Author Archive for Steve Landsburg

Style Versus Content

Paul Krugman pauses to wonder why he’s been characterized as immoderate when — according to him — “there’s not a lot of air between my views and those of, say, staff economists at the Fed.” His conclusion: “What was radical, if you like, was my style, not my content.”

Bingo. Krugman’s detachment from mainstream economics is indeed a matter more of style than of content. But one symptom of that detachment is his failure to recognize that style is all that matters. Economics is most valuable not as a repository of received truths, but as a way of thinking — a way of thinking that has proved itself extraordinarily valuable as a bulwark against nonsense and claptrap. It’s that way of thinking — the style of economics — that Krugman so often and so depressingly abandons.

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Truth In Advertising

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State of the Union

I’m leaving this one up to my readers. What was the most egregious moment?

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Thursday Solution

Several commenters correctly solved yesterday’s puzzle…..

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Wednesday Puzzle

(Source omitted to discourage Googling; acknowledgements will come next week).

You have a sealed lockbox about a cubic yard in volume, containing $100,000 in hundred dollar bills. Your balance scale tells you that the box (with the money inside) weighs 100 pounds. You give the box to your friend Al, who flies it to the moon, while you, along with your balance scale, follow in a separate vehicle. Upon arrival, you retrieve the sealed box, put it on the balance scale and verify that it still weighs 100 pounds. You then give the box to your friend Barb, who loads it into her all-terrain vehicle and drives it to your moonbase, with you following along, again in a separate vehicle. When you get to the moonbase, Barb returns your lockbox. You open it and it’s empty.

Who stole your money, Al or Barb?

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Blinded By Prejudice?

I’ve been reading about the passage of the 1957 Civil Rights Bill, which, in its original form, banned racial segregation in theaters, restaurants and hotels (though by the time it was passed, almost all of the content had been stripped out). There’s a part of this history that makes no sense to me and I’m wondering if someone can explain it.

Remember first that this was at a time when several southern states enforced laws that mandated segregation in theaters, restaurants and hotels.

It was also at a time when, as I understand it, the outcome of the legislative battle was very much in doubt, so that each side feared the worst and was eager to compromise. Supporters weren’t sure they could beat a filibuster, which meant the bill might never even come to a vote. Opponents feared a filibuster might be beaten and the bill passed without amendments.

Lyndon Johnson, the majority leader of the Senate, wanted above all else to avoid a major fight, and was eager to facilitate any compromise both sides could agree on. He floated several compromise proposals and actively solicited others, from legislators, attorneys, and everyone else he could think of.

In Master of the Senate, the third in his three-volume biography of Lyndon Johnson, Robert Caro describes a vast number of compromises that failed before the passage of the final successful compromise.

Now here’s what astonishes me: Here you had all these lawyers and politicians, desperately trying to find a creative compromise — and yet, as far as I can tell, nobody ever proposed the compromise that seems (to me) to be obvious. The Republicans and northerners wanted mandatory integration. The southerners wanted to maintain mandatory segregation. The obvious compromise, I should think, would be to have neither — the northerners agree not to pass a federal law, and the southerners agree to repeal some state laws.

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Walter Oi, 1929 – 2013

A long time ago, when I had just started teaching at the University of Rochester, a blind man marched into my office, adopted a commanding stance, and announced in a booming voice that “it takes 150 condoms to prevent one birth in India”. Then he turned on his heels and marched out, leaving me to wonder what he had divided into what to get that number.

That’s what it was like working with Walter Oi, who died peacefully in his sleep on Christmas Eve after a long illness. Walter loved odd facts, and he loved to share them. It was Walter who told me that when all frozen pies had 12 inch diameters, apple was the most popular flavor — but when 7 inch pies came on the market, apple immediately fell to something like fifth place. His explanation: When you’re buying a 12 inch pie, the whole family has to agree on a flavor, and apple wins because it’s everyone’s second choice. With 7 inch pies, family members each get their pick, and almost nobody chooses apple.

Walter loved facts so much that he sometimes invented new ones, because the world could always use more. One day he walked into the department coffee room and announced that “A one hundred pound man and a three hundred pound man have exactly the same quantity of blood.” When this was met with considerable skepticism, Walter responded as he always responded to skepticism — by repeating himself more forcefully: “A one hundred pound man and a three hundred pound man have EXACTLY the same quantity of blood”.

