Ugly People Prejudice

The Daily Show with Jon Stewart
November 14, 2011

Jason Jones reports on the injustices uglo-Americans suffer due to their below-average looks.

The Daily Show with Jon Stewart
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The Reach of 'Prospect Theory'

The Chronicle of Higher Education
November 8, 2011

Based on thousands of citation records from Thomson Reuters, this chart shows the scholarly influence of "Prospect Theory: An Analysis of Decision Under Risk," written by Daniel Kahneman and Amos Tversky, and published in Econometrica in 1979. The theory has turned up as a reference for an increasing number of journal articles and book chapters (nearly 8,000 items in all), and it has spread into a diverse range of disciplines. Thomson Reuters makes an effort to classify the major scholarship within journals and books into 280 categories; this representation of the paper’s influence condenses these classifications even further.

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Thinking, Fast and Slow: Why even experts must rely on intuition and often get it wrong

by William Easterly

Financial Times
November 5, 2011

There have been many good books on human rationality and irrationality, but only one masterpiece. That masterpiece is Daniel Kahneman’s Thinking, Fast and Slow.

Kahneman, a winner of the Nobel Prize for economics, distils a lifetime of research into an encyclopedic coverage of both the surprising miracles and the equally surprising mistakes of our conscious and unconscious thinking. He achieves an even greater miracle by weaving his insights into an engaging narrative that is compulsively readable from beginning to end. My main problem in doing this review was preventing family members and friends from stealing my copy of the book to read it for themselves.

Kahneman presents our thinking process as consisting of two systems. System 1 (Thinking Fast) is unconscious, intuitive and effort-free. System 2 (Thinking Slow) is conscious, uses deductive reasoning and is an awful lot of work. System 2 likes to think it is in charge but it’s really the irrepressible System 1 that runs the show. There is simply too much going on in our lives for System 2 to analyse everything. System 2 has to pick its moments with care; it is “lazy” out of necessity.

Books on this subject tend to emphasise the failings of System 1 intuition, creating an impression of vast human irrationality. Kahneman dislikes the word “irrationality” and one of the signal strengths of Thinking, Fast and Slow is to combine the positive and negative views of intuition into one coherent story. In Kahneman’s words, System 1 is “indeed the origin of much that we do wrong” but it is critical to understand that “it is also the origin of most of what we do right – which is most of what we do”.

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How the Death Tax Hurts the Poor

by Steven E. Landsburg

Wall Street Journal
October 29, 2011

I'm sure there's a lot to be said for rich people, but they sure do consume a lot of resources. I wish they'd leave more for the rest of us. That's why I oppose the death tax.

The death tax sends a powerful message to rich people: "You can't leave everything to your heirs, so spend now, before it's too late. Burn more fuel. Demand more timber for your mansions, more steel for your private planes, and more fiberglass for your yachts.''

Then all those resources—the fuel and timber, the steel and fiberglass—become unavailable to build factories, so the rest of us get worse jobs at lower wages. Those resources are unavailable to build farm equipment, so we all pay higher food prices. They're unavailable to build roads and schools and hospitals.

I don't begrudge anyone the fruits of his labor. But the death tax encourages people to pick extra fruit, leaving the trees a little barer for the rest of us.

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Fighting violent gang crime with math

by Stuart Wolpert

UCLA Newsroom
October 28, 2011

UCLA mathematicians working with the Los Angeles Police Department to analyze crime patterns have designed a mathematical algorithm to identify street gangs involved in unsolved violent crimes. Their research is based on patterns of known criminal activity between gangs, and represents the first scholarly study of gang violence of its kind.

The research appears today on the website of the peer-reviewed mathematical journal Inverse Problems and will be published in a future print edition.

In developing their algorithm, the mathematicians analyzed more than 1,000 gang crimes and suspected gang crimes, about half of them unsolved, that occurred over a 10-year period in an East Los Angeles police district known as Hollenbeck, a small area in which there are some 30 gangs and nearly 70 gang rivalries.

To test the algorithm, the researchers created a set of simulated data that closely mimicked the crime patterns of the Hollenbeck gang network. They then dropped some of the key information out — at times the victim, the perpetrator or both — and tested how well the algorithm could calculate the missing information.

"If police believe a crime might have been committed by one of seven or eight rival gangs, our method would look at recent historical events in the area and compute probabilities as to which of these gangs are most likely to have committed crime," said the study's senior author, Andrea Bertozzi, a professor of mathematics and director of applied mathematics at UCLA.

About 80 percent of the time, the mathematicians could narrow it down to three gang rivalries that were most likely involved in a crime.

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Greece Default Swaps Failure to Trigger Casts Doubt on Contracts as Hedge

Bloomberg
October 27, 2011

The European Union’s ability to write down 50 percent of banks’ Greek bond holdings without triggering $3.7 billion in debt insurance contracts threatens to undermine confidence in credit-default swaps as a hedge and force up borrowing costs.

As part of today’s accord aimed at resolving the euro region’s sovereign debt crisis, politicians and central bankers said they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new securities. If the International Swaps & Derivatives Association agrees the exchange isn’t compulsory, credit-default swaps tied to the nation’s debt shouldn’t pay out.

“It will raise some very serious question marks over the value of CDS contracts,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “For euro sovereigns in particular, the CDS market is likely to remain wary.”

