Monthly Archive for October, 2014

Quote of the Day

That was the day Father had told the Burdens that Cash Benbow would never be elected Marshal in Jefferson. I don’t reckon the women paid any more attention to it than if all the men had decided that the day after tomorrow all the clocks in Jefferson were to be set back or up an hour.

—William Faulkner, The Unvanquished

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Amazon’s Bargemen

In early 20th century China, goods were frequently transported by barges pulled by teams of six men. The men were paid only if they delivered their goods on time. Therefore they all agreed to pull as hard as possible.

This is a classic example of what economists call a Prisoner’s Dilemma — a situation where everyone wants to cheat, regardless of whether he believes the others are cheating. Any bargeman might reason that “If the others are pulling hard, we’re going to make it anyway, so I might as well relax. And if the others are not pulling hard, we’re not going to make it anyway — so I still might as well relax .” Therefore they all relax and nobody gets paid.

According to my late and much lamented colleague Walter Oi, the bargemen frequently solved this problem by hiring a seventh man to whip them whenever they appeared to be giving less than 100%. You might suppose, at least if you’re a person of ordinary tastes, that hiring a man to whip you is never a good idea. There’s a sense in which you’d be right. But hiring a man to whip your colleagues can be a very good idea indeed, and if that requires getting whipped yourself, it might prove to be an excellent bargain.

If I’d lived in China a hundred years ago, I believe I’d have gone out of my way to buy goods from the teams with whipmasters — partly because that’s where I’d expect the best service, but also partly because I’d feel a certain combination of admiration and loyalty for the teams who were working so hard to earn my business.

That’s how I feel about the folks at Amazon. Based on the fabulous service I’ve been getting, I’m confident these people are knocking themselves out to do a good job for me. In fact, it’s been widely (and perhaps accurately) reported that during a heat spell a couple of summers ago, workers in an un-airconditioned Pennsylvania warehouse continued to fill orders even as several were being treated for heat sickness.

There’s a narrative going around that tries to paint these workers as victims, though I’ve heard no version of that narrative that makes clear who, exactly, is supposed to have victimized them — the stockholders? the management? the customers? the do-nothing Congress? But there’s little point in trying to make sense of this narrative, since it’s so obviously wrong to begin with.

Imagine a team of ambitious but relatively low-skilled workers. They know that if they all push themselves to the limit, they’ll all be more productive and therefore earn higher wages. They also know that if they all promise to push themselves to the limit, they’ll all break their promises, figuring that success or failure depends almost entirely on what the others do.

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Blogpost in October: 100 Years to Heaven

dylanOne hundred years ago today, in a back room on the second floor of a middle class row home in the Welsh city of Swansea, Dylan Thomas issued his first demand for the world’s attention. His cries, I feel sure, struck onlookers as both profoundly expressive and infuriatingly difficult to understand. It was a schtick he spent 39 years refining.

I believe that Thomas at his best was the finest lyric poet ever to write in English, and at his worst a pretentious windbag. The best is more than ample compensation for the worst. At age 12, he won a prize for a poem he’d submitted to a children’s magazine, and as an adult he kept a copy of that poem, cut from the magazine, pasted to his bathroom mirror. Only after he died did some literary detective discover that Thomas had plagiarized the poem. But before he was out of his teens, he wrote the superb and brilliantly original “I See the Boys of Summer”, which I am quite sure nobody else could have conceived or executed.

Because this is Thomas’s birthday, and because every blogger is entitled to an occasional bit of self-indulgence (how else could you explain Bob Murphy’s karaoke posts?), I present here a recital of the best of Thomas’s several birthday poems. For balance, you’ll find below the cut a recital of Thomas’s finest death poem (no, it’s not “Do Not Go Gentle”), and two more of my favorites on the recurrent Thomas themes of birth and the passage of time.

(Related: My 90th/96th birthday appreciation.)

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The Big Winners

The winners of our crossword puzzle contest are:

—Todd Trimble (3 mistakes)

—Eric Kehr (4 mistakes, but he corrected them all by email almost immediately)

—Serge Elnitsky (5 mistakes)

—Paul Epps (5 mistakes)

(There were supposed to be three winners, but since there’s a tie for third place, we have four.)