In those pre-Internet days, some of us owned a device called an “encyclopedia”, which was sort of like a hardcopy printout of Wikipedia, but with fewer Simpsons references. A couple of my more enterprising colleagues went home and checked their encyclopedias that night, and came back the next morning to report that according to authoritative sources, a man’s blood volume is roughly proportional to his body weight. Walter’s response: “Nope. A one hundred pound man and a three hundred pound man have EXACTLY the same quantity of blood.”

If you watched carefully and didn’t blink, you might have caught him suppressing a smile.

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Thursday Solution

Tuesday Puzzle

Here I have a well shuffled deck of 52 cards, half of them red and half of them black. I plan to slowly turn the cards face up, one at a time. You can raise your hand at any point — either just before I turn over the first card, or the second, or the third, et cetera. When you raise your hand, you win a prize if the next card I turn over is red.

What’s your strategy?

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MegaOdds

In case you’re thinking of running out for a MegaMillions lottery ticket in the few hours left before tonight’s drawing: If you drive one mile to buy your ticket, your chance of being involved in a fatal accident on the way is about 8 times as great as your chance of winning the jackpot.

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Vocabulary Lesson

So…Democrats want to increase federal spending. Republicans supposedly want to decrease federal spending. The “compromise” is to increase federal spending by $45 billion.

I do not think the word “compromise” means what these people seem to think it means.

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Blast from the Past

With minimum wages in the news, one of my old posts on the subject has been getting a lot of hits lately. Unfortunately that post is quite long and the key points come near the end — past the point where I suspect a lot of people might stop reading. So here I’m excerpting what I consider the main ideas:

1. If we’re going to transfer income to low-wage workers, it’s both fundamentally unfair and politically unwise to put the entire burden of that transfer on a relatively small segment of the population (namely the owners and customers of businesses that employ a lot of low-wage workers). The right thing, given that we’re going to make this transfer, is to fund it as broadly as possible — say through an increase in the Earned Income Tax Credit, which comes out of general tax revenues.

2. I used the phrase “fundamentally unfair and politically unwise”. I’ll expand on both points, starting with fairness. When we collectively want a whole lot of 18-year olds to form an army, do we put the entire burden of that desire on people who happen to be 18 years old, by conscripting them at zero wage? Or do we think it’s fairer for those of us who enjoy the protections of that army to bear the cost through the tax system? When we collectively want to convert farmland to parkland, do we put the entire burden of that desire on people who happen to own farms, by taking their land without compensation? Or do we think it’s fairer for potential park-goers to pay for that land through the tax system? When we collectively want to raise the wages of unskilled workers, should we put the entire burden of that desire on those who happen to employ unskilled workers? Or is it fairer for those who have collectively made this decision to share the burden?

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Minimum Insight

Paul Krugman argues that:

  1. Hiking the minimum wage has little or no adverse effect on employment
  2. and therefore

  3. A minimum-wage increase would help low-paid workers, with few adverse side effects

.

In other words, Krugman, not for the first time, is peddling the sort of claptrap that few of us would accept from a college freshman.

The first point — that hiking the minimum wage has little effect on employment — is an empirical one. Not all smart observers agree with Krugman’s reading of the data, but many do — so for the sake of argument, let’s assume he’s right about that.

The question now is: How the hell do you get from point 1 to point 2? Answer: Only by forgetting the most basic principle of economics, which is that things have to add up. If the minimum wage has no effect on employment, then it’s basically a pure transfer of resources. Which means that the costs and the benefits are equal. The only way there can be “few adverse side effects” —- i.e. few costs — is if there are few benefits. Our job as economists is to make sure people understand such things.

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Elbow Catch

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Possibly better viewing here.

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This Day in History

Fifty years ago today at 1:30 PM eastern standard time, a minor tragedy took the life of President John F. Kennedy. A little over an hour later, a major tragedy ensued, as Lyndon B. Johnson was sworn in to replace him.

If there is such a thing as evil, it lived in Lyndon Johnson, whose life was one long obsession with the accumulation and exercise of power. His biographer Robert Caro relates how, in college, Johnson engineered, by intimidation and deceit, a takeover of the Student Council partly so that he could, apparently for sport, force the removal of talented and hardworking students from the editorships of campus publications, replacing them with non-entities and reveling in the tragic aftermath as ousted incumbents (who had received small but urgently needed stipends for their work) were forced through financial hardship to drop out of school.

It was downhill from there. As President, Johnson presided over a misbegotten war in Southeast Asia — a whirlpool of destruction fed with lives and treasure — and an equally misbegotten “War on Poverty” that too often became a war on economic freedom, the only effective antidote to poverty the world has ever known.