Politicians and central bankers came to a last-minute agreement after banks, the biggest private holders of Greece’s government bonds, were threatened with a full default on their debt, according to Luxembourg Prime Minister Jean-Claude Juncker. ISDA General Counsel David Geen said his organization considered the agreement to be voluntary, even if there may have been “a lot of arm twisting.”

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The Wild Ride of the 1%

by Robert Frank

Wall Street Journal
October 22, 2011

Jacqueline Siegel paces the floor of her unfinished 7,200-square-foot ballroom. The former beauty queen, with platinum-blond hair, blue eye shadow and a white minidress, clacks along the plywood construction boards in her high heels trailed by a small entourage of helpers and staff.

"This is the grand hall," she says, opening her arms to a space the size of a concert hall and surrounded by balconies. "It will fit 500 people comfortably, probably more. The problem with our place now is that when we have parties with, like, 400 people, it gets too crowded."

The Siegels' dream home, called "Versailles," after its French inspiration, is still a work in progress. Its steel-and-wood frame rises from the tropical suburbs of Orlando, Fla., like a skeleton from the Jurassic age of real estate. Ms. Siegel shows off the future bowling alley, indoor relaxing pools, five kitchens, 23 bathrooms, 13 bedrooms, two elevators, two movie theaters (one for kids and one for adults, each modeled after a French opera theater), 20-car garage and wine cellar built for 20,000 bottles.

At 90,000 square feet, the Siegels' Versailles is believed to be the largest private home in America. (The Vanderbilt family's Biltmore house in North Carolina is bigger at 135,000 square feet, but it's now a hotel and tourist attraction). The Siegels' home is so big that they bought 10 Segways to get around—one for each of their eight children.

After touring the house, Ms. Siegel walks out to the deck, with its Olympic-size pool, future rock grotto, three hot tubs and 80-foot waterfall overlooking Lake Butler. Her eyes well up with tears.

Versailles was supposed to be done by now. The Siegels were supposed to be living their dream life—throwing charity balls and getting spa treatments downstairs after a long flight on their Gulfstream. The home was the culmination of David Siegel's Horatio Alger story, from TV repairman to chief executive and owner of America's largest time-share company, Westgate Resorts, with more than $1 billion in annual revenue and $200 million in profits.

Yet today, Versailles sits half-finished and up for sale. The privately owned Westgate Resorts was battered by the 2008 credit crunch and real-estate crash. It had about $1 billion in debt—much of it co-signed by the Siegels.

The banks that had loans on Versailles gave the Siegels an ultimatum: Either pay off the loans or sell the house. So it's now on the market for $75 million, or $100 million if the buyer wants it finished.

As she stands on her deck in the Florida sun, Ms. Siegel wipes away her tears. "Maybe it will still work out," she says. "It always does, right?"

The Siegels' Versailles may be the nation's most extravagant monument to the debt-fueled, status-crazed real-estate binge of the past decade. Like many Americans, the Siegels borrowed too much, spent too much and bet that values could only go higher. Even in the age of excess, Versailles was excessive.

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Who You Are

by David Brooks

New York Times
October 20, 2011

Daniel Kahneman spent part of his childhood in Nazi-occupied Paris. Like the other Jews, he had to wear a Star of David on the outside of his clothing. One evening, when he was about 7 years old, he stayed late at a friend’s house, past the 6 p.m. curfew.

He turned his sweater inside out to hide the star and tried to sneak home. A German SS trooper approached him on the street, picked him up and gave him a long, emotional hug. The soldier displayed a photo of his own son, spoke passionately about how much he missed him and gave Kahneman some money as a sentimental present. The whole time Kahneman was terrified that the SS trooper might notice the yellow star peeking out from inside his sweater.

Kahneman finally made it home, convinced that people are complicated and bizarre. He went on to become one of the world’s most influential psychologists and to win the Nobel in economic science.

Kahneman doesn’t actually tell that childhood story in his forthcoming book. Thinking, Fast and Slow is an intellectual memoir, not a personal one. The book is, nonetheless, sure to be a major intellectual event (look for an excerpt in The Times Magazine this Sunday) because it superbly encapsulates Kahneman’s research, and the vast tide of work that has been sparked by it.

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David Bernstein on Rehabilitating Lochner and the Freedom to Contract

Hosted by Nick Gillespie

Reason TV
October 18, 2011

“Either the Commerce Clause gives Congress a plenary power to regulate anything it pleases or it doesn’t; and let’s have that argument,” says George Mason University law professor David Bernstein.

Bernstein goes after progressive attempts to limit economic freedom and liberty of contract in his new book Rehabilitating Lochner: Defending Individual Rights against Progressive Reform, a history of the 1905 case Lochner v. New York. The decision nullified a state law regulating work hours for bakers and became the impetus for a 40-year period where American courts protected economic liberty.

A Lochner rehabilitation has not been easy, Bernstein admits. Many legal experts see Lochner as on par with the infamous Dred Scott decision. The government's encroaching power under the Commerce Clause has also held the case for economic liberty back. But Bernstein remains hopeful and believes both liberals and conservatives have something to gain in reexamining Lochner's implications, which range from protecting the right to an abortion to striking down the health care act’s individual mandate.

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Criminal Penguins

BBC
October 16, 2011

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Are Children Selfish?

Wall Street Journal
October 11, 2011

To determine the altruistic tendencies of 3-year-olds, scientists gave each of 150 of them six packets of stickers and said they could give some of their stickers to a kid in a room next door. Kevin Helliker has details on Lunch Break.