For all those who struggled and want to see the answers, I’m temporarily posting the solution here, but might take it down after a little while in case others want to try the puzzle without being tempted to peek.

Each winner is entitled to a copy of one of my books, with a personal inscription acknowledging your brilliance. If you’re a winner, please send me your mailing address by email and book choice by email or by commenting below.

The choices are:

The Armchair Economist — the principles of economics, applied to everyday life. Available both in the original (1993) edition and in the updated (2012) version. The latter is (I hope) a little better and a lot more up-to-date, but available only in paperback. The Wall Street Journal review is
here. You can read the preface to the 2012 version here.

Fair Play. The argument of this book is that we tend to think most seriously about issues like fairness when we’re explaining them to our children — so we should listen to things we say to children, draw lessons from them, and take those lessons into the marketplace and the voting booth. The Washington Post review is here. You can read a sample chapter here.

More Sex is Safer Sex. A compendium of surprises from economic theory, including how you can do your part to fight STDs by having more sex, and why you should contribute to only one charity. The Financial Times review is here. You can read an excerpt here.

The Big Questions — tackling the problems of philosophy, beginning with “Why is there something rather than nothing?”, using ideas from economics, mathematics and physics. Some reviews are here.

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Letters and Numbers

Four years ago, roughly two dozen economists and financial theorists signed an open letter to Ben Bernanke urging him to back off the policy of quantitative easing, citing, among other things, the risk of inflation.

Bernanke was apparently unmoved, and quantitative easing went ahead as scheduled. Inflation has not materialized. This raises a number of questions for the signers of the letter. Should they be ashamed? Do they have anything to apologize for? Should they renounce everything they thought they knew about economics and relearn the subject from scratch?

Cliff Asness, one of the signers, responds here. This is a terrific essay, not just on the specific topic of quantitative easing but on the general topic of the lessons we should and should not learn from our mistakes and/or from concerns that don’t materialize.

Postscript: True to form, Paul Krugman concludes that Asness, because he disagrees with Krugman, must be entirely ignorant of all the macroeconomic literature on liquidity traps. I wonder if Krugman wants to draw the same conclusion about Asness’s fellow signer John Taylor, whose likely future Nobel prize, unlike Krugman’s (who won for trade theory and economic geography), will recognize Taylor’s widely acknowledged first-rate scholarship and influence in the field of macroeconomics.

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A Little Perspective

As recently as a few months ago, doctors were held in high esteem and educated people believed that medicine could be useful. All that changed, of course, with the medical profession’s stunning failure to prevent or even predict the breakout of ebola in West Africa. Worse yet, many doctors to this very day cling to their old ways of thinking, writing prescriptions, setting broken bones, and performing surgery in bull-headed defiance of the urgent need to jettison everything we know about medical practice and start over from scratch.

Nobody, of course, writes such nonsense about medicine. Why, then, do so many write equivalent nonsense about economics?

Most economists failed to predict the 2008 financial crisis and ensuing recession for pretty much the same reason most doctors failed to predict the 2014 ebola epidemic — their attention was, quite reasonably, directed elsewhere. It’s easy to say in hindsight that if economists had paid more attention to the shadow banking system, they’d have seen what was coming. But attention is finite, and if economists had paid more attention to the shadow banking system, they’d have paid less attention to something else.

For a little perspective, have a look at this chart showing U.S.~per capita income in fixed (2005) dollars:

That little downward blip you see near the top is the recent crisis. The somewhat bigger downward blip in the 1930s is the Great Depression. The moral is that in the overall scheme of things, recessions don’t matter very much. At the trough of the Great Depression, people lived at a level of material comfort that would have seemed unimaginably luxurious to their grandparents. Today, while Paul Krugman continues to lament “the mess we’re in”, Americans at every income level live far better than Americans of, say, 1980. If you doubt that, you surely don’t remember what life was like in 1980. Here’s how to fix that: Pick a movie from 1980 — pretty much any movie will do — and count the “insurmountable” problems that the protagonist could have solved in an instant with the technology of 2014. Or reread any of the old posts on this page.

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