The War on Poverty might have been more accurately termed a war to consolidate Johnson’s influence. Poor rural families got grants and loans to expand their farms — provided they stayed on the farms, where Johnson needed their votes. Job training, educational programs, small business loans — all were available as long as you lived your life in a way that suited Lyndon Johnson’s purposes.

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A Little Knowledge is A Dangerous Thing

Sent by a reader:


(Click to enlarge.)

Some questions for the economics students:

  • Which vertical line segment illustrates the carbon tax revenue?
  • Which vertical line segment illustrates the compensation paid by the government?
  • Where does the difference come from?
  • What difference would it make if you changed the axis labels from “Polluting Products” and “Non-Polluting Products” to “Watermelon” and “All Things That Are Not Watermelon”?

Answers below.

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False Imprisonment

The frequently insightful and usually accurate Megan McArdle gets this part quite completely wrong in her latest Bloomberg column about ObamaCare:

Democratic politicians and insurers are locked in a prisoner’s dilemma. In this classic game-theory case, you and a professional associate are both arrested for theft. If neither of you talks, then you’ll probably get off. But if just one of you talks, then the person who talks will get a reduced sentence, while the other person has the book thrown at them. If you both talk, then both of you go to jail for a long time. The equilibrium is for both of you to talk, just in case the other guy does .

I sincerely hope that anyone who’s ever taken my Principles of Economics course — or for that matter, any Principles of Economics course — can explain to McArdle how wrong this is, and why.

Exercise for the reader: To what extent, if at all, does this howler undermine the larger point of McArdle’s column?

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Albert and the Dinosaurs

If you’re wondering what I’m up to, click on the picture.

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Obama Did Not Lie

Say you’re planning a vacation trip to visit the castles of England. You’re thinking maybe you’ll see a castle a day, with lots of time for leisurely drives and exploration in between. Your spouse, meanwhile, has drawn up a rigid schedule that will get you to twenty sites in seven days. In the course of trying, gently, to point out how impractical this is, you ask: “But how can we possibly make it from Harlech to Alnwick in under two hours?”. Your spouse, fed up with this discussion, replies: “We’ll take a rocket ship, okay?”

Actually, of course, your spouse knows perfectly well that you won’t be taking a rocket ship. So: Have you just been lied to? It seems to me that you clearly haven’t been. A lie requires an intent to deceive. You have, perhaps, been treated with contempt, and that can be just as unpleasant as a lie. But it’s not a lie. In order to lie, you’ve got to have some chance of being believed.

When President Obama said that he could provide health care to millions without taking any health care away from people who have already got it, he had no chance of being believed. The statement was absurd on its face. This is a law of arithmetic: If you invite a bunch of friends to share your lunch, there’s going to be less lunch for you. Everybody understands that.

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REALLY Worthless Cash

Just a quick followup to review of Square Cash — further experience has confirmed that using Square Cash is a really really good way to not know whether or not you’ve managed to make or receive a payment. They transfer money from me to you. A couple days later, without warning, they transfer it back from you to me. They ignore most inquiries and respond uninformatively to others. Don’t use these guys.

On another note, I realize blogging’s been slow of late. I’m hoping to find time for some long posts in the near future.

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Worthless Cash

The future, apparently, has not quite yet arrived.

Square Cash promises to be the easy way to transfer money over the Internet. To send you $50, I just send you an email with subject line “$50″ and a cc: to cash@square.com — whereupon Square Cash, upon receiving the cc:, moves $50 from my bank account to yours. (First time users get an email from Square asking for their debit card numbers so the transfer can be accomplished.) Sounds like the easiest thing in the world. And it’s free.

Unfortunately, it’s worth about what you pay for it. My experience using Square Cash multiple times over the past several days indicates that, more often than not, Square transfers $50 one direction — and then a few hours later transfers it back in the opposite direction, so that on balance, no money changes hands. When this happens, you get an email from Square saying the reverse transaction was triggered by a “problem”. No further explanation.

Emails to Square are met with standard Customer Service gobbledygook that ignores key questions such as “Why is this happening?” and “What can I do to make it stop happening?” and “Going forward, can I count on it to stop happening?”. (It’s just happened yet again, so apparently the answer to the last question is “No”.)

