Tyler Cowen's Blog, page 338

*Napoleon’s Egypt*

The author of this interesting work is Juan Cole and the subtitle is Invading the Middle East.  Here is one excerpt:

Many of the French took seriously Bonaparte’s proclamations that he intended to bring liberty to the Egyptians through institutions such as the clerically dominated divan.  The French not only interpreted Egypt in terms familiar to their eighteenth-century world, they were also capable of reinterpreting their own history in light of what they saw in Egypt.  Just as rationalist officers coded popular Islam as reactionary Catholicism, so the Republican French mapped the defeated beys as analogous to the French Old Regime and saw their overthrow and institution of municipal elections as the advent of liberty.

This book is one good place to start.  Here is the Wikipedia page on the French invasion of Egypt and Syria.

Claims about me

Tyler Cowan [sic] wishes he could be teleported to Kansas or Korea or the moon to live in a Gucci-free egalitopia.

That is from George Gilder’s new Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing Our World. reviewed by Arnold Kling here.

Now that is a claim I would be willing to bet on.

How might democracy disappear?

From my latest request for requests, anonymous asked:

It’s 2050. Democracy has ended in most countries, with a few exceptions. What happened?

Another reader, Dirk, asked:

If democracy ended in the USA, how do you think it would most likely play out?

Maybe you are thinking in terms of war or pandemic, but external conditions would have to be truly extreme to end democracy in the United States.   The poor military fortunes of the Confederacy in the South, during the Civil War, did not lead to non-democracy (for Whites, slanted source here).  Nor did siege by the Nazis make Great Britain less democratic, if anything the contrary.

If the Anglo democracies are to disappear, it will be because they will have voted themselves out of the idea, democratically of course.

As for many other parts of the world, my view is if you haven’t had democracy for one hundred years or more, it probably isn’t as stable as it may at first appear.

Assorted links

1. Ross Douthat on Andrew Sullivan.

2. What are the weirdest languages in the world?

3. Cengage files for bankruptcy protection.

4. Which English language curse word does Merkel use in public without hesitation or blow back?

5. Where are the missing 90-year-olds?

6. Digital manufacturing is more important than 3-D printing.

7. Robin Hanson disagrees with me and advocates betting on beliefs.  On my side of the debate I claim a long history of successful science, corporate innovation, journalism, and also commentary of many kinds, mostly not based on personal small bets, sometimes banning them, and relying on various other forms of personal stakes in ideas, and passing various market tests repeatedly.  I don’t see comparable evidence on the other side of this debate, which I interpret as a preference for witnessing comeuppance for its own sake (read Robin’s framing or Alex’s repeated use of the mood-affiliated word “bullshit” to describe both scientific communication and reporting).  The quest for comeuppance is a misallocation of personal resources.

Differential Pricing in University Education

Traditionally universities have charged every student the same tuition/price regardless of major. Under budget pressure, however, differential pricing is becoming more common. Differential pricing is tending to reduce the peculiar cross-subsidies that currently exist as pointed out in a new working paper by Kevin Stange (earlier version):

Higher education in the United States is heavily subsidized, both through direct support for institutions by state governments and private donors, and through federal and state support

directly to students. There are also substantial differences in the extent of subsidization across

institutions and sectors, with students at selective private institutions more heavily subsidized

than those at less selective institutions(Winston 1999). Less commonly noticed, however, is that

there are also large cross-subsidies between students within the same institutions due to the

conventional practice of charging similar tuition fees to all undergraduate students regardless of

the cost of instructing them. The cost of instruction differs tremendously between upper and

lower division coursework and across programs even within institutions. For instance, recent

analysis of cost data from four large state post-secondary systems (Florida, Illinois, New York‐

SUNY, and Ohio) indicated that upper division instruction costs approximately 40% more per

credit hour than lower division instruction, and that upper-division engineering, physical science,

and visual/performing art was approximately 40% more costly than the least costly majors

(SHEEO, 2010). In fact, an earlier but more extensive cost study found that more than three-fourths of the variance in instructional cost across institutions is explained by the disciplinary

mix within an institution (U.S. Department of Education 2003). The consequence is that lower division students subsidize upper-division students and students in costly majors are subsidized

by those in less expensive ones.

This pattern of cross-subsidization generally runs counter to differences in post-schooling

earnings and ability to pay. Lower division includes many students who eventually drop out,

while students that have advanced to upper division are more likely to graduate and earn more.

Engineering, science, and business majors tend to earn more and have higher returns than

education and humanities majors, even after controlling for differential selection of major by

ability (Arcidiacono 2004).

I have argued for targeting education subsidies to the majors that are most likely to have the greatest positive spillovers. Differential pricing moves prices closer to costs which opens up the possibility for more rational pricing but notice that it can in some cases move prices away from optimal subsidy levels.

Hat tip: Dubner at Freakonomics.

Repeal the employer mandate altogether

I agree with Ezra Klein, who writes:

Delaying Obamacare’s employer mandate is the right thing to do. Frankly, eliminating it — or at least utterly overhauling it — is probably the right thing to do. But the administration executing a regulatory end-run around Congress is not the right way to do it.

