Monthly Archive for January, 2011

Nursery Tales — An Afterword

babyOne of Paul Krugman’s favorite stories is about the baby-sitting co-op that almost collapsed when members started hoarding scrip; similarly, he says, a lot of economic activity can dry up when people start hoarding money. Last Tuesday, in a post called Nursery Tales, I observed that money-hoarding can’t retard economic activity (at least in anything like Krugman’s sense) unless something prevents prices from adjusting. So absent an auxiliary story about what that “something” is, I don’t find the baby-sitting story terribly helpful.

Several commenters responded that in the real world, prices and/or wages are “known” to be sticky (that is, slow to adjust), and thought that this rescues Krugman’s metaphor. I don’t agree. Here’s why:

Continue reading ‘Nursery Tales — An Afterword’

Share/Save

Foreign Policy

xenoThe LA Times reports that Republican lawmakers have called on the Obama administration to return to the Bush-era practice of sending jackbooted thugs into private workplaces to arrest illegal aliens — revealing (as if we didn’t already know) that virulent xenophobia is alive and well in the Republican party. (Note well the hypocrisy of complaining that foreigners sneak into our country to take advantage of the welfare system, and then addressing the problem by focusing your deportation efforts on foreigners who have obviously come here to work).

The same Times article observes that even without the workplace raids, deportations have reached new heights for two years running at the direction of President Barack Obama — revealing (as if we didn’t already know) that virulent xenophobia is alive and well in the Democratic party too. This is, after all, the same Barack Obama who said in his acceptance speech at the 2008 convention that nobody benefits when an employer undercuts American wages by hiring illegal workers. Well, sure. Nobody, that is, except the employer, his customers, and the illegal workers who, in Barack Obama’s universe, count as “nobody”.

This raises the idle question: Which political party harbors more xenophobia? I have no careful documentation of this, but my impression in the 2008 election was that the Democrat John Edwards was the most despicable of the candidates in this dimension, with the Republican Mitt Romney running a somewhat distant but still unchallenged second. Going back to 2004, it was the Democrat John Kerry who called for federal contracts, whenever possible, to be performed by American workers, demanded tax incentives for firms that hired Americans instead of foreigners, and endorsed legislation encouraging consumers to “buy American”. (If that doesn’t strike you as virulent, ask yourself how you’d feel about a candidate who called for federal contracts, whenever possible, to be performed by white workers, demanded tax incentives for firms that hired whites instead of blacks, and endorsed legislation encouraging consumers to “buy White”.) But it was the Republican victor, George Bush, who followed in his Republican father’s footsteps by dispatching those jackbooted thugs who evoke such nostalgia in Republican leaders of today.

Continue reading ‘Foreign Policy’

Nursery Tales

babyPaul Krugman, not for the first time, invokes the Great Capitol Hill Baby Sitting Co-Op Crisis as a metaphor for the macroeconomy.

First things first: Krugman is absolutely right that we learn a lot from well-chosen simple examples. But this particularly example seems poorly chosen.

The Capitol Hill Baby-Sitting Co-Op consisted of about 150 couples who baby sat for each other. They paid each other in scrip — pieces of paper each worth a half hour of baby-sitting time. New members received 20 units of scrip, which they were expected to pay back upon retiring. Aside from that, you earned scrip by baby-sitting, and you purchased baby-sitting with scrip, so that in the long run you’d sit exactly as much as you were sat for.

The problem was that people started hoarding scrip, thinking they might need it someday. As a result, the demand for babysitting services dried up. This made it harder to earn scrip, which encouraged even more hoarding, and so on around the vicious circle. The solution was to issue more scrip — each member got 10 more units. This made the hoarders a little less frantic and a little more willing to go out, which meant more sitting jobs were available, which eased the hoarder’s minds still further, and soon the co-op entered a golden age.

That, says Krugman, is the story of most recessions. People hoard money, which makes it hard to earn money, which makes people hoard still more money, which makes it even harder to earn money. The solution is to issue more money.

But here’s the part of the baby-sitting story that never made sense to me: Continue reading ‘Nursery Tales’

The State of the Union

The New York Times reports that President Obama, in his State of the Union speech, will call, among other things, for encouraging exports.

Now, since exports must equal imports in the long run, encouraging exports is exactly the same thing as encouraging imports. And wouldn’t you expect that if you were out to encourage imports, your first step might be to stop discouraging imports, say by declaring an end to all tariffs and quotas on foreign-made goods?

In a sane world, that’s indeed what you might expect. But somehow I don’t expect it.

Meager Means and Noble Ends

impOn Monday we marked the hundredth birthday of the Nobel laureate and all-around intellectual curmudgeon George Stigler. I promised more Stigler quotes by the end of the week. Here, then, is Stigler on the consequences of competition in the market for higher education; the passage is from one of the two-dozen lively and provocative essays collected here. If he’d been born just a bit later, Stigler could have been a champion blogger.

For clarity: When Stigler refers to an academic “field”, he is referring to a sub-discipline. Economics is a discipline; industrial organization and public finance are fields. Physics is a discipline; particle physics and solid state physics are fields.

We cannot build universities that are uniformly excellent … I shall seek to establish this conclusion directly on the basis of two empirical propositions.

The first proposition is that there are at most fourteen really first-class men in any field, and more commonly there are about six. Where, you ask, did I get these numbers? I consider your question irrelevant, but I shall pause to notice the related question: Is the proposition true? And here I ask you to do your homework: gather with your colleagues and make up a numbered list of the twenty-five best men in one of your fields — and remember that these fields are specialized. Would your department be first-class if it began its staffing in each field with the twenty-fifth, or even the fifteenth, name? You have in fact done this work on appointment committees. I remember no cases of an embarrassment of riches, and I remember many where finding five names involved a shift to “promising young men”, not all of whom keep their promises. I leave it to the professors of moral philosophy and genetics to tell us whether the paucity of first-class men is a sort of scientific myopia, a love of invidious ranking, or a harsh outcome of imprudent marriages. But the proposition is true.

