Tyler Cowen's Blog, page 176

Is now the time to go long on Pakistan?

Maybe so.  Ian Bremmer reports that of 282 elected BJP representatives, not one is a Muslim, even though Muslims are about 15% of India’s population.  In some political models, that can make the electorate more willing to cut a deal with Pakistan, as fewer people will fear that the deal will neglect India’s interests.  In essence this kind of slanted government can become more Coasean, as it is more trusted by its core supporters.

You will find related mechanisms discussed in my paper with Daniel Sutter, “Why Only Nixon Could Go To China.”

Indeed Modi just invited the Pakistani Prime Minister to his inauguration, an unusual action which is being called “a bold step.”

I have been relatively bullish on Pakistan for some time now.  Relative to market prices, that is.

Which are the most expensive American airports?

Per mile traveled, the new list is this:

1. Cincinnati

2. Birmingham

3. Memphis

4. Dallas Love Field

5. Charlotte

A few points strike me.  First, not too long ago Cincinnati was rated as the very best U.S. airport by global standards.  At the time I thought that was silly and now we can see further reason why.  We should rate airports by consumer plus producer surplus, not by whether they scare away enough customers to make the experience a more pleasant one for the remaining diehards.

Second, these airports may have relatively high proportions of business travelers, as cited by the original article linked above at the top.

Third, theories of market power and fixed costs might predict that the most expensive airports, in per mile terms, should be found in the middle of the country or at least clustered near a lot of other airports.  Let’s say a consumer has to pay for (at least) two items in a fare.  The first is the marginal cost of the fuel and the labor, which will vary with distance in traditional fashion.  Second, consumers must pay to cover the fixed costs of “flying at all,” which would include for instance upkeep on airport facilities, maintenance, meeting FAA regulations, teaching the pilots how to land, and so on.  A lot of these costs do not vary proportionally with the length of the flight and you have to incur them for even very short flights.  Airports with a lot of very short flights thus will be more expensive on average, in per mile terms.  We also can expect these airports to be clustered in the middle of the country near a lot of other airports.

Which is the cheapest American airport in per mile terms?  It’s not in the fifty states at all — San Juan, Puerto Rico.

Assorted links

1. Will you hire someone to do your grocery shopping for you?

2. New DSGE blog.

3. The Philadelphia Eagles are now targeting college graduates.  Educational signaling comes to NFL football.

4. Can conservatives be funny?

5. Bill Gates on Jeffrey Sachs.

6. Cliff Asness et.al. on HFT.

7. McCloskey vs. Piketty?

*The Impossible Exile: Stefan Zweig at the End of the World*

That is the new and truly excellent book by George Prochnik, think of it as a selective biography focused on themes of exile, perversion, Brazil, and suicide.  Excerpt:

Martin Gumpert shared Zweig’s sense of depletion amid New York’s incessant activity, likening the exhaustion that befell almost every newcomer to a “magic spell.”  When Bruno Walter first arrived in New York, the heat of his hotel room drove him out onto the street though it was still before dawn.  On his initial promenade down Manhattan’s avenues, he imagined “wit a shudder of horror” that he was “walking at the bottom of immensely deep rocky canyons.”  As the sun rose, his eyes caught sight of an enormous billboard on top of a building displaying the words “U.S. Tires.”  In a daze he thought to himself, “Yes, it does — true enough — but why is this fact being advertised to me from the rooftops?”

And:

Even New York rain, Camus observed after his own first encounter with the city in the mid-1940s, was “a rain of exile.  Abundant, viscous, and dense; it pours down tirelessly between the high cubes of cement into avenues plunged suddenly into the darkness of a well…I am out of my depth when I think of New York,” he acknowledged.  Camus wrote of wrestling with “the excessive luxury and bad taste” of New York, but also with “the subway that reminds you of Sing Sing prison” and “ads filled with clouds of smiles proclaiming from every wall that life is not tragic.”

This is one of my favorite books of the year so far.  (You will find here an interesting review.)  And Zweig’s own The World of Yesterday is one of my favorite books period.

How much it costs to hire your favorite band

Craig Richardson sends me this story with some interesting numbers.

Los Lobos and George Clinton and Bone Thugs and Harmony and Toots and the Maytals charge in the 20-35k range for appearances; that’s not so much considering what you get.  Fountains of Wayne (remember them?) goes for 20-30k.

De la Soul goes for 15-20k, as do the Indigo Girls, and for Jefferson Starship it may go up to 25k.  The English Beat and PM Dawn (still underrated, apparently) cost only 5-10k.

Bruce Springsteen is a million dollars and up.  Many artists I have never heard of go for 200k and up.

Dave Matthews tribute band is 10k, while Dave Matthews is $1 million.