One feels a little churlish complaining about the quality of a free service. On the other hand, I’d like to spare others the frustrating experience of dealing with Square, never knowing when a transaction is going to be permanent, and getting no useful answers from the powers that be. (All communication is by email; Square is apparently too advanced a company to use phones.)

My advice: These guys are amateurs. Stick with Paypal.

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Get Educated!

Thanks to the magic of the Internet, you can take a six-week course in “Markets With Frictions” from the colorful and illustrious Professor Randall Wright of the University of Wisconsin — without ever leaving your living room. According to the course description:

The goal is to sharpen our economic reasoning, add a few twists that you are unlikely to have seen in other courses, and apply the methods to interesting phenomena. This should improve the way you think analytically about the economy, and help address interesting issues that come up in the real world.

Professor Wright estimates that you’ll need to devote four to six hours a week to the homework. At the end, you’ll earn a Certificate of Accomplishment.

This is a great opportunity, and the course starts today. Register here. Or first watch the preview:

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What Went Wrong

Okay. I’ve never worked as a tech geek, so I’m speculating from ignorance here. Some of you can probably speak with more authority. Perhaps we’ll hear from the reliably acerbic and insightful Doctor Memory, who knows whereof he speaks on this subject (and several others). But to my uneducated eye, it appears that Arnold Kling has got this pretty much dead-on right: The Obamacare mess “is not a technical screw-up, and it will not be fixed by technical people. It is an organizational screw-up.”

What you had here, among other things (and almost of this is paraphrasing Kling) is:

  • A bunch of people who had never worked in the insurance business appointing themselves executive officers of the world’s largest insurance brokerage.
  • Nobody at the top with the authority to trim features as needed to keep the project manageable.
  • No mechanism for the technical staff to challenge the managers, because all of the management decisions were essentially set in stone before the technical staff — i.e. the outside contractors — came on board.
  • No clear lines of authority and acceptability.

Private enterprises frequently fail, often for one or more of these reasons. But sometimes they succeed, and that’s largely because sometimes they get this stuff right. The government, by contrast, has no mechanism for getting it right. The people at the top are not industry experts, the features are largely determined by the legislative process, which takes place with absolutely no feedback from the tech geeks who are going to have to implement it, the political system pretty much forces you to put the technical part of the project out for bid and to parcel it out among multiple contractors, eliminating any possibility of ongoing negotiation between the managers and the techies, and on top of all that, nobody’s livelihood is on the line.

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Lying Low

Faithful readers of this blog might remember the despicable antics of Senator Sheldon Whitehouse, who, in a televised hearing last June, spent eight excruciating minutes impugning the honesty of a young economist named Salim Furth — because Furth had presented actual data that contradicted a bunch of numbers Whitehouse had made up out of whole cloth. For those who need a refreseher, the entire sordid story — including Paul Krugman’s reprehensible piling-on to Whitehouse’s McCarthyite smear — is here with a follow-up here.

Well, it turns out that Senator Whitehouse is no more interested in understanding the numbers today than he was last June. Last week, the Heritage Foundation held a symposium on the effects of austerity and what the data actually show — the precise data that Whitehouse disputed. In addition to Furth, who has continued his meticulous research on the subject the speakers included illustrious scholars such as Harvard Professor Alberto Alesina. Heritage sent personal invitations to Senator Whitehouse’s staff and to the various journalists who screwed up this story by reporting Whitehouse’s made-up numbers as accurate and his smears as justified.

The result? None of them showed. Apparently Senator Whitehouse’s passionate interest in the austerity numbers tends to cool off when he can’t hog the spotlight, or might risk learning something.

Meanwhile, if you care more about this subject than Senator Whitehouse does, you might want to look at Furth’s most recent report on the subject, or at the data set he’s posted online, or at his most recent blog post calling Paul Krugman to account for misinterpreting some of these numbers.

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Questioning the Fifth Amendment

Our frequent visitor Bennett Haselton emailed me recently with a question about the Fifth Amendment, and I invited him to expand his question into a guest post. Here it is:

Questioning the Fifth Amendment

A Guest Post

by

Bennett Haselton


I have a question that has only provoked a lot of confused righteous indignation in other forums, and I wonder if TBQ readers might have more thoughtful responses, if we phrase it as a logic puzzle.

My question: I don’t see why it’s good policy to give criminal defendants a Fifth Amendment right to silence in their own trial, as opposed to giving them the same rights and obligations as third-party witnesses (who can be subpoenaed and required to answer questions).