Ezra notes:

- By imposing a tax on employers for hiring people from low- and moderate-income families who would qualify for subsidies in the new health insurance exchanges, it would discourage firms from hiring such individuals and would favor the hiring — for the same jobs — of people who don’t qualify for subsidies (primarily people from families at higher income levels).

- It would provide an incentive for employers to convert full-time workers (i.e., workers employed at least 30 hours per week) to part-time workers.

- It would place significant new administrative burdens and costs on employers.

By tying the penalties to how many full-time workers an employer has, and how many of them qualify for subsidies, the mandate gives employers a reason to have fewer full-time workers, and fewer low-income workers.

We can only hope that repeal of this one part of the law is what the Obama Administration actually has in mind, though as Ezra notes Congress is not currently in a cooperative frame of mind.  Still, this way it has a chance of serious reexamination after the 2014 elections.

Evan Soltas offers relevant comment on how this will change implementation in the short-run, namely that it puts more burden on the exchanges.  Sarah Kliff comments on the politics, a very good post.  Here is one good quotation from a source: “Politically, it won’t get easier a year from now, it will get harder,” he said. “You’ve given the employer community a sense of confidence that maybe they can kill this. If I were an employer, I would smell blood in the water.”

My view is you don’t serve up a delay and PR disaster like this, on such a sensitive political issue, unless you really wish to derail the entire provision.

John Rawls was a Platonist on baseball

On most Saturdays, the shy, private Rawls would spend hours typing letters recalling past events in astounding detail. One such letter, republished by Boston Review, recalled a conversation he had some twenty years earlier—you probably had conversations with sentient beings today who have lived shorter than that—about why baseball is the best sport. In the letter, Rawls credits his interlocutor, Harry Kalven, for coming up with six reasons why baseball is “the best of all games.”

That is from Aaron Gordon (via BookForum), who also dissects the fallacies of Rawls on baseball.

Assorted links

1. How should Egypt reform its economy?

2. Shaming ex-vegans as traitors.

3. Short overview of shadow banking in China.

4. The economics of slut-shaming.

5. Laura Miller’s summary of the eBook pricing war and antitrust suit.

6. The world we have lost: perfume that smells like a book.

7. Reihan Salam joins the R Street Institute.

8. What makes an art work seem dated?

Bets and Beliefs

I fear that Tyler’s latest post on bets and beliefs will obfuscate more than clarify. Let’s clarify. There are two questions, do portfolios reveal beliefs? Do bets reveal beliefs?

Tyler has argued that portfolios reveal beliefs. This is false. If transaction costs were zero and there were an asset for every possible future state of the world then this would be true. Since transaction costs are not zero and there are many more states of the world than there are assets–even when we combine assets–portfolios do not reveal beliefs. Portfolios might reveal a few coarse beliefs but otherwise no go. Since most people have lots of beliefs about the future but don’t even have a portfolio (beyond human capital) this should be obvious.

Do bets reveal beliefs? Usually but not necessarily. Two people made bets with Noah Smith. Each thought Noah was an idiot for making the bet. Noah, however, had arbitraged so that he couldn’t lose. Clever Noah! Noah’s bets, either alone or in conjunction, did not reveal his beliefs.  But is this the usual situation? No.

For the same reasons that portfolios don’t reveal beliefs, high transaction costs and few assets relative to states of the world, it’s going to be difficult to arbitrage all bets. Many bets in effect create a new and unique asset that can’t be easily duplicated and arbitraged away in other markets. I once bet Bryan as to what an expert would answer when asked a particular question. Hard to arbitrage that away.

I also agree with Bryan that the question is empirical and not simply theoretical. When I say that a bet is a tax on bullshit the implication is not just that bullshitters are more likely to lose their bets but also that a tax on bullshit reduces its supply. The betting tax causes people to think more carefully and to be more precise. When people are more careful and precise the quality of communication increases. As Adam Ozimek writes:

In a lot of writing in blogs it is unclear specifically what the writer is trying to say, and they seem to wish to convey an attitude about a certain position without actually having to make a particular criticism of it, or by making a much actual narrower criticism than rhetoric implies…It is useful to have betting because deciding clearly resolvable terms of a bet leads to specific claims…

Tyler argues that under some conditions betting won’t change what people say (under a wide range of portfolios…a matter of indifference… bets won’t be authentic) but Tyler doesn’t give us a specific, testable prediction. The empirical evidence, however, is that small bets do cause people to change what they say. This is one of the reasons why even small-bet, prediction markets work well.

Tyler has his reasons for not liking to bet but if you think one of those reasons is that he has already revealed his beliefs then you are surely not a loyal reader.

How to curb climate change?

Paying Canadians to keep their oil sands in the ground to curb climate change might not sound like an obvious vote winner to a cash-strapped European government.

But it makes more economic sense than people realise, according to Bård Harstad, a Norwegian academic who has just won a prestigious environmental economics prize for a provocative paper suggesting just such a move.

Mr Harstad, 40, has been awarded the Erik Kempe prize, worth SKr100,000, by the European Association of Environmental and Resource Economists for a study called “Buy Coal! A Case for Supply-Side Environmental Policy”.

The FT article is here, and you may recall an earlier MR suggestion that sealing or blowing up especially dirty fuel sources, in a Hotelling intertemporal resource extraction model, is more likely to be effective than many kinds of tax.