device. If you’re the type who prefers a quick three grand to the opportunity to work at a great company, then Zappos isn’t the place for you.

Here is a proposal to apply the same idea to law school.

1. Best behavioral economics books of the year, Daniel Kahneman, Thinking, Fast and Slow, and Bryan Caplan, Selfish Reasons to Have More Kids.

2. Best economic history book, Alexander Field, A Great Leap Forward: 1930s Depression and U.S. Economic Growth.

3. Second best eBook of the year, Erik Brynjolfsson and Andrew McAfee, Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy.  By the way, here is my recent debate with Erik; we both agreed in advance to mix things up and generate controversy, so interpret the exchange accordingly.  In reality, Erik and I agree about many many things and Matt Yglesias notes as much.  (We do, however, seem to disagree about what this graph means.)  Arnold Kling comments on the debate itself.

4. Best economics/business book of the year: Tim Harford’s Adapt.

5. Best Austrian or Austrian-influenced book of the year: Daniel B. Klein, Knowledge and Coordination: A Liberal Interpretation.  It’s not out yet, I’ll cover it more when it appears, more information here.

6. Best economics textbook, Ahem!  I don’t mean my favorite economics textbook (though it is that too), rather best economics textbook.  The revised second edition of Micro just appeared, the macro is due out any day now.

Overall if I had to pick one, text aside, it might be the Alexander Field book, but this is a diverse lot with something for everybody.

I have written several times before (e.g. here and here) about how Washington insiders, politicians and staff, use their knowledge of behind the scene deals to profit in the stock market (see also Megan McArdle’s recent piece from which I stole the headline). Last night 60 Minutes reported on the story based on new research in Throw Them All Out a forthcoming book by Peter Schweizer.

Here is one bit from the transcript:

In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman.

Schweizer: These meetings were so sensitive– that they would actually confiscate cell phones and Blackberries going into those meetings. What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and treasury secretary. I mean, talk about a stock tip.

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

Even though the Congress is exempt from insider trading law, many of 60 Minutes’s findings are hugely damning, which you can tell just by looking at the stunned faces of John Boehner and Nancy Pelosi when Steve Kroft questions them about their special dealings. The video is here.

Here’s an astounding illustration of my argument that “American students are not studying the fields with the greatest economic potential.”

The Nation: A few years ago, Joe Therrien, a graduate of the NYC Teaching Fellows program, was working as a full-time drama teacher at a public elementary school in New York City. Frustrated by huge class sizes, sparse resources and a disorganized bureaucracy, he set off to the University of Connecticut to get an MFA in his passion—puppetry. Three years and $35,000 in student loans later, he emerged with degree in hand, and because puppeteers aren’t exactly in high demand…he’s working at his old school as a full-time “substitute”…[earning less than he did before].

…Like a lot of the young protesters who have flocked to Occupy Wall Street, Joe had thought that hard work and education would bring, if not class mobility, at least a measure of security…But the past decade of stagnant wages for the 99 percent and million-dollar bonuses for the 1 percent has awakened the kids of the middle class to a national nightmare: the dream that coaxed their parents to meet the demands of work, school, mortgage payments and tuition bills is shattered.

What astounds me is not that someone could amass $35,000 in student loans pursuing a dream of puppetry, everyone has their dreams and I do not fault Joe for his. What astounds me is that Richard Kim, the executive editor of The Nation and the author of this article, thinks that the failure of a puppeteer to find a job he loves is a good way to illustrate the “national nightmare” of the job market. Even in a wealthy society it’s a privilege to have the kind of job that Kim thinks are the entitlement of the middle class. And, as Tyler says, we are not as wealthy as we thought we were.

In considering the plight of the puppeteer lets also remember that millions of the unemployed would be grateful to have a job that they don’t like.

By the way, should you be so inclined, Therrien has a Kickstarter project where you can voluntarily donate to create “a nationwide flowering of spectacle puppet theater joyously spreading a new public consciousness!” You may also wish to know that according to Mike Riggs at Reason:

The pro-puppet American Recovery and Reinvestment Act doled out $50,000 to the Center for Puppetry Arts in Atlanta; $25,000 to the Sandglass Center for Puppetry and Theater Research in Vermont; and $25,000 to the Spiral Q Puppet Theater in Philadelphia.

I have a new book coming out soon, Launching the Innovation Renaissance, more on that later. Here is one bit drawn from the book and a recent op-ed in IBD.

Educated people have higher wages and lower unemployment rates than the less educated so why are college students at Occupy Wall Street protests around the country demanding forgiveness for crushing student debt? The sluggish economy is tough on everyone but the students are also learning a hard lesson, going to college is not enough. You also have to study the right subjects. And American students are not studying the fields with the greatest economic potential.

Over the past 25 years the total number of students in college has increased by about 50 percent. But the number of students graduating with degrees in science, technology, engineering and math (the so-called STEM fields) has remained more or less constant. Moreover, many of today’s STEM graduates are foreign born and are taking their knowledge and skills back to their native countries.

Consider computer technology. In 2009 the U.S. graduated 37,994 students with bachelor’s degrees in computer and information science. This is not bad, but we graduated more students with computer science degrees 25 years ago! The story is the same in other technology fields such as chemical engineering, math and statistics. Few fields have changed as much in recent years as microbiology, but in 2009 we graduated just 2,480 students with bachelor’s degrees in microbiology — about the same number as 25 years ago. Who will solve the problem of antibiotic resistance?

If students aren’t studying science, technology, engineering and math, what are they studying?

In 2009 the U.S. graduated 89,140 students in the visual and performing arts, more than in computer science, math and chemical engineering combined and more than double the number of visual and performing arts graduates in 1985.

The chart at right shows the number of bachelor’s degrees in various fields today and 25 years ago. STEM fields are flat (declining for natives) while the visual and performing arts, psychology, and communication and journalism (!) are way up.

There is nothing wrong with the arts, psychology and journalism, but graduates in these fields have lower wages and are less likely to find work in their fields than graduates in science and math. Moreover, more than half of all humanities graduates end up in jobs that don’t require college degrees and these graduates don’t get a big college bonus.

Most importantly, graduates in the arts, psychology and journalism are less likely to create the kinds of innovations that drive economic growth. Economic growth is not a magic totem to which all else must bow, but it is one of the main reasons we subsidize higher education.

The potential wage gains for college graduates go to the graduates — that’s reason enough for students to pursue a college education. We add subsidies to the mix, however, because we believe that education has positive spillover benefits that flow to society. One of the biggest of these benefits is the increase in innovation that highly educated workers theoretically bring to the economy.

As a result, an argument can be made for subsidizing students in fields with potentially large spillovers, such as microbiology, chemical engineering, nuclear physics and computer science. There is little justification for subsidizing sociology, dance and English majors.

College has been oversold. It has been oversold to students who end up dropping out or graduating with degrees that don’t help them very much in the job market. It also has been oversold to the taxpayers, who foot the bill for these subsidies.

Disruption occurs given two criteria. The first: that incumbents move upmarket to the most profitable segments, ignoring low-end competitors at the bottom of the market. The second: that the low-end competitor introduces a product with a scalable technology or business model advantage at its core that has the potential to displace the incumbent.

This is exactly what Amazon has with the Kindle Fire. It's not just a low-end competitor to the iPad. There is scalable technology at its core that the present-generation iPad lacks — the extensive use of the Cloud. That is why Amazon can get away with shipping a device that has only 8GB of memory. What's more, the Fire has a business model advantage too — Amazon is using content to subsidize the hardware.

The 55 mph speed limit was a vain attempt by the Federal government to reduce gasoline consumption; initially passed in the 1974 Emergency Highway Energy Conservation Act the law was relaxed in 1987 and finally repealed in 1995 allowing states to choose their speed limits. Highways and cars are safer today than in the 1970s and on many highways speed limits were increased to 65 mph. Higher speed limits are often safer because what is worse than speed is variable speed, some people driving fast and some driving slow. When the speed limit is set too low you get lots of people who safely break the law and a few law-abiders who make the roads more dangerous.

Unfortunately vestiges of the 55mph limit remain, in part because police like the 55mph limit which lets them write tickets at will whenever they need an increase in revenues. John Carr at the National Motorists blog gives a particularly egregious example from Massachusetts:

The speed limit on Route 3 is 55. The speed limit used to be 60….It was reduced by executive order in 1973 to comply with the national speed limit. When the national speed limit was repealed in 1995 the highway commissioner ordered the low limit retained…

It gets better. Route 3 was completely rebuilt a decade ago. The design speed for the project was 110 km/h (68 mph). The design speed is like a warranty: nothing in the road design requires a driver to go slower than 68 mph, not even on a wet road at night (the design conditions).

The average speed is not far from the design speed. The 85th percentile speed, which is supposed to be used for setting speed limits, is around 75 mph. A little over by my measurement, which found 1% compliance with the speed limit.

Eventually the absurdity of the 55 mph speed limit sunk in and in 2006 MassHighway traffic engineers recommended a speed limit increase. State Police vetoed the change, preferring the 99% violation rate that let them write tickets at will. Police have no legal role in setting speed limits. Somebody in the Romney administration weighed the risk of losing ticket revenue against the risk of being blamed for accidents. Police won.

After engineers lost that fight people began to worry about the high accident rate on Route 3. The state hired a consultant to do a Road Safety Audit. The consultant’s report blamed the low speed limit, among other factors, for the high crash rate. The report explicitly recommended raising the speed limit.

Three years later, state officials have not followed the advice of their engineers, their consultant, or 100,000 drivers per day. State police are still out there running speed traps and helping keep the road as dangerous and profitable as they can.

Hat tip: Radley Balko.

Here is an excellent economics puzzle by David Kestenbaum at NPR:

You would never look at a map of the Hudson River, point to the spot where the Tappan Zee Bridge is, and say, “Put the bridge here!”

The Tappan Zee crosses one of the widest points on the Hudson — the bridge is more than three miles long. And if you go just a few miles south, the river gets much narrower. As you might expect, it would have been cheaper and easier to build the bridge across the narrower spot on the river.

So I wanted to answer a simple question: Why did they build the Tappan Zee where they did, rather than building it a few miles south?

MR readers will no doubt guess the correct answer in general terms, Kestenbaum had to dig hard to find the interesting specifics.

The Port Authority — the body that proposed putting the bridge further south — had a monopoly over all bridges built in a 25-mile radius around the Statue of Liberty.

If the bridge had been built just a bit south of its current location — that is, if it had been built across a narrower stretch of the river — it would have been in the territory that belonged to the Port Authority.

As a result, the Port Authority — not the State of New York — would have gotten the revenue from tolls on the bridge. And Dewey needed that toll revenue to fund the rest of the Thruway.

So Dewey was stuck with a three-mile-long bridge.

The decision to locate the bridge at the much longer location has had continuing costs and repercussions:

Today, the Tappan Zee is in bad shape, and the State of New York is looking into fixing or replacing it. But none of the proposals would move the bridge to a narrower spot on the river. It’s too late now: Highways and towns have grown up based on the bridge’s current location.

We’re stuck with a long bridge at one of the widest spots in the river. The repairs are expected to cost billions of dollars.

Hat tip: Monique van Hoek and Mark Perry at Carpe Diem.

"Greece, it seems, has struggled with the first rule of a healthy tax system: enforce the law. People are more likely to be honest if they feel there’s a reasonable chance that dishonesty will be detected and punished. But Greek tax officials were notoriously easy to bribe with a fakelaki (small envelope) of cash. There was little political pressure for tougher enforcement. On the contrary: a recent study showed that enforcement of the tax laws loosened in the months leading up to elections, because incumbents didn’t want to annoy voters and contributors. Even when the system did track down evaders, it was next to impossible to get them to pay up, because the tax courts typically took seven to ten years to resolve a case. As of last February, they had a backlog of three hundred thousand cases.<br />
<br />
"

"Over a period of around four weeks, the company gave a Wechsler Adult Intelligence Scale (WAIS) to users looking for free online IQ assessment tests, then recorded the results and browsers used for all participants above the age of 16.<br />
Across the board, the average IQ scores presented for users of Internet Explorer versions 6 through 9 were all lower than the IQ scores recorded for Firefox, Chrome, Safari, Camino, and Opera users."

Here is Tyler summarizing the principles of charitable giving:

1. Cash is often the best form of aid.

2. Give to those who are not expecting it, and,

3. Don’t require the recipients to do anything costly to get the money.

Loyal readers will recall that Tyler followed through on his advice by sending money to random people in India, as suggested by MR readers (see also here).

A new charity is formalizing Tyler’s system and reducing the transaction cost of efficient donation. GiveDirectly takes donations over the web, locates poor households in Kenya using people on the ground, and then transfers money directly to the recipient’s cell phone (even very poor households typically have cell phones but GiveDirectly provides SIM cards for those who do not.) Transactions costs are low, just 10%.

You will not be surprised to learn that the CEO and founders and are all economists (one MBA/MPA). All the founders also have extensive experience in development. A randomized control trial is under way to evaluate the program.

Transfers, following point #3, are unconditional. The founders write:

GiveDirectly intentionally provides unconditional, rather than conditional, cash transfers. We do this for three reasons. First, empowering the poor to make their own decisions advances our core value of respect. Second, it lets recipients purchase the things they need most, enhancing impact. Third, imposing conditions on the use of funds requires that costly monitoring and enforcement structures be put in place. One detailed estimate put the administrative costs of a conditional cash transfer scheme at 63% of the transfers made over the first three years of the program (Caldes & Maluccio 2005).

Points one and three are excellent. The second point is a bit disengenous, yes it lets recipients purchase they things they need but it also lets recipients purchase alcohol, cigarettes and prostitutes. Even in poor countries, a substantial amount of poverty is caused by poor choices. Still, there is no special reason to think that cash grants will increase the proportion of money spent on “bad goods.” Cash grants could even reduce bad-goods spending. Some people drink to escape depressing circumstances, for example, so if you make things less depressing, drinking can fall. Moreover, even if you give people housing, health care, or food (stamps!) it’s not so easy to get around bad-goods spending because money is fungible.  Thus, I have no problem with donating cash.

Indeed, Tyler and I wish to encourage experimentation in charity and we have therefore made a donation to GiveDirectly.

Addendum: Givewell, our favorite charity evaluator, says GiveDirectly is too new to evaluate but they like the idea and they note that GiveDirectly has been unusually forthright in providing them with advance plans on evaluation.

The 10-employee park has five pieces of machinery, including a pair of Caterpillar D5 track-type bulldozers and three Caterpillar 315CL hydraulic excavators. Dig This sells three-hour packages that consist of a 30-minute safety and operation orientation followed by two hours of maneuvering either a bulldozer or excavator.

Guests can either dig a trench up to 10 ft deep or build an earthen mound; there are also skill tests like picking and moving 2,000-lb tires or scooping basketballs from atop safety cones. 

Packages are priced at $400, which reflects equipment maintenance and insurance costs. Patrons 14 and older can play in the dirt.

“Half of our customers are females, including housewives and grandmothers,” says company spokeswoman Cathy Wiedemer. “Throttling up a powerful engine and moving mounds of earth is very empowering.”

The full story is here and for the pointer I thank Chug.

Bryan Caplan writes:

The more populous periods of human history–most obviously the last few centuries–clearly produced more scientific, technological, and cultural innovations than earlier, less populous periods. More populous countries today produce many more scientific, technological, and cultural innovations that less populous countries… Here’s a challenge for you: Name the most credible measure of idea production that isn’t at least moderately positively correlated with population.

Is this about the absolute number of ideas generated or ideas as a percentage contributor to economic growth?  If we are estimating the costs and benefits of greater population, or the future of economic growth rates, the latter is arguably the more important variable.  In any case, most plausible theories of economic growth imply that higher populations should lead to higher rates of ideas generation, as measured in terms of value.  Ideas are non-rival and can be enjoyed by the entire group, thus yielding a higher social rate of return.  There are also larger markets to pay for the ideas or award more fame to the inventors.

Here is a famous Michael Kremer paper arguing for a version of Caplan’s position.  That all said, it is far from obvious that Caplan is correct:

1. The measured rate of technological progress, as it contributes to gdp, seems to have peaked in the 1930s.  At that time total population, including the population of scientists, was much lower than today.  “Effective” total population was yet lower, given the backward nature of transportation and communications and trade at the time, compared to today.

2. A recent paper by Ashraf and Galor (it’s also worth reading for other reasons) concludes: “…population density in pre-industrial times was on average higher at latitudinal bands closer to the equator.”  Yet the countries closer to the equator did not end up being the drivers of industrial progress, even though they sometimes had higher rates of progress in agricultural times.  Northern Europe, with the exception of the Dutch Republic, was never the star for population density.  This paper also indicates that technology drives population growth — more than vice versa — and that “time elapsed since a region’s neolithic breakthrough” predicts later technological progress fairly well.

If you add an extra baby to most societies, ceteris paribus, the rate of expected idea generation does indeed go up in theory.  But how important a factor is that, compared to other influences on ideas generation?

Or: at very gross time scales (“the last few hundred years” vs. “the dark ages”) a positive relationship holds between population and ideas production, or at very gross numerical comparisons (“one million people” vs. “ten people”).  But viewed at finer granulations (by the way, the evidence in the Kremer paper is quite gross; e.g., pp. 710-712), the relationship isn’t nearly as strong as one might expect.  In the time series, it’s been largely a negative relationship for the last eighty years or so, as mentioned above.

What model might give you a positive relationship between population and innovation at grosser scales but not finer scales?  Let’s say there are various technological “platforms,” such as “fire,” “agriculture,” and “fossil fuels,” and maybe someday “uploads.”  At any point in time, growth rates depend on how much a region has exhausted the potential of its current platform.  This is largely independent of current population.  That said, larger population areas may have a greater chance of progressing to the next platform, so there is a long-term, gross correlation between population size and levels of technology.  Furthermore, if all regions have more or less exhausted the current platform, the larger region has a greater chance of leading the next breakthrough and thus being first to have the new and higher growth rate, even if most of the time it doesn’t have a higher growth rate for technological progress.  That view is hardly anti-population, but it explains why you will find screwy population-innovation correlations all over the place.  Finally, further breeding, as a recipe for progress, is an extreme lottery ticket and it only works at some special margins.

I’ve been wondering about a few questions.

Internalizing externalities is a common theme in economics,and it’s also called capturing the value you create.  Don’t economists believe this happens — and happens increasingly — all the time?  Karl Smith writes (and you can find his caveat here):

TFP growth depends on the returns to innovation not being captured by the innovator. Otherwise it becomes a return to the factor of production rather than total factor productivity.

Does TFP tend to fall once it has been high for a while?  Is falling TFP, following a technological breakthrough, a sign of the market’s ability to capture value and internalize externalities?  And is this another reason why we might prefer imperfectly defined intellectual property rights?

The second question concerns the Industrial Revolution.  There is a large cottage industry about the origins of “the rise of the West,” and so on.  I am not disputing the particular causal claims made in this literature.  Still, I wonder what is being explained.  Arguably the potency of the technological platform of “powerful machines plus fossil fuels” was not well understood in advance.  Ex post, that it led to the “rise of the modern world” was somewhat of a technological accident.  In this sense, studies of the origins of the Industrial Revolution, analytically speaking, are explaining “the Industrial Revolution” (to some extent).  But the “sense-reference distinction” matters here.  These studies are not so much explaining “the rise of the modern world,” which is more of a technological accident than we might wish to think.

Third, there remains the issue of unmeasured gains in real wages.  Let’s try a simple thought experiment.  Say I’ve been at George Mason twenty years (much less since 1973) and my real wage had never gone up (not the case).  But my Dean were to say to me: “Tyler, U.S. health care has some new procedures, when you’re 73 you’ll have stents, and now can surf the internet and watch reruns of Battlestar Galactica.  We’ve treated you very well!”  Such a claim would not pass the laugh test and few people would accept it as applied to their own employment relation.  Yet many of those same people make this same argument in the aggregate.  I still think that if measured real wages for a group (or individual) have not gone up very much, over a long period of time, something is wrong.  Wrong with the Dean, wrong with me, whatever, but something is wrong.  Who would have predicted in 1972 that measured male median  wages were going to stagnate and even possibly fall?  You should be shocked by this result and indeed I am.

"chart is from a paper called "Building a Better America One Wealth Quintile at a Time" by Dan Ariely and Michael I. Norton."

""Institutions will try to preserve the problem to which they are the solution." -- Clay Shirky I think this observation is brilliant. It reminds me of the clarity of the Peter Principle, which says that a person in an organization will be promoted to the level of their incompetence. At which point their past achievements will prevent them from being fired, but their incompetence at this new level will prevent them from being promoted again, so they stagnate in their incompetence. The Shirky Principle declares that complex solutions (like a company, or an industry) can become so dedicated to the problem they are the solution to, that often they inadvertently perpetuate the problem."

The single most important action that will change the world is the complete eradication of poverty. As I have often said, poverty is the absence of human rights. Over 3 billion of the world’s 6.5 billion human beings live below the poverty line. These individuals do not have access to safe drinking water, food, shelter and clothing. Change comes in different forms, but the world can only change for the better once every single human is given the opportunity to survive. The biggest flaw in the conceptual design of the existing theory lies in its misrepresentation of the human being. In traditional profit-maximising capitalism, human beings are treated as one-dimensional creatures whose only mission in life is to make as much money as possible. Fortunately, human beings are not money-making robots. The truth of the matter is that human beings are actually multi-dimensional beings: All beings have a selfish side. Their happiness comes from many directions, not just from making money.

One of the best posts of 2010: "The answer he arrived at was that they hadn’t collapsed despite their cultural sophistication, they’d collapsed because of it. Subject to violent compression, Tainter’s story goes like this: a group of people, though a combination of social organization and environmental luck, finds itself with a surplus of resources. Managing this surplus makes society more complex—agriculture rewards mathematical skill, granaries require new forms of construction, and so on. Early on, the marginal value of this complexity is positive—each additional bit of complexity more than pays for itself in improved output—but over time, the law of diminishing returns reduces the marginal value, until it disappears completely. At this point, any additional complexity is pure cost."

"Magazines and newspapers were perfect businesses for a moment of time, but they wouldn't have worked in 1784, and they're not going to work very soon in the future either. We're always going to need writers, but the business model of their platform is going to change. People will pay for content if it is so unique they can't get it anywhere else, so fast they benefit from getting it before anyone else, or so related to their tribe that paying for it brings them closer to other people. We'll always be willing to pay for souvenirs of news, as well, things to go on a shelf or badges of honor to share."

"GRADUATE education is the Detroit of higher learning. Most graduate programs in American universities produce a product for which there is no market (candidates for teaching positions that do not exist) and develop skills for which there is diminishing demand (research in subfields within subfields and publication in journals read by no one other than a few like-minded colleagues), all at a rapidly rising cost (sometimes well over $100,000 in student loans). "

"Given the increase in artistic production along with the greater public access conclude that "weaker copyright protection, it seems, has benefited society." This is consistent with the authors' view that weaker copyright is "uambiguously desirable if it does not lessen the incentives of artists and entertainment companies to produce new works." 2. The paper takes on several longstanding myths about the economic effects of file sharing, noting that many downloaded songs do not represent a lost sale, some mashups may increase the market for the original work, and the entertainment industry can still steer consumer attention to particular artists (which results in more sales and downloads). 3. The authors' point out that file sharing may not result in reduced incentives to create if the willingness to pay for "complements" increases."

