Tyler Cowen's Blog, page 505

There is no serious evidence that GMOs are harmful

If the California initiative passes, “we will be on our way to getting GE-tainted foods out of our nation’s food supply for good,” Ronnie Cummins, director of the Organic Consumers Association, wrote in an letter in March seeking donations for the California ballot initiative. “If a company like Kellogg’s has to print a label stating that their famous Corn Flakes have been genetically engineered, it will be the kiss of death for their iconic brand in California — the eighth-largest economy in the world — and everywhere else.”

Here is much more.  Why not require labels warning customers of all sorts of phantom harms?  “Warning: this product contains dihydrogen monoxide!”

The culture that is Germany (Bavaria)

A sex shop in Munich’s main railway station has got special permission to sell condoms, porn DVDs and sexy skin lotion on Sundays after three local judges ruled they were legitimate travel supplies.

The owner of Erotic World had appealed against the city council’s decision to stop him opening on Sundays – on the grounds that shops in the railway station were exempt from Bavaria’s strict Sunday trading laws.

But this only applies if they sell products that can be considered souvenirs or travel supplies such as food, disposable cameras, newspapers, magazines, books, DVDs, and CDs.

The shop argued in court that it also had such goods on its shelves, even if their content was rather more spicy than what the station’s newsagents had to offer.

“This is the decision of the court … since the above articles can be considered ‘travel supplies,’ regardless of their content,” a court statement issued Wednesday said.

Nonetheless the rule of law prevailed:

But the judges added that the shop could not sell other erotic items in its range, such as sex toys. In fact, especially sex toys.

Three administrative judges visited Erotic World ahead of the court hearing to inspect the shop’s goods, carefully assessing whether each item might come in handy on a long journey.

Condoms were considered useful enough, but the judges ruled that the old favourite sex game “Erotic Ludo” should still be taboo on the day God has designated the day of rest.

The full article is here, and for the pointer I thank CR.

Sentences to ponder have a nice day

Last month the International Monetary Fund warned that eurozone banks were likely to embark on massive deleveraging over the following 18 months, to the tune of $2.6tn.

Here is more, from Gillian Tett, on the ongoing theme of the de-europeanisation of Europe.  By the way, she suggests that number may be an underestimate.

Very good sentences

This is from Elias Canetti’s memoir, volume three, The Play of the Eyes:

When friends had told him that someone had praised The Man Without Qualities to the skies and would be overjoyed to meet him, Musil’s first question was “Whom else does he praise?”

I am happy to praise these memoirs too.

Assorted links

1. Are used TVs being overpriced?

2. The science of love in the 1920s, from Hugo Gernsback.

3. The dark side of Irving Fisher.

4. New sensory organ discovered in whales.

5. Freakonomics interview on the economics of food, including also Michael Pollan and others.

Should Stocks Trade in Increments of $.0001?

In Modern Principles Tyler and I explain that price floors create wasteful increases in quality. The classic story is the Civil Aeronautics Board’s regulation of airline prices between 1938 and 1978. Through entry, exit and price regulation, the CAB kept prices above market levels and airlines earned excess profits with every customer. Although the airlines were not allowed to compete on price they could compete to attract customers by offering better meals, wider seats and more frequent flights. Airline quality, as a result, was high but it was inefficiently high; for example, too many flights flew half empty. More fundamentally, if airlines compete by lowering prices by $100, customers are automatically better off by $100. But when airlines have no choice but to compete by spending $100 on “quality” customers are not necessarily better off by $100. Indeed, enforced non-price competition will always result in more spending than value creation on the margin. If given the choice, customers would have preferred lower prices to higher quality but until deregulation in 1978 they were not given the choice. Thus, price floors create wasteful increases in quality.

Ok, so where does stock pricing come into play? Chris Stucchio, a high-frequency trader, argues that the sub-penny rule, SEC Rule 612, “essentially acts as a price floor on liquidity – it is illegal to sell liquidity at a price lower than $0.01.” As a result, traders compete on speed (latency) rather than on price.

As with a classical minimum wage, two parties are harmed – the purchaser (who must pay extra) and the lower priced seller (who is pushed out of the market).

