Marginal Tax Rates

From this article by Robert Barro and Charles Redlick. The x-axis represents time, starting around 1910. The y-axis is % of income.



(HT Greg Mankiw)

The Economics of 'Law and Order'

I do enjoy the show, but their economics? No so hot.

I don't know if you watch Law and Order Special Victims Unit but they had a rather frustrating take on the pharmacutical companies tonight.

In the episode one of their witnesses to a crime was suffering from heroin withdrawals. The doctor told the cops that he had to put the witness on methadone to help compensate for the withdrawal symptoms. But, he said, there was a better drug out there that could cure him of his heroin addiction, had side effects that were smaller than methadone, was in pill form (methadone apparently is administrated via IV), etc. Basically it was a wonder drug (can't remember what they called it).

So of course the cops ask the doctor why he is not using it and the doctor explains that the patent for this new drug has run out and since the FDA has not approved it yet no drug company is willing to run it thru the FDA trials to get it certified in the United States because they will not be able to make any money off it. Of course the cops start bad mouthing the "evil" drug companies and their lack of morals.

What I found interesting is no one bad mouthed the FDA: the true culprit in this "crime."

App Store Hits 100,000 Apps in 481 Days, Over 2 Billion Downloads

Wow. This is the kind of success companies can only dream of. This is why I am absolutely convinced Apple will soon release some type of tablet device (and other platforms?) that can make us of these and new apps. And why I am absolutely convinced other manufacturers and developers will get in on this business model. They would both be foolish not to.

I wonder if the Courier will be Microsoft's first foray into this? There's no reason eReaders such as the Kindle and Nook could not also support app stores.

The computer world has long been wedded to a desktop/laptop paradigm. I think we are about to witness a fundamental shift in how computers are designed, used, and marketed. 'Slate' format systems definitely seem to be in. So is cheap (hardware and software), easy to use interfaces, and long battery life.

Given how clunky Apple's organization is for the App Store and apps on the iPhone, draconian procedures for app approval, and over-zealous locking-down of the iPhone -- this success is astounding. I don't think Apple has figured out how to fully capitalize on their success. Whoever figures this out the quickest has a veritable goldmine waiting for them.

Apple has a good head start, but I expect others to get up to speed very soon. Android seems well poised for being the next serious contender for who knows? Apps didn't even exist 500 days ago...

The Virtues of Limiting Executive Pay

Bruce Yandle:

We taxpayer/investors demand a set of risk-sensitive compensation guidelines that will mandate pay and wealth-management rules for all federal government top executives starting with the president of the United States and all cabinet members and their deputies. While we’re at it let’s include all members of Congress and every member of the commissions and boards that manage the nation’s independent agencies, including, of course, the board of governors and chairman of the Federal Reserve System.

To properly align incentives of these elected and appointed executives (and others), we demand that each and every one be paid a base pay — some 75 percent of the current salary — plus incentive pay — the remaining 25 percent — based on improvements in real GDP growth over a five-year period that begins the day of their appointment or election. The base pay would be provided on the normal Office of Personnel Management pay schedule. The incentive pay, with recommended details worked out by Feinberg, would be provided on the basis of a three-year rolling average gain in real GDP, which means that the first incentive payment would be received three years after an executive’s first day of office.

But this deals with just part of the incentive misalignment. We must align incentives associated with government executive wealth.

Elected and appointed government executives routinely place their personal investment portfolios into management by a blind trust. While this action satisfies those who may be concerned primarily with ethics and upright behavior, simply being blindfolded as to capital gains and losses does not get to the systemic risk problem, which of course, is our chief concern here.

All high government officials described earlier must have their personal portfolios invested in a visible S&P 500 index funds, not to be redeemed until one year after leaving office. We taxpayer/investors do not want our executives blindfolded as to gains and losses. We want them to know exactly what is happening to the Great American Bread Machine, our economy, while they are in office. We want them to feel our pain and our gain.

Feinberg and Bernanke should focus efforts on those whose actions can capsize the economy—the top executives and elected officials in Washington. The others are small potatoes.

Russ Roberts thinks he's on to something. I have to agree.

Microsoft Courier's New Interface?