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'It's Mine!' The Selfish Gene

Wall Street Journal
October 11, 2011

A 3-year-old is handed six sets of colorful stickers.

"You can keep all of them," he is told. "Or you can give some to a child you don't know. He doesn't have any stickers. Do you want to keep all of your stickers? Or do you want to give some to a child you don't know?"

That was the basic script for a study that took place recently in an Israeli playroom which doubled as a social-science laboratory. A child-care-professional-turned-researcher asked 136 children, aged 3 and 4 years old, to step one at a time into the playroom to shed light unwittingly on a hot topic in behavioral science: Are children altruistic?

It seems they are, and part of the explanation may be genetic, according to the study, published last month in the online scientific journal PLoS One. About two-thirds of the children chose to give one or more sets of stickers to an unknown recipient, described to them only as a child who had no stickers. There were no significant differences in generosity between boys and girls.

Among those who declined to share, many had something in common: a variation in a gene, known as AVPR1A, that regulates a hormone in the brain associated with social behaviors. Researchers found that this genetic variant was associated with a significant decrease in willingness to share.

Until recently, only limited research existed on altruism in children, and what it showed was younger children acting less generously. "Younger children appear to weigh costs to the self more than do older children when deciding whether to assist others and are less attuned to the benefits," says a professional guide called the Handbook of Child Psychology.

But young children all along have displayed greater levels of altruism than what most adults might expect. "If parents think that generosity isn't possible at age 2, they won't try to encourage it," says Nancy Eisenberg, an editor of the handbook and an Arizona State University psychology professor.

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How the Dismal Science Stopped Being Dismal

by Justin Fox

New York Times
October 7, 2011

Listen to the economic debates of the past couple of years, and it’s tempting to conclude that no progress has been made in the field in over half a century. There’s John Maynard Keynes on the one side, arguing for deficit spending to offset the aftereffects of a once-in-a-lifetime financial crisis. On the other side there’s Ludwig von Mises (his fellow Austrians Joseph Schumpeter and Friedrich von Hayek seem too moderate for the role), thundering that all govern­ment intervention in the economy is doomed to failure.

Keynes and Mises are of course both long dead. But it is the resilience of their ideas that makes studying the history of economics so rewarding for non­economists. As a rule, economists don’t know much about history. So at times like these, anyone with a bit of familiarity with the giants of the past can weigh in on big economic issues with about as much authority and credibility as the credentialed experts.

Alfred Marshall, in 1892

This is one explanation for the continuing popularity of Robert L. Heilbroner’s book The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers. Another is that once a book makes its way onto undergraduate required-­reading lists, as Heilbroner’s did, it doesn’t easily fall off. Heilbroner wrote his irreverent group portrait of Keynes, Schumpeter, Karl Marx, Adam Smith and others in the early 1950s while studying for a doctorate at the New School for Social Research in Manhattan. (Mises was so marginalized at the time he didn’t rate a mention.) He died in 2005, but his book lives on, with more than four million copies sold.

That kind of success makes a tempting target for imitators, and over the past decade, word spread among economics writers that Sylvia Nasar was at work on a new Worldly Philosophers — something to update and possibly supplant Heil­broner. Nasar is no knockoff artist; a professor at Columbia Journalism School and a former economics correspondent for The New York Times, she wrote what is perhaps the best economics-­related book of the past quarter-­century, A Beautiful Mind, a near-perfect biography of the game theorist John Nash.

Now Nasar’s new book, Grand Pursuit: The Story of Economic Genius, is here. As it turns out, it isn’t really a Heilbroner update. For one, it doesn’t make much chronological headway: the postwar giants Paul Samuelson and Milton Friedman get a few pages, as does the philosopher and development economist Amartya Sen, who is still alive and writing books. But the major developments of post-1950 economics are for the most part ignored. So, for that matter, are the major developments of pre-1850 economics. Heilbroner was out to provide an easy-to-digest survey of economic thought through the ages. Nasar has set herself a task at once narrower and more ambitious. She has a story to tell, a story of tragedy, triumph and, as the subtitle says, economic genius.

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Το Δόγμα της Άγνοιας

του Αριστείδη Ν. Χατζή

Books' Journal
Οκτώβριος 2011

Πήγαιναν οι αμαθείς κοντά του κι έδρεπαν ακόμη μεγαλύτερη αμάθεια. 

John Updike, Το Παζάρι στο Άσυλο

I. À la Recherche du Temps Perdu

Καθώς περνάνε τα χρόνια συνειδητοποιείς πόσο λίγος είναι ο χρόνος που σου έχει απομείνει να κάνεις όσα θέλεις. Αποδέχεσαι σύντομα την ιδέα ότι δεν θα μπορέσεις να τα προλάβεις όλα. Για έναν άνθρωπο που έχει σαν βασική του απασχόληση τις ιδέες, ένα βασικό ερώτημα είναι το τι θα προλάβεις να διαβάσεις και τι θα προλάβεις να γράψεις. Ας αφήσουμε προς το παρόν το δεύτερο. Κάθομαι λοιπόν στο γραφείο μου και βλέπω τα βιβλία απέναντί μου ξέροντας ότι πολλά από αυτά μάλλον δεν θα διαβαστούν ποτέ. Κάθε τόσο προσπαθώ να φτιάξω λίστες στο μυαλό μου με τα απολύτως απαραίτητα που πρέπει να γίνουν άμεσα:

Πρέπει να τελειώσω επιτέλους το Μαγικό Βουνό... Πόσος Ντοστογιέφσκι έχει απομείνει; Πότε επιτέλους θα βρω τον χρόνο να αρχίσω τον Proust (και θα μπορέσω να τον ολοκληρώσω); Θα πρέπει να βάλω τον David Foster Wallace και τον Jonathan Franzen σ’ αυτή τη λίστα; Έχω να διαβάσω την Οδύσσεια από το γυμνάσιο και ο Μαρωνίτης σε λίγο θα ολοκληρώσει και την Ιλιάδα…

Το δυσκολότερο όμως είναι να επιλέξεις ανάμεσά τους. Ποιο είναι το κόστος ευκαιρίας του κάθε βιβλίου; Τι θα θυσιάσεις όταν το διαβάσεις; Τι δεν θα διαβάσεις και τι άλλο δεν θα κάνεις (γιατί στην ζωή δεν υπάρχουν μόνο τα βιβλία); Στο γκρεμό αυτού του σκληρού κόστους ευκαιρίας έχουν πέσει πολλές εναλλακτικές αλλά εγώ τον βλέπω περισσότερο ως τον Καιάδα των βιβλίων: Ο Οδυσσέας του Joyce έχει πέσει από τα πρώτα και χωρίς μεγάλες τύψεις. Τι θα κάνω με τον Shakespeare; Θα μπορέσω να τον διαβάσω κάποτε στο σύνολό του – κι αν απογοητευτώ όπως ο Tolstoy; Χωράει στο πρόγραμμα ο Τσίρκας; Να προτιμήσω τον Πλούταρχό ή τον Balzac;

Δεν συζητάω καν για τα αμέτρητα επιστημονικά βιβλία που θέλω και πρέπει να διαβάσω, τα άπειρα επιστημονικά άρθρα και κείμενα που έχω σώσει στον υπολογιστή μου και κυρίως τον χρόνο που απαιτείται για να σκεφτώ πάνω σ’ αυτά. Απελπισία…

Έτσι αγαπητέ αναγνώστη κάθε γραμμή αυτού του κειμένου είναι για μένα πολύ ακριβή γιατί πρόκειται να αναφερθώ σε ένα από τα χειρότερα βιβλία που έχω διαβάσει τα τελευταία είκοσι χρόνια. Δεν φτάνει που το διάβασα, γράφω τώρα και γι’ αυτό.

Διαβάστε εδώ το υπόλοιπο του κειμένου όπως δημοσιεύθηκε στο Books' Journal (PDF)

Ο Αριστείδης Χατζής είναι Αναπληρωτής Καθηγητής Φιλοσοφίας Δικαίου & Θεωρίας Θεσμών στο Τμήμα Μεθοδολογίας, Ιστορίας & Θεωρίας της Επιστήμης του Πανεπιστημίου Αθηνών. Από το 1993 έως το 1999 σπούδασε θεωρία δικαίου και οικονομική ανάλυση του δικαίου στο Πανεπιστήμιο του Σικάγο, από όπου έλαβε και το διδακτορικό του.

Εδώ θα βρείτε την επίσημη ιστοσελίδα του βιβλίου The Shock Doctrine και εδώ την προσωπική ιστοσελίδα της Naomi Klein.

Εδώ θα βρείτε την εξαιρετική κριτική του βιβλίου της Klein από τον Johan Norberg και εδώ άλλο ένα σχετικό συντομότερο κειμενό του. Δες επίσης εδώ (NYT) και εδώ (TNR) για τις κριτικές του βιβλίου στα δύο σημαντικότερα κεντροαριστερά έντυπα των Η.Π.Α.

Εδώ θα βρείτε την πολύ ενδιαφέρουσα βιβλιοκριτική του Διονύση Γουσέτη για το Δόγμα του Σοκ. Μια εξίσου ενδιαφέρουσα βιβλιοκριτική για το βιβλίο του Roche από το Μιχάλη Μητσόπουλο ("Κι όμως, η Goldman Sachs δεν κυβερνά τον κόσμο") δημοσιεύθηκε στο τεύχος 17 (Απρίλιος 2011) του Athens Review of Books. Δυστυχώς δεν υπάρχει διαθέσιμη online.

Εδώ και εδώ θα βρείτε δύο σχετικά κείμενά μου για την ψευδοεπιστήμη και τις θεωρίες συνωμοσίας και εδώ ένα αφιέρωμα στον Milton Friedman που δημοσιεύθηκε στην Ελευθεροτυπία μετά τον θάνατό του. Περιέχει μέσα και ένα δικό μου κείμενο.

Εδώ θα βρείτε ένα κείμενό μου για την επίσκεψη του Milton Friedman στη Χιλή.

Περισσότερα για τη σχολή του Σικάγο μπορείτε να βρείτε στις παρακάτω ιστοσελίδες:

University of Chicago
University of Chicago Department of Economics
University of Chicago Law School
University of Chicago Booth School of Business
George J. Stigler Center for the Study of the Economy and the State
The Becker Friedman Institute for Research in Economics
Freakonomics
Wikipedia entry

Εδώ μπορείτε να δείτε ένα εξαιρετικό σύντομο video για τη σχολή του Σικάγο:

Εδώ θα ακούσετε μια πρόσφατη συνέντευξη στο Bloomberg ενός τυπικου μέλους της Σχολής του Σικάγο, του Καθ. John Cochrane.