Assorted links

1. Claims about taking action (speculative).

2. Are psychopaths utilitarian?

3. Ben Casnocha has a new book out, on managing talent.  And selfish play increases during high-stakes NBA games.

4. Which 69 words are General Motors employees not supposed to say?

5. Every country’s most highly valued export.

6. Mice run for fun.

Financial Literacy

Consider the following three questions (from Lusardi and Mitchell):

1. Suppose you had $100 in a savings account and the interest rate was 2% per

year. After 5 years, how much do you think you would have in the account if you

left the money to grow.

More than $102. Exactly $102,. Less than $102? Do not know. Refuse to answer.

2. Imagine that the interest rate on your savings account was 1% per year and

inflation was 2% per year. After 1 year, would you be able to buy.

More than, exactly the same as, or less than today with the money in this account? Do not know. Refuse to answer.

3. Do you think that the following statement is true or false? ‘Buying a single

company stock usually provides a safer return than a stock mutual fund.’

T. F. Do not know. Refuse to answer.

Sadly, most Americans rate themselves high on financial acuity but they cannot answer all three questions correctly.

Only about a third of Americans answer all three questions correctly (and that figure is inflated somewhat due to guessing). The Germans and Swiss do significantly better (~50% all 3 correct) on very similar questions but many other countries do much worse. In New Zealand only 24% answer all 3 questions correctly and in Russia it’s less than 5%.

Some of the variation can be explained by experience. The Japanese, for example, don’t have much experience with inflation in recent decades and they perform poorly on that question. The questions, however, can hardly be considered esoteric and a large literature indicates that the ability to answer these questions correlates with the ability to intelligently make real and important financial decisions regarding mortgage refinancing, credit card borrowing, and retirement planning.

Most states now require that financial literacy be taught to high school students and there is some evidence that teaching financial literacy improves financial outcomes later in life but the evidence is not strong and most teachers still feel that they are unqualified to teach the basic concepts.

In my opinion, improving financial literacy is one of the areas in which principles of economics teachers can make a great contribution to their students. Modern Principles, my text with Tyler, contains extensive material on these topics including a chapter on stock markets and personal finance but more needs to be done.

Addendum: Take the quiz here (with a few more questions). Hat tip: PD Shaw and Tim Ogden for an added link.

Polling economists on information technology and automation

From an IGM/Booth survey:

Question B: Information technology and automation are a central reason why median wages have been stagnant in the US over the past decade, despite rising productivity.

Strongly agree, 0%

Agree, 33%

Uncertain, 29%

Disagree, 18%

Strongly disagree, 2%

No opinion, 11%

There are further results of interest here, via Carl Shulman.

How many times can you lose a bundle of euros?

Just before departing for Paris, I went up to the bureau drawer and found, to my surprise, a stash of unused euros.  Wow, all of a sudden I am getting a few free days eating, I thought.  The prospect of the trip brightened, as paying $8 for a small block of dry goat cheese no longer seemed so outrageous.

I stuffed the money into my pocket — or so I thought — and headed off to the cab.  After paying the cabbie at Dulles, he gave me a big smile and said “Thank you sir for the very nice tip,” with an accent I could not quite trace.

Half an hour later, in the airport, it occurred to me that my tip wasn’t that unusually large.  What was he talking about with those profuse thanks?  And suddenly I could not find those euros in my pocket.  They must have fallen out in the cab, perhaps while I turned around to close the distant rear window so I could hear the person calling me on the phone.  Ah, so that was the very nice tip the cabbie was talking about.  Very nice indeed.

While feeling vaguely (and unintentionally) charitable, I was mortified as well.  Yes, I could afford that loss, but how unreliable my systems must be.  What else was going to go wrong?  (And I wondered whether, morally, the cabbie had in fact asked for and received my permission to keep such a nice, large tip.  Perhaps he felt the need to mention the tip to avoid highly negative consequences in some future world to come.)

Upon arrival in France, I then had to withdraw an equivalent amount of euros from the Parisian ATM.  Every time I spent that money I felt like I was losing it twice.  It reminded me of the first loss of the euros in the cab, and then I had to pay for everything yet again.  That block of goat cheese now felt like buying a diamond, and I hoped all the more that something good would come of my unintended charity.

Finally, Natasha told me that I had left a large stash on euros on the kitchen counter before departing.

But was I relieved?  Not really, in fact I now felt worse yet.  All that worry and psychic trouble and loss of confidence in my own economic rationality…and for what?  Furthermore — and indeed worst of all — I had forgotten to take those euros with me and thus missed out on a lot of free Parisian food!

The goat cheese now seemed three times as expensive.

So how will it feel when I, during my next trip, finally end up spending those euros?

I now know how to lose a bundle of euros three times, is there any comparable algorithm for spending it multiple times?

Addendum: I learned this morning that in fact Natasha has spent the euros.

Gabriel Kolko has passed away

You will find Twitter commentary and links here.  There is one appreciation here.

For the pointer I thank Rob Bradley.