Gizmodo has lots of pics.

Creationism, Minus a Young Earth, Emerges in the Islamic World

Interesting...

Creationism is growing in the Muslim world, from Turkey to Pakistan to Indonesia, international academics said last month as they gathered here to discuss the topic.

But, they said, young-Earth creationists, who believe God created the universe, Earth and life just a few thousand years ago, are rare, if not nonexistent....

More and more seem to be joining the ranks of the so-called old-Earth creationists. They do not quarrel with astronomers and geologists, just biologists, insisting that life is the creation of God, not the happenstance consequence of random occurrences.

The debate over evolution is only now gaining prominence in many Islamic countries as education improves and more students are exposed to the ideas of modern biology.

Read the whole thing.

If this movement becomes large enough, I wonder if there will be a corresponding strengthening of 'old-earth creationism' among Christians? Competition works among religious groups, just like it does in the marketplace.

One way to look at the emergence of creationism among Muslims is as a reaction to the increase in educational opportunities in the Muslim world. As more and more young Muslims are taught about evolution, the more it poses a threat to traditional Islamic teachings about the creation of man. Likewise, if Islamic 'old-earth creationism' has stronger intellectual appeal than Christian 'young-earth creationism' to people questioning matters of religion, you may see a strengthening of Christian 'old-earth creationism' as both religions compete for converts.

Four Obvious Lessons From Last Night's Elections

Orin Kerr with an excellent example of how data interpretation depends on your priors:

I think there are four obvious lessons to draw from tonight’s election returns:

1. For Conservative Republicans: The America people reject Barack Obama and obviously want true conservative leadership. The Governorships of two states have switched to the “R” category, showing a grassroots conservative movement that is alive and well.

2. For Moderate Republicans: The American people obviously want old-fashioned economic conservatives who are moderate on social issues. McDonnell in Virginia and Christie in New Jersey won by downplaying social issues; Hoffman in New York-23 lost because he was too extreme.

3. For Moderate Democrats: The party out of power usually does well in off-year elections like this, and this year was no exception. But obviously there is no sign of any substantial shift in public opinion from the election of 2008.

4. For Liberal Democrats: NY-23 was the race to watch this year, given that right-wing extremists like Palin and Beck threw all their support behind Hoffman. But the district voters rejected the right-wing candidate, sending a Democrat to Congress for the first time in one hundred years. Obviously this shows that the American people reject right-wing extremism.

Obviously.

"Neoclassical Economics is Inconsistent With the Laws of Thermodynamics?"

I first heard this postulated by a physicist while studying at the Santa Fe Institute this summer. As a mechanical engineer turned economist, I've had more than my share of training in both thermodynamics and neoclassical economics and find myself bewildered by this kind of claim.

The New York Times quotes Charles Hall, professor of systems ecology at SUNY-ESF, summing up what I find ultimately problematic with trying to use thermodynamics to understand economics:

"The basic issue is very fundamental: Why should economics be a social science, because it's about stuff?"

Actually, it's not. And this is where this type of approach begins to go off course. Economics is the study of what people value and how it affects their behavior. What is most of interest to economists is the behavior, not the stuff. People do indeed value stuff, but one of the basic tenets of economics is that this value is subjective. Value is created when people trade things, but this has little, if any, relationship to how much entropy was created in that physical transfer. Actions that produce large degrees of physical entropy (explosions) can destroy value, while actions producing small levels of entropy can create large value (trading a diamond for a cup of water that saves a life). And this isn't even getting into the fact that people value a lot of intangible things too (time, poetry, love, music, etc.). How do you evaluate the entropy of those?

This "new" approach to economics is not unlike what early economists debated a couple hundred years ago when people were convinced that value was determined based on the amount of labor put into the creation of a good. However, this line of thinking was eventually replaced with notions of subjective value which depend upon marginal utility. (See the Diamond-Water Paradox.)

Hall and his colleagues are trying to use objective measurements of "energy return on investment" and entropy, but applying it in such a way that misses some of the most basic insights of economics. This might be more understandable if these insights weren't something found in every Econ 101 textbook.