Εδώ θα βρείτε το βιβλίο της Naomi Klein αλλά και σοβαρά βιβλία από και για τη Σχολή του Σικάγο:

Ενώ εδώ θα βρείτε τα σημαντικότερα έργα του Milton Friedman:

Charging for Debit Cards Is Robbery

by Lloyd Constantine

New York Times
October 6, 2011

When Bank of America told its customers recently that it would start charging them $5 a month to use debit cards, it argued that it was forced to make that change because of regulations that altered the economics of the cards. Other banks agreed. The chief executive of JPMorgan Chase, Jamie Dimon, put the effects of the regulations this way: “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.” Both banks were responding to the Federal Reserve’s actions to limit the interchange fees banks charge stores each time a debit card is used for a purchase.

But the banks’ simplistic statements are merely an attempt to rationalize and obfuscate one of the largest illegal transfers of wealth from consumers to banks in American history.

Debit cards were developed by banks as a replacement for paper checks. When a consumer pays with a debit card instead of a check, the bank saves money. In the 1980s, Visa calculated the savings at 55 cents to $1.60 per check. The savings is much higher today. For decades, Bank of America, the founding owner and member of Visa (originally called BankAmericard) and all of the Visa and MasterCard banks, including Chase, hid the identity of their debit cards from stores by designing them to look and function like their signature authorized credit cards and by charging stores the same price for debit and credit transactions. Banks did this despite the fact that purchases made with a debit card didn’t involve a loan from the bank, posed very little fraud risk and were extravagantly profitable to banks because they eliminated the costs of processing and clearing checks.

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For the debit cards fee controversy see also here, here, here, here and here.

What debit card fee critics miss on capitalism

USA Today
Editorial
October 6, 2011

Ever since Bank of America announced a new $5 monthly fee on debit card use, an outcry has echoed from Main Street all the way to the White House. A Fox Business anchor cut up her BofA debit card on the air in front of a sign that read "Big Bad Bank of America." Sen. Dick Durbin, D-Ill., told BofA customers to "get the heck out of that bank." President Obama slammed the charge as a bad business practice. And Consumers Union called on Congress and regulators to investigate the new fee, which will go into effect in early 2012.

Let's everybody take a deep breath. The uproar is as misguided as Bank of America's action was predictable, and the action masks a hidden benefit for consumers.

BofA and other commercial banks are about to lose revenue from an amendment passed last year that caps the "swipe fees" retailers pay every time a consumer uses a debit card. The amendment, championed by Durbin, made sense because such debit card transactions cost banks virtually nothing. The fees, paid by retailers to card issuers, were a hidden tax on consumers in the range of 1% to 3%.

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For the debit cards fee controversy see also here, here, here, here and here.

Investigate 'unfair and abusive' bank fees

by Pamela Banks

USA Today
October 6, 2011

It would be tough to come up with a worse time for Bank of America to saddle customers with a $5 fee every month they use their debit card. The nation's largest bank has been struggling mightily, yet it is apparently willing to drive away customers with more fees. Taxpayers rescued Bank of America with a $45 billion loan, and now it's about to take advantage of many of the same taxpayers by making them pay extra money, just to be able to use their money.

That's why we think Congress and federal regulators should investigate and ask Bank of America how it can justify this fee. The bank may argue it has to make up for lost revenue from fees collected from retailers, fees the law now says are excessive. But banks can still collect an average 24 cents from retailers every time a customer makes a debit card purchase. That's more than the average 8 cents the Federal Reserve estimates it costs a bank to process a debit purchase when you use a PIN number.

It seems abusive and unfair for Bank of America to slap an additional $5 monthly fee on consumers for debit card purchases, even when consumers use the card only once that month. This decision comes as millions of Americans are already struggling with a whole raft of dubious fees, and this one doesn't even appear to be linked to the real cost of providing the service.

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For the debit cards fee controversy see also here, here, here, here and here.

The democratic transition

by Fabrice Murtin and Romain Wacziarg

Vox
October 5, 2011

As witnessed during this year’s Arab Spring, democracy doesn’t always emerge smoothly. This column examines the long march toward political freedom since 1800. It argues that while both income and education affect democracy, the rise in primary education has been the main driver of democratisation over 1870-2000.

Throughout history the march toward political freedom has not been a smooth process. It has happened in fits and starts, in waves, and was often reversed or interrupted. The collapse of several Middle Eastern authoritarian regimes in the wake of this year’s Arab Spring illustrates the point clearly.

Political institutions have undeniably progressed from autocracy to democracy over the last 200 years. Figure 1 displays this democratic transition by plotting over time a commonly used index of democracy (the Polity IV democracy score, rescaled between 0 and 1), averaged for a balanced panel of 14 countries since 1800. The figure illustrates some fits and starts – for instance the interruption of the march to democracy during the interwar period – but also a generalised upward trend. Like the demographic transition, economic modernisation, and the globalisation of human activities, democracy seems to have pursued an inexorable march.

Figure 1. The democratic and economic transitions

Note: (Balanced sample composed of Austria, Belgium, Chile, Denmark, France, Japan, Netherlands, Norway, Portugal, Spain, Sweden, Turkey, the UK, and the US over 1800-2000).

What factors determine the transition toward democracy and its durability? This is a classic question in political economy, but not one that has yet been resolved. On the eve of the 19th century, Thomas Jefferson was defending the view that mass education was the “the most effectual means of preventing tyranny” (Jefferson 1779). In line with the Founding Fathers’ vision, the US turned into a leading country in terms of educational attainment, leading Alexis de Tocqueville (1835) to note in Democracy in America that “the education of the people powerfully contributes to the maintenance of the democratic republic”. The idea that the accumulation of human capital and economic modernisation more broadly create the conditions for sustained democratisation found a more recent consecration in the writings of Seymour Martin Lipset, who in 1959 introduced the ‘modernisation hypothesis’, arguing that economic development is a precondition for democracy. While international comparisons initially supported this hypothesis (Barro 1999), scholars still debate the issue, as many argue that causality runs instead from institutions to development.

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Religion makes people happy, so why is church attendance declining?

by Bruno S. Frey and Jana Gallus

Vox
October 2, 2011

Is religion a ‘crutch for the weak’? This column looks at data on religion and life satisfaction from across the globe and argues that it might just be insurance for the unhappy.

Modern happiness research leaves no doubt that religious people are happier than their contemporaries. And the causality runs from religion to happiness (though it might also be possible that religious people are less interested in material aspects and, therefore, less affluent).

• One of the studies supporting this assumption was provided by Headey et al. (2010). Based on data from the German Socio-Economic Panel, they find that individuals who turn to religion over time become, ceteris paribus, more satisfied, while those turning away from it suffer a loss in their quality of life.
• A comparison of multivariate estimates of happiness functions shows that, even when controlling for other influences, deism is highly positively correlated with life satisfaction across all countries (Frey and Stutzer 2002, Dolan et al. 2008, Frey 2010).

In the US, for example, 48% of those who describe themselves as "very happy" attend church service at least once a week; this compares to a share of merely 26% made up by those who never go to church (Pew Forum on Religion and Public Life 2007).

But the relevance of these results is not only restricted to the individual level. Focusing on whole countries as units of measurement, receding religiousness could be a predictor of a decline in life quality, all other factors held constant. Given the fact that life satisfaction eventually also influences productivity, it becomes clear why the topic should be policy relevant.

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Does services liberalisation benefit manufacturing firms? Evidence from the Czech Republic

by Jens Matthias Arnold, Beata Javorcik and Aaditya Mattoo

Vox
October 1, 2011

Compared to the goods sector, we know relatively little about the effects of trade liberalisation on the services sector, despite this being the main employer in many countries. This column presents firm-level data from the Czech Republic that suggests that services sector reform can improve the performance of domestic manufacturing firms – something that protectionist sympathisers should be wary of.

Services liberalisation is a controversial subject, as is evident from recent policy debates in the EU and WTO. The scope for controversy is deep and wide. In contrast to the large body of empirical research on the impact of trade liberalisation in goods, little is known about the effects of allowing greater foreign entry in services industries. As Francois and Hoekman (2010) note, “services have not figured prominently in the economic growth and development literature, and have only recently been highlighted in the trade literature”. Since a wide range of manufacturing and services industries rely on services inputs, it seems reasonable to presume that large gains could be achieved through the liberalisation of services sectors.

In a recent paper (Arnold et al. 2011), we provide empirical evidence on the link between reforms in services sectors and the productivity of downstream manufacturing industries. Our analysis focuses on the Czech Republic, which introduced far-reaching reforms of services industries during the 1990s, including opening services sectors to foreign investors. The results, based on firm-level data for the period 1998-2003, suggest a positive association between liberalisation in services industries and the productivity of manufacturing firms using services inputs. Allowing entry of foreign services providers appears to be a key channel through which services liberalisation benefits the manufacturing sector.

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Banks to Make Customers Pay Fee for Using Debit Cards

New York Times
September 29, 2011

Bank of America, the nation’s biggest bank, said on Thursday that it planned to start charging customers a $5 monthly fee when they used their debit cards for purchases. It was just one of several new charges expected to hit consumers as new regulations crimp banks’ profits.

Wells Fargo and Chase are testing $3 monthly debit card fees. Regions Financial, based in Birmingham, Ala., plans to start charging a $4 fee next month, while SunTrust, another regional powerhouse, is charging a $5 fee.

The round of new charges stems from a rule, which takes effect on Saturday, that limits the fees that banks can levy on merchants every time a consumer uses a debit card to make a purchase. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, is a crucial part of the Dodd-Frank financial overhaul law.

Until now, the fees have been 44 cents a transaction, on average. The Federal Reserve in June agreed to cut the fees to a maximum of about 24 cents. While the fee amounts to pennies per swipe, it rapidly adds up across millions of transactions. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from new rules restricting overdraft fees, which went into effect in July 2010.

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For the debit cards fee controversy see also here, here, here, here and here.

The Dick Durbin Bank Fees

by Todd Zywicki

Wall Street Journal
September 29, 2011

This Saturday, government price controls on debit card interchange fees (which card issuers charge to merchants) go into effect. The controls are the result of the Durbin amendment to last year's Dodd-Frank financial reform legislation. They were enacted at the behest of big-box retailers such as Wal-Mart and Walgreen's, which stand to gain a multimillion-dollar windfall. But the controls are already transforming the retail banking landscape.

The Durbin amendment tasked the Federal Reserve with establishing the allowable maximum interchange fees. It originally intended to slash them by 70%-80%. In response to a firestorm of criticism, the Fed cut the fees about in half, to about 24 cents per transaction from an average of 44 cents per transaction, including a one-penny allowance for fraud prevention. The new fee limits apply to any bank with more than $10 billion in assets.