"life in the United States offered personal liberties and opportunities to a degree unmatched by any other country in history" via:timoreilly on twitter

"This is not a problem unique to the states I have cited. Every state and every region in the country is stuck with some form of anachronistic and expensive local government structure that dates to horse-drawn wagons, family farms and small-town convenience. If this is a reset, it’s time to reorganize our state and local government structures for today’s realities rather than cling to the sensibilities of the 20th century. If we demand this from General Motors, we should ask no less of ourselves."

"The economy we live in is a rigged game, established around the time of the Renaissance in order to promote the welfare of early-chartered corporations and the monarchs who gave them license to monopolize world business. Until that time, there were many kinds of money in use simultaneously. People used centralized currency to conduct long-distance transactions, and local currency to transact on a more day-to-day basis. Most people, in fact, never used centralized currency at all. They simply brought their season's harvest to a grain store, then got a receipt for the amount of grain they had deposited. This receipt was currency, redeemable at the grain store for something everyone knew had real value."

"the essential problem facing the online news business is oversupply. The cure isn't pretty. It requires, first, a massive reduction of production capacity - ie, the consolidation or disappearance of lots of news outlets. Second, and dependent on that reduction of production capacity, it requires news organizations to begin to impose controls on their content. By that, I don't mean preventing bloggers from posting fair-use snippets of articles."

excellent flow-style explanation of the current crisis

"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."

"No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire."

"Building or launched a web site/application? Check out the choices below on how to generate money from your hard work. Note that these are not mutually exclusive: consider mixed hybrid models too."

"Theoretical models of financial markets built on the assumption that some investors are overconfident yield one central prediction: overconfident investors will trade too much. We test this prediction by partitioning investors on the basis of a variable that provides a natural proxy for overconfidence – gender. Psychological research has established that men are more prone to overconfidence than women. Thus, models of investor overconfidence predict that men will trade more and perform worse than women. Using account data for over 35,000 households from a large discount brokerage firm, we analyze the common stock investments of men and women from February 1991 through January 1997. Consistent with the predictions of the overconfidence models, we document that men trade 45 percent more than women and earn annual risk-adjusted net returns that are 1.4 percent less than those earned by women. ..."

on the financial meltdown ef Iceland

"several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses. In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information. The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”"

"The Federal Government owns more than half of Oregon, Utah, Nevada, Idaho and Alaska and it owns nearly half of California, Arizona, New Mexico and Wyoming. See the map for more."

"Vernon Smith, who won a 2002 Nobel Prize for developing experimental economics, first ran the test in the mid-1980s. But that’s not what happens. Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then, as the 15th round nears, it crashes. The problem doesn’t seem to be that participants are bored and fooling around. The difference between a good trading performance and a bad one is about $80 for a three-hour session, enough to motivate cash-strapped students to do their best. Besides, Noussair emphasizes, “you don’t just get random noise. You get bubbles and crashes.” Ninety percent of the time. So much for security. These lab results should give pause not only to people who believe in efficient markets, but also to those who think we can banish bubbles simply by curbing corruption and imposing more regulation. Asset markets, it seems, suffer from irrepressible effervescence. Bubbles happen, even in the most controlled conditions."

"In a world of small companies, performance is all anyone cares about. People hiring for a startup don't care whether you've even graduated from college, let alone which one. All they care about is what you can do. Which is in fact all that should matter, even in a large organization. The reason credentials have such prestige is that for so long the large organizations in a society tended to be the most powerful. But in the US at least they don't have the monopoly on power they once did, precisely because they can't measure (and thus reward) individual performance. Why spend twenty years climbing the corporate ladder when you can get rewarded directly by the market?"

"When something that was originally scarce starts becoming abundant, something strange happens. You find that you start making money because of that thing rather than with that thing. That’s the Because Effect."

"The course of people's lives in the US now seems to be determined less by credentials and more by performance than it was 25 years ago. Where you go to college still matters, but not like it used to. What happened? _____ Judging people by their academic credentials was in its time an advance. The practice seems to have begun in China, where starting in 587 candidates for the imperial civil service had to take an exam on classical literature."