Read the whole New York Times piece. I heard several presentations in Santa Fe that dealt with the same issues and had the same problems in their approach. If you image a group of economists developing the new field of 'physinomics' and attempting to explain Newton's law of universal gravitation in terms of decreasing transaction costs, you'll get an idea of what a lot of this sounds like in reverse.

While neoclassical economics may have it's share of problems, I don't think its inattention to thermodynamics is one of them. I'm afraid trying to apply physical notions such as entropy to economics may ultimately end up generating a lot of heat, but very little light.

(HT Tyler Cowen)

Movie Narrative Charts

A fantastic chart tracking the characters, events, and plot of several movies. The complexity of the Lord of the Rings graph is incredible (a testimony to Tolkien's literary genius) and the one for 12 Angry Men is simply awesome. Click on the chart for a larger view.



(xkcd via Dustin)

I'll Take Economists for $400!

(HT Megan McArdle)

Heller on Gridlock and the Tragedy of the Anticommons

EconTalk:

Michael Heller of Columbia Law School and author of The Gridlock Economy talks to EconTalk host Russ Roberts about the book and the idea that fragmented ownership is a barrier to innovation. Heller makes an analogy between the tragedy of the commons and what he calls the tragedy of the anticommons--the problem of bundling together numerous individual claims to a resource. Examples discussed include drug innovation when the innovator wants to use technologies of multiple patent holders, new music or visual media where the creator wants to use multiple copyrighted works, and allocation of spectrum rights and its role in wireless innovation.

Follow the link for related resources and listen to the podcast here.

I saw Heller speak here at GMU about a month ago. He has some intriguing ideas that need serious consideration. I highly recommend listening to this podcast.

USS New York Warship Is Made With Steel from the Twin Towers

Setting sail on her maiden voyage:

The 684-foot, $1.2-billion warship USS New York is actually made of New York. At least, 7.5 tonnes of salvaged steel from the Twin Towers. Watch it come back home, under the eyes of the Lady of the Harbor:

The USS New York is a San Antonio-class amphibious assault vessel, which can carry 800 marines with their helicopters. The steel from the World Trade Center was used for its bow.

[USS New York via Times Online]

More photos after the link.

Has the Nook Been Naughty?

Spring Design sues Barnes and Noble over the design of the Nook:

We knew something was up with the Spring Design Alex dual-screen ebook reader the instant we saw its hastily-prepared web site published the night before Barnes & Noble's Nook launch, and it appears that our hunch was right: Spring Design just filed a trade secret lawsuit against B&N, alleging that their designers showed the Alex to the bookseller's execs before the Nook was developed.

According to Spring Design, the two companies had been in contact with each other over ereader designs since the beginning of the year, with various executives exchanging calls, meetings and product details under NDA -- which would certainly explain why there are suddenly two Android-based ereaders on the market with dual electronic ink and capacitive LCD touchscreen displays.

Definitely suspicious, but we'd also note that the Nook and Alex actually work quite differently: users browse the web on the Alex's touchscreen and then "print" the content they want to read to the electronic ink display, while the Nook doesn't have a browser and the touchscreen is only used for navigation, not content.

The Human Cost of Delayed Economic Reform in India?

Above is a photo of a family I took in India in 2003. Below is another photo from the same trip at a leper colony near Hdyderabad.

Some sobering statistics from Swaminathan S. Anklesaria Aiyar:

For three decades after its independence in 1947, India strove for self-sufficiency instead of the gains of international trade, and gave the state an ever-increasing role in controlling the means of production. These policies yielded economic growth of 3.5 percent per year, which was half that of export-oriented Asian countries, and yielded slow progress in social indicators, too. Growth per capita in India was even slower, at 1.49 percent per year. It accelerated after reforms started tentatively in 1981, and shot up to 6.78 percent per year after reforms deepened in the current decade...

[W]ith earlier reform, 14.5 million more children would have survived, 261 million more Indians would have become literate, and 109 million more people would have risen above the poverty line. The delay in economic reform represents an enormous social tragedy. It drives home the point that India's socialist era, which claimed it would deliver growth with social justice, delivered neither.