Continue reading ‘Meager Means and Noble Ends’

The Intellectual and the Marketplace

stiglerToday is the 100th birthday of the late George Stigler, who won a Nobel prize for his economics and would have won a second if they gave one for dry wit. This is not the best example of that wit, but it’s the one I remember most vividly: One day long ago I was walking across the quadrangle at the University of Chicago, when I felt a hand on my shoulder — a very large hand, because Stigler was a very large man (in the tall-and-lanky sense of large). He’d been away for a few months, so I was a little surprised to see him. Before I could say anything like “Welcome back”, Stigler asked me: “So, what’s become of that young lady you were squiring around before I left town?”. In a fit of circumspection, all I said was “Oh, she still exists”, and Stigler immediately replied, “Oh, how lovely. You know, I’ve never been a subscriber to this theory that says you should destroy them when you leave them.”

The Intellectual and the Market Place — Stigler’s classic defense of the marketplace against the discomfort felt by so many intellectuals — is well worth a quick read. Parts of it have been paraphrased so often by so many imitators that they’ve begun to seem almost trite, but none of the imitators has ever achieved Stigler’s panache. Besides, it’s been imitated so much precisely because there’s so much here worth saying. A few sample paragraphs to whet your appetite:

Continue reading ‘The Intellectual and the Marketplace’

Public Service Announcement

I’m traveling, and blogging is likely to be pretty light for the rest of the week. I won’t be gone long.

A Whole New Brain Teaser

brainToday I have a new brain teaser for you. It’s similar in flavor to last week’s brain teaser, but it’s genuinely different, and it’s different in an instructive way. And it stands on its own; you don’t need to have followed last week’s discussion to tackle this.

Here goes: There’s a certain country where everybody wants to have a son. Therefore each couple keeps having children until they have a boy; then they stop. In expectation, what is the ratio of boys to girls?

For those who were here last week, notice that this problem is genuinely different. Last week I asked about the fraction of the population that is female. If we exclude the parents, that’s the ratio G/G+B. Today’s problem asks about the ratio B/G.

Stop here if you don’t want spoilers.

Continue reading ‘A Whole New Brain Teaser’

The Extra Half Boy

Last week’s series of posts on boys, girls and population ratios drew an astonishing 850 or more comments, and they’re still coming in. There’s a lot of stuff worth reading in those comments, but the conversation — which is spread out over four threads and often involves several overlapping subconversations — has become difficult to follow. Fortunately, one of our more insightful commenters has volunteered to write a guest post summarizing what he sees as some of the most important discoveries to come out of those discussions. He has signed his guest post “Tom M”, but in the comments, he is simply “Tom”.

Without further ado:

The Extra Half Boy

A Guest Post

by

Tom M.

1. Introduction

Steve Landsburg posed a problem in this post at his blog entitled Are You Smarter than Google?. Here was the problem statement:

There’s a certain country where everybody wants to have a son. Therefore each couple keeps having children until they have a boy; then they stop. What fraction of the population is female?

Well, of course, you can’t know for sure, because, by some extraordinary coincidence, the last 100,000 families in a row might have gotten boys on the first try. But in expectation, what fraction of the population is female? In other words, if there were many such countries, what fraction would you expect to observe on average?

As we’ve worked on that problem, one of the points that came up was something called the “extra half boy.”

In this post I’m going to try to summarize what we’ve said about that critter and some related issues.

A key reference, that everybody should read, is What is the expected proportion of girls?, by ‘Thomas Bayes’.

Continue reading ‘The Extra Half Boy’

Another Rationality Test

spockHow rational are you? I once posted a test, based on ideas of the economist Maurice Allais, that most people seem to fail. Today’s test, based on ideas of the economist Dick Zeckhauser and the philosopher Richard Jeffrey, is one that almost everyone fails.

Suppose you’ve somehow found yourself in a game of Russian Roulette. Russian roulette is not, perhaps, the most rational of games to be playing in the first place, so let’s suppose you’ve been forced to play.

Question 1: At the moment, there are two bullets in the six-shooter pointed at your head. How much would you pay to remove both bullets and play with an empty chamber?

Question 2: At the moment, there are four bullets in the six-shooter. How much would you pay to remove one of them and play with a half-full chamber?

In case it’s hard for you to come up with specific numbers, let’s ask a simpler question:

The Big Question: Which would you pay more for — the right to remove two bullets out of two, or the right to remove one bullet out of four?

The question is to be answered on the assumption that you have no heirs you care about, so money has no value to you after you’re dead.

Almost everybody says they’d pay more in the first case than the second. Arguably, that means that in this scenario almost nobody is rational — because a rational person would give the same answer to both questions.

The reason for that is not immediately obvious. To understand it, you’ve got to think about four questions:

Continue reading ‘Another Rationality Test’

Status of the Bets

rouletteAs promised, I am providing an update on the status of the various bets that got placed here last week.

The problem is this: In a certain country, each family continues having children until it has a boy, then stops. In expectation, what fraction of the population is female?

The answer is: not 1/2. A more precise answer depends on your additional assumptions — the number of families, the mortality rate, whether the parents count, whether there are grandchildren, etc. It might be possible to engineer those additional assumptions in some way that makes the answer come out to 1/2, but it would surely be impossible to argue that those ad hoc assumptions, whatever they are, are implicit in the statement of the problem.

Pretty much everyone seems to understand this now. (Here‘s one more learning aid, if you’re still struggling.) What, then, are we betting about? Here is a list of all the open and closed bets:

Continue reading ‘Status of the Bets’