Faced with a dramatic cut in revenues (estimated to be $6.6 billion by Javelin Strategy & Research, a global financial services consultancy), banks have already imposed new monthly maintenance fees—usually from $36 to $60 per year—on standard checking and debit-card accounts, as well as new or higher fees on particular bank services. While wealthier consumers have avoided many of these new fees—for example, by maintaining a sufficiently high minimum balance—a Bankrate survey released this week reported that only 45% of traditional checking accounts are free, down from 75% in two years.

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For the debit cards fee controversy see also here, here, here, here and here.

Dick Durbin's Debit Card Fees

Wall Street Journal
September 29, 2011

Mary Kissel on how caps on debit card swipe fees are costing consumers.

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For the debit cards fee controversy see also here, here, here, here and here.

Working in the Dark

by Robert M. Solow

The New Republic
September 28, 2011

I thought I knew what this book was going to be about when I started it, but by the time I came to the end I was no longer sure. There is a prologue that begins with Charles Dickens’s observations and depictions of miserable London poverty, and then moves naturally to the classical Malthusian trap as the only explanation offered by the political economy of the time: any improvement in the general standard of living will be wiped out by increased population, so nothing much can be done except perhaps exhortations of abstinence. Dickens himself entered a plea for a more humane political economy. (This was an interesting piece of news to me. Presumably he intended something more than sugarcoating the pill, but what?) That could indeed be a “Grand Pursuit”: how economics and the economy learned to adapt to sustained growth and rising living standards. Sylvia Nasar’s first chapter almost confirms this idea; it is about Marx and Engels, with more emphasis than is usually given to Engels and his powerful Condition of the Working Class in England in 1844.

But this suggested theme does not hold up. The book is not “The Story of Economic Genius” that is promised in the subtitle. It is instead the story of the public and private lives of a handful of major figures in economics, some of them pretty clearly possessed of “economic genius,” at least part of the time, and some of them pretty clearly not, unless one plays fast and loose with the notion of genius. Most surprisingly, there is not much about the evolution of economic ideas in this book, either in the way Dickens hoped or otherwise. There is a lot of quite fascinating biographical detail about a series of interesting economists, and even more about the political, financial, and economic setting in which they functioned. Nasar spends much more time on the public role of her subjects than on their thoughts about economics itself. They were indeed all public figures of one kind or another. Many of them were also important economists, but you do not hear much about that at all; and when you do, the book skimps on intellectual content.

One does not have to wait for an example of this gap. A chapter on Alfred Marshall follows immediately after Engels and Marx. Marshall was one of the founders of modern economics. His Principles of Economics, which appeared in 1890 and went through a total of eight revised editions, was the great general treatise after John Stuart Mill. When I first studied economics in 1940, we were not given Marshall to read as a textbook; it would probably have been an improvement if we had. It is not much remembered today that Marshall was not merely the man who systematized the theory of the firm and the interaction of supply and demand in a competitive market. He was also an assiduous observer of the industrial practices of his time, and the ways in which they often deviated from the neat but necessary abstractions of theory, including his own. He was interested, for example, in the role that perceptions of fairness played in the determination of wages. He knew that rising productivity was the serious answer to mass poverty. You might say that he was starting to give Dickens his wish. So it is surprising to read a forty-three-page chapter about Alfred Marshall that arrives at the Principles of Economics only in its last few pages. By contrast, Agnar Sandmo, the author of Economics Evolving: A History of Economic Thought, an excellent recent history, offers an economist’s-eye view: he devotes a twenty-five-page chapter to Marshall, almost all of which is essentially about the content and the influence of Marshall’s great work.

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Rationality, games and conflict

Robert Aumann interviewed by Romesh Vaitilingam

Vox
September 9, 2011

Nobel laureate Robert Aumann of the Hebrew University of Jerusalem talks to Romesh Vaitilingam about his work on ‘rule rationality’, the development of game theory and its potential for understanding conflict – from the Pax Romana to the modern day Middle East. The interview was recorded in August 2011 at the Fourth Lindau Meeting on Economic Sciences, which brought together 17 of the 38 living economics laureates with nearly 400 top young economists from around the world.

Listen to the interview here

Washington's Antitrust Timewarp

by George L. Priest

Wall Street Journal
September 6, 2011

The Obama administration's suit to block AT&T's acquisition of T-Mobile will harm, not help, our sputtering economy. The administration claims the acquisition "would result in tens of millions of consumers . . . facing higher prices, fewer choices and lower quality products for mobile wireless services." It argues that stopping the buyout "will help protect jobs in the economy" since mergers usually reduce jobs through the elimination of redundancies.

The first of these claims has no factual basis—indeed, the market believes otherwise. The second is indefensible as social policy.

It is very difficult at an abstract level to know what the effects of a merger or acquisition will be on competition within an industry. Firms may merge to create market power and increase prices, though they may also merge to create efficiencies that lower prices.

The Justice Department presumes that the acquisition of T-Mobile (the fourth largest wireless provider) by AT&T (the second largest) will lead to "higher prices . . . and lower quality products" based on the high market share that would result. But market share is a very rough proxy for market power and essentially meaningless in a network industry.

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Fourteen magic words that can increase voter turnout by over 10 percentage points??

by Andrew Gelman

The Monkey Cage
September 4, 2011

Christopher Bryan, Gregory Walton, Todd Rogers, and Carol Dweck did two experiments in which they increased people’s voter turnout in real electionsby over 10 percentage points by simply asking them the following survey question on election day:

• How important is it to you to be a voter in the upcoming election?