You can download Aiyar's entire paper on this here. [PDF]

The magnitude of these numbers is a poignant reminder of the impact winning the battle of ideas has among economists. Choose poorly and millions of lives could be needlessly lost and even more may find themselves living in avoidable poverty. To my fellow economists, this should be a call to sharpen our pencils and our wits, and to take our roles as educators very seriously. (It might also be a call to step beyond the bounds of the academy and the US in our efforts to educate.)

(HT Don Boudreaux)

Half a Man Is Better Than None?

What happens when there aren't enough men to go around:

Women in Siberia are lobbying to legalize polygamy, a Cambridge University anthropologist reports in The Guardian in London. The critical issue is demography. Population is falling and there are fewer men than women. Caroline Humphrey, the anthropologist, said: “Women say that the legalization of polygamy would be a godsend: it would give them rights to a man’s financial and physical support, legitimacy for their children, and rights to state benefits.” Meanwhile, some Russian nationalists claim that introducing polygamy in the country would provide husbands for “10 million lonely women” and fill Mother Russia’s cradles.

This brings up the question of what would happen if there weren't enough women? Prostitution? Violence? War? Migration? Somehow, polyandry (one wife with many husbands) has never seemed to work too well.

If polygamy is legalized, it might have the same effect as suddenly reducing the number of women in the population. As many women would likely flock to the more successful men, it would leave poorer men in the lurch -- creating a gender-imbalance in the opposite direction.

(HT Richard Whitmire)

World Fertilitiy Rates in Decline

Go forth and multiply... a lot less?

Sometime in the next few years (if it hasn’t happened already) the world will reach a milestone: half of humanity will be having only enough children to replace itself. That is, the fertility rate of half the world will be 2.1 or below. This is the “replacement level of fertility”, the magic number that causes a country’s population to slow down and eventually to stabilise. According to the United Nations population division, 2.9 billion people out of a total of 6.5 billion were living in countries at or below this point in 2000-05. The number will rise to 3.4 billion out of 7 billion in the early 2010s and to over 50% in the middle of the next decade. The countries include not only Russia and Japan but Brazil, Indonesia, China and even south India.

The biggest change? Iran, where the average fertility rate dropped from seven(!) in 1984 to 1.9 in 2006 (1.5 in Tehran).

Lastly, a special case: China’s one-child policy, which began nationwide in the early 1970s. China’s population is probably 300m-400m lower now than it would have been without it. The policy (which is one of population control, not birth control) has had dreadful costs, including widespread female infanticide, a lopsided sex ratio and horrors such as mass sterilisation and forced abortions. But in its own terms, it has worked—20m people enter the workforce each year, instead of 40m—and, to the extent that China is polluting less than it would have done, it has benefited the rest of the world.

Read the whole thing. I do not at all agree with that last statement. For every person not born, there may be less pollution. But there is also less production, less trade, less innovation, and less love. To look only at a reduction of costs and not at a reduction of benefits is engaging in some faulty economic analysis. On a more human level, when was the last time you heard someone try to comfort a parent who just lost a child: "Well, just think of all the pollution we won't have?"

As Scott Lamb points out, how you view this decrease in worldwide fertility depends strongly on your worldview. Lamb is quite happy to have five kids waiting for him when he gets home. I wonder how many parents in China would envy his position?

See my previous posts:

• Be Fruitful and Multiply!
• Making Babies!
• The More the Merrier: Population Growth Promotes Innovation
• The Land of Disappearing Children
  

How to Have Less Crime and Less Punishment

A lengthy checklist from Mark Kleiman.

Secrets of an iPhone Photographer

Turning weaknesses into strengths:

The real key is using the limits of the iPhone 3GS's camera as a strength, Japanese pro photographer Koichi Mitsui tells BoingBoing: Its "simplicity keeps me devoted to only composition and the perfect photo opp."

In other words, the secret is composition, composition, composition. The one real advantage the iPhone 3GS has in this regard against past iPhones is that you can change the focal point, which lets you alter the shot in subtle ways, which is one of his tips. Also, he suggests trying some different camera apps—he likes Photo fx and CameraKit, though I'm partial to CameraBag.

[Y]ou can see way more at his very excellent photo blog, which gives you a view of Japan that maybe you haven't seen.

Photo of the Day

A sign seen in my apartment's laundry room: