Tyler Cowen's Blog, page 536

Assorted links

1. FedEx your horses, with passports I suppose.  Horses, by the way, do suffer from jet lag.

2. The culture that is Ukraine, short video.

3. New European regulations for female chess players and their cleavage.

4. Why are lawyer salaries still so expensive?

5. Bertrand competition?  The law of one price?  Refuted.  Compare this, and this.

Charles Murray's policy proposals

To narrow the class divide, that is.  I am almost completely in disagreement (how about more aid and opportunity, less attempted equalization?), the Op-Ed is here.  In the form of a list:

1. Apply the minimum wage to internships for the young, so privileged children cannot so easily receive this training.

2. Replace the SAT with specific subject tests.

3. Replace ethnic affirmative action with socioeconomic affirmative action.

4. Sue to challenge the constitutionality of a B.A. degree as a job requirement.

He does admit these proposals will not do so much good in absolute terms, but he nonetheless praises them for their symbolic value.

*Turing's Cathedral*

The author is George Dyson and the subtitle is The Origins of the Digital Universe.  It is a first-rate, splendid book, causing us to rethink the origins of computing systems, the connections between early computers and nuclear weapons systems, how to motivate geniuses, and also the career of John von Neumann.  Here is one excerpt, I may be giving you more:

In 1943, Bigelow left MIT, reassigned by Warren Weaver to the NDRC Applied Mathematics Panel's Statistical Research Group.  Under the auspices of Columbia University, eighteen mathematicians and statisticians — including Jacob Wolfowitz, Harold Hotelling, George Stigler, Abraham Wald, and the future economist Milton Friedman — tackled a wide range of wartime problems, starting with the question of "whether it would be better to have eight 50 caliber machine guns on a fighter plane or four 20 millimeter guns."

Here is one Francis Spufford article about the book.  Definitely recommended.

The public choice of higher French tax rates

Remember last week when Hollande and the Socialists proposed a top marginal rate of 75% and enjoyed a boost in the polls?