In the comparison condition, potential voters were asked:

• How important is it to you to vote in the upcoming election?

Unfortunately, there doesn’t seem to have been a control condition in the experiments, so all they could really do was compare these two treatments to each other.

The gimmick of the experiment is that it harnesses humans’ natural belief in essentialism (see, for example, reference 14 in the link above), the idea that being “a voter” is more essential than being a person who happened to vote.

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The Perils of Price Controls

by Richard A. Epstein

Defining Ideas
August 30, 2011

Last week in the New York Times, veteran health correspondent Gardiner Harris wrote of the recent sharp and puzzling shortages of critical drugs used for treating a wide range of life-threatening cancers and bacterial infections. The total number of shortages has increased from 58 vital drugs in 2004 to 211 in 2010. These shortages have prompted some wholesalers to hoard certain scarce drugs, which has only aggravated the problem.

Harris reports that public officials and policy makers are now anxiously preparing a set of proposals to deal with these shortages. One such proposal calls, not surprisingly, on the federal government to take on a greater role in stockpiling dry ingredients of key drugs, which in times of need could be released to hospitals where pharmacists could then convert them into injectable compounds. A second legislative proposal, introduced by Senator Amy Klobuchar, a Minnesota Democrat, would give the Food and Drug Administration the power to demand that drug companies give the FDA early warnings when they anticipate a cutback in the quantities of goods they ship to the market. Still a third proposal calls for removing restrictions on importing generic drugs from overseas in order to ease the current shortages.

One of the real difficulties in understanding these shortages is that they appear to stem from multiple causes. Some shortages come from the failure of various suppliers to meet FDA inspection standards for safety. Other shortages appear to stem from the scarcity of drugs in their cheaper generic forms. Harris says that the FDA attributes this shortage to "capacity problems at drug plants or lack of interest because of low profits." Low profits follow inexorably from price caps. These caps in turn interact with safety issues, creating possible synergistic effects, Let’s tackle each cause of the drug shortages separately, starting with the pricing issues.

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Sylvia Nasar’s Animated Guide to Econ

The Daily Beast
August 23, 2011

Take a surprisingly entertaining stroll through the pages of economic history with Sylvia Nasar, whose new book Grand Pursuit: The Story of Economic Genius tells the story of modern economics. Watch this animated short that breaks down the key points that got us to where we are today.

An Economic Analysis of Gang Colors

by Christopher Shea

Wall Street Journal
August 2, 2011

Most of us have grown sufficiently used to the idea of gang colors that we don’t bother to ask why they exist. But, if you think about it, they’re paradoxical: Why would people who belong to groups that sell drugs or commit crimes go out of their way to advertise their membership in those groups? A new paper, by Andrew Mell, an economist at Nuffield College, Oxford, attacks that conceptual problem.

He does so by drawing on evolutionary theory and the related issue of coordination between agents. If you’re a criminal, one of your principal challenges involves knowing whom it’s safe to do business with. You don’t want to sell to an undercover cop, obviously, but you also don’t want to sell to an eager-but-clueless criminal who may well get caught and drag you down with him.

Like certain ostentatious displays by males in the animal kingdom, gang colors serve as a handicap, Mell argues: Yes, they make it more likely that the person wearing them will be caught. Yet they semaphore the following message: If I’m still willing to commit crimes when I have this handicap, I must be pretty good at evading the police. Incompetent criminals couldn’t get away with wearing gang colors.

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See also

Seeking Arrangement: College Students Using 'Sugar Daddies' To Pay Off Loan Debt

by Amanda M. Fairbanks

Huffington Post
July 31, 2011

"I was thinking about going on Match but I needed help financially," says a 25-year-old student at a trade school in New York. When meeting men online, she sometimes goes by the name of Suzanne. "I guess what finally pushed me over the edge was that I needed help to pay off my loans from school."

Earlier this spring, after Suzanne got fired from her job as a waitress at a diner on the Upper East Side, a girlfriend suggested she create a profile on Seeking Arrangement. Suzanne had grown desperate after falling behind on rent. She also needed to come up with $3,000 for a trimester's worth of paralegal classes.

Suzanne already has an associate's degree in elementary education from a community college in New Jersey. Unable to find a job as a teacher's aide, she decided to enroll in paralegal classes at night. But after losing her job, the extra debt proved more than she could afford. She took out $10,000 in loans to pay for a year of school and promptly went on the hunt for a sugar daddy.

Over the past few months, Suzanne says she's gone on more than 40 dates with men from the site. She's not interested in getting wined and dined every single time. At a minimum, she hopes for at least a modicum of attraction. She's already turned down a man who weighed 400 pounds, as well as the advances of countless married men. Though desperate, Suzanne says a homewrecker she is not.

Following numerous emails and chats on the phone, Suzanne generally schedules a first meeting with a man in a public place -- a crowded restaurant, cafe or bar.

After nearly giving up on finding an arrangement, Suzanne recently met a 39-year-old college professor from Dover, N.J. So far, the two have gone on three dates. They typically meet at his house, where he usually cooks her dinner. Afterwards, they have sex.

"After all the assholes I've met, this guy's a real gentleman," says Suzanne, during a break before class. "At the end of the night, he usually gives me $400 or $500 bucks. It's not bad money for a night." While the men typically pay per meeting, Suzanne is hoping to set up an ongoing hookup. Mostly, she doesn't want the men thinking she's only seeing dollar signs, pegged to when her rent or tuition money is due.

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