Similarly, at prices higher than $0.01, it makes price movements lumpy – on a bid ask spread of $0.05, it is illegal for someone to enter the market at price $0.049 or $0.045. Thus, at any price point, speculators are forced to compete on latency rather than on price. Price competition is only possible if one market maker is willing to offer a price at least $0.01 better than another, which is often not the case.

When price competition is impossible, market makers must compete for business via other methods – in this case latency.

As with the airlines, the increase in speed–now such that 40,000 trades can be executed in the literal blink of an eye and relativity matters–is profitable for the traders even though it doesn’t add nearly as much to customer or social welfare. As I wrote earlier:

A small increase in speed over one’s rivals has a large effect on who wins the race but no effect on whether the race is won and only a small effect on how quickly the race is won.  We get too much investment in innovations with big influences on distribution and small (or even negative) improvements in efficiency and not enough investment in innovations that improve efficiency without much influencing distribution (i.e. innovations in goods with big positive externalities).

Penny pricing (and before that 1/16th pricing) made sense when stocks were mostly traded by humans and we needed to conserve cognition but, as Stucchio points out, most trading today is done by computers and pricing in hundredths of a penny (or less) would not impose any extra effort on the computers. Pricing in 1/100ths of a penny, however, would dramatically increase price competition and reduce wasteful quality competition.

Here are previous MR posts on HFT about which Tyler and I have debated.

My personal tech ecosystem

Rahul, a loyal MR reader, asks:

You seem a very productive person and travel quite a bit too. Are you very cell-phone savvy and does it impact your productivity? Any apps you love or use a lot? (Do you play chess on the move! )

Can you blog about your personal cellphone selection strategy. Curious what phone(s) you use.

Ditto for Laptops. What’s your selection strategy. Small versus large screen real estate. What’s your personal optimum.

Also, Mac / PC / or Linux? What’s your ecosystem and what do you love/hate about it.

Would love a blog post on these topics! It’s convenient to imitate the choices of a productive person!

No, I am not cell phone savvy, as I still do not know how to send a text (just this year I learned how to read one).  In any case, here is my ecosystem:

1. Verizon cellphone.  Very simple, I use it only for calls, the keys are very convenient and otherwise it has no features which I either understand or use.

2. iPhone, latest edition.  I never use it for calls unless I am overseas, in which case it becomes my cellphone for receiving calls (no reason to make them in other countries).  I use it for email, and not for apps, and occasionally for visiting websites such as this one.  I have spent time with some apps to learn how they work, but for research purposes.  Overall their closed systems do not appeal to me.

3. iPad 1.0.  It’s beautiful, it was important, mine has a nice case on it, and I don’t want to part with it.  Plus I have some windows kept open on it.  By carrying around two iPads I can keep more windows open, without being confused.

4. iPad 3.0.  Better than the original iPad (which as we’ve seen is already worth carrying around), and the web connection works internationally and very well.  I now feel connected to the important information just about everywhere.  It has changed my life.

5. I don’ t know what kind of laptop I have, although I guess I could look.  It’s not optimized for anything, except perhaps my own ignorance.  It’s not an Apple Mac, I know that, and I am glad I got rid of Vista.

6. Kindle.  I still prefer real books, but for long plane rides, or sometimes even short plane rides, the carry costs of books are high.  So it gets plenty of use.

Here is an article on why so many Nigerians own more than one cell phone.

Addendum: Tim Harford lays out his system.

The new disclosure policy for AEA journals

You will find it here (pdf).

Further sentences to ponder

This is about Washington, D.C.:

…hard data always trump anecdotal information, and that emerged from Inrix, which determined that the worst of the worst — the time you least want to be behind the wheel — is from 5:45 to 6 p.m. on a Thursday, the peak of congestion in a region that regularly chokes on its own fumes.

Elsewhere in the nation, Friday is the most congested day of the week, as city residents headed out of town for the weekend add to the daily mix with commuters headed home.

There is more here.  Is this a “work for the government and telecommute” effect?  Or an “our region produces only services” effect?  Or something else altogether?

Request for requests

I will try to do my best in responding to your requests for topic coverage, please leave those requests in the comments section…