Now obviously I’m not saying that the state should be able to torture someone until they confess to something. When I say give defendants the “same rights and obligations as third-party witnesses”, I mean:

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Six Observations

Do correct me if I’ve got any of the history wrong here:

1. It seems pretty likely that a big part of the reason why Amazon’s website works so well and Obamacare’s website works so poorly is that Obamacare, unlike Amazon, is not subject to the discipline of the market (and therefore, for example, employs coders with no equity in the enterprise).

2. A whole lot of people predicted that the Obamacare bureaucracy would not work well because it would not be subject to the discipline of the market. I’m not sure anyone pointed to the webpage as a particular point of vulnerability, but plenty of people made the general observation that large government bureaucracies don’t work well and that this was a reason to be skeptical of Obamacare.

3. Paul Krugman pooh-poohed those concerns.

4. Paul Krugman reminds us approximately 914 times per month that only a very bad person would fail to acknowledge accurate predictions of his adversaries. (It’s true that in approximately 914 of those 914 cases, the vindicated adversary is Paul Krugman. But he has indicated support for the general principle.)

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A Novel Example

Yesterday’s post on the problem with novels was initially badly garbled due to an html coding error. It’s fixed now, but since the original version managed to confuse some people, let me offer an example (which you can also find in the comments on the original post).

Light in August, which has already been written, is available for about $8. It’s worth $9 to me. If I download a copy, $9 worth of social gain is created (a $1 gain for me, and an $8 gain for the estate of William Faulkner).

Now a contemporary novelist, say Sara Gruen (to pick a very good one) comes along and realizes that with $8.50 worth of effort, she can write a book for which I’m willing to pay $10. By offering it at $8.99, she induces me to read her book instead of Faulkner’s, and clears a 49 cent profit. Total gain: $1.01 for me, and $.49 for Sara, or $1.50.

(Of course Sara Gruen does not write books just for me, but she might well expend $8500 worth of effort to write a book for 1000 people like me, whereupon all the numbers scale up.)

In other words, by writing a very good novel, Ms. Gruen reduces the social gain from my reading habits from $8 down to $1.50.

That’s exactly the sort of thing that economists generally believe should be taxed. In fact, a perfectly analogous argument constitutes the entire case for taxing polluters.

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AAGGHH!

This morning’s post on the market for novels was marked up wrong, and as a result it jumped from the middle of the first paragraph to somewhere around the fourth, probably making it pretty hard to follow. It’s fixed now.

When a Good Novel Is A Bad Thing

Edited to add: The original version of this post was marked up wrong, causing it to jump from the middle of the first paragraph to the middle of the fourth. That presumably made it seem pretty incoherent. It’s fixed now. If it made no sense to you before, I hope you’ll give it another shot.

**************************

If you read a novel a month, then Anthony Trollope, Philip Roth and William Faulkner (my three current favorites) should be enough to get you through the next 8 years. At that point you can start in on Dostoevsky or (if your memory is like mine) go back to the beginning and it will all seem new again.

There are in the world, far too many superb novels to read in a single lifetime, which makes it pretty hard to justify writing new ones. Even the best of contemporary novelists might well be more usefully employed as, say, an exterminator.

Yet successful novelists receive great rewards that encourage them to continue writing. That’s what we call a market failure — a case where price signals have failed in their mission to direct resources (in this case the novelist’s time and effort) to their most valuable uses.

You can, for example, get the Kindle edition of Faulkner’s Absalom, Absalom! for about $8.50. For the same $8.50, you can get the Kindle edition of, say, Sarah Gruen’s Water for Elephants. Either way, you’ll read a terrific book. But if you fork over $8.50 for Gruen’s book, she and her publisher get the message that they’ve given you at least $8.50 worth of value, and they should keep it up. That’s an illusion, because it ignores all the value that was lost when you bypassed the Faulkner.

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Public Service Announcement — Instructors’ Manual

If you are an instructor using the new 9th edition of my book Price Theory and Applications, you might share my frustration at the fact that Cengage, for reasons presumably related to its ongoing bankruptcy proceedings, has still not managed to release the instructors’ manual, though its been ready for several weeks now.

Fortunately, not too many instructors are affected, since most are still using the 8th edition (we expect most instructors to switch over starting in January, 2014). But if you are one of those instructors, please do email me (you can click on the “contact” tab at the top of this page) so I can send you copies of at least the first several chapters to hold you over until Cengage gets it act together.

(Note that this offer does not apply to students! Your email must come from a recognizable college or university address, where I can check via the web that you are currently teaching this course!)

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