"Heller argues that, in many cases, we’ve skated right past private property and into anti-commons, characterized by underuse. If we’ve got too many owners, there can be too little use of a resource. We don’t see the anti-commons tragedy as clearly, as it’s characterized by the absence of innovation. “Where do you go to protest that a drug didn’t come to market or to complain that your cellphone is so poor?” With this new concept, Heller hopes to rope together a set of disparate problems with a similar set of ownership structures."

Micheal Lewis revisits the subject of his first book, Liars Poker, to reflect on what he feels is the recent resolution of the financial markets. A good read, but long.

proposes that rates of global innovation have been declining in recent decades, since 1914 by an analysis of U.S. patents, which seems contradicted by independent data, and since 1873 by a subjective analysis of "important innovations," which may have greater general merit.

a self-reinforcing process of collective belief formation by which an expressed perception triggers a chain reaction that gives the perception of increasing plausibility through its rising availability in public discourse. The driving mechanism involves a combination of informational and reputational motives: Individuals endorse the perception partly by learning from the apparent beliefs of others and partly by distorting their public responses in the interest of maintaining social acceptance. Availability entrepreneurs - activists who manipulate the content of public discourse - strive to trigger availability cascades likely to advance their agendas.

the CRA didn't force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.

1. Collective stupidity, 2. Writing the naked put, 3. Neutering of debtors, 4. increasing value of human capital "The full story then involves additional resources being put on the table -- for possible risky investment -- as a result of easy monetary policy, pro-housing government policies, the global savings glut, and simple bad luck."

Paulson and Bernanke are proposing, very nearly, to do the opposite: they want to buy bad paper from everyone, not just institutions in trouble, while taking no ownership. In fact, they’ve said that they don’t want equity warrants precisely because they would lead financial institutions that aren’t in trouble to stay away. So we’re talking about a bailout specifically designed to funnel money to those who don’t need it.

clever use of Mechanical Turk to run some economics experiments

"How people spend their discretionary income – the cash that goes to clothing, electronics, recreation, household goods, alcohol – depends a lot on where they live. People in Greece spend almost 13 times more money on clothing as they do on electronics. People living in Japan spend more on recreation than they do on clothing, electronics and household goods combined. Americans spend a lot of money on everything."

excellent overview of why Google's business is a bit unlike any other's.

many of the District's 4,000 public school teachers are locked in a heated debate over Chancellor Michelle A. Rhee's proposal to offer salaries exceeding $100,000 for those willing to give up job security and tie their fates to student achievement.

Here you will find information about the US and World economy presented through graphs, charts and maps.

energy is not scarce; the historically most efficient sources (oil, coal, etc.) are; a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise; (and more

taking on C.A.'s longtail theory. (but I don't buy it. [ha!])

For example, the standard currency was a cigarette, but heavy air raids meant people would smoke more, presumably owing to stress, thereby altering the value of the currency through scarcity.

"[Google has] figured out one of the deepest secrets hidden at the heart of 21st century economics: markets, networks, and communities can organize economic activities radically more efficiently than firms."

poor families were expected change to occur more quickly; the parents around the table educated them about what kinds of change can reasonably be expected. the poor received a dose of market logic, and many now use incentives in the home to motivate

That bananas have long been the cheapest fruit at the grocery store is astonishing. They’re grown thousands of miles away, they must be transported in cooled containers and even then they survive no more than two weeks after they’re cut off the tree.

if at the end of a quarter they needed to boost revenue... order all pets in a certain geography or in a certain number series to “get sick.” When customers take their pets to “see the vet” and purchase medicine.

Poverty is the natural beginning state of all societies, east or west. Rather, decentralization is the engine which removes poverty and brings wealth.

provocative topics... when i have more time, i'm adding this feed. (who am i kidding, i'll add it now and just keep marking entries unread). the post comments are generally interesting, or it wouldn't take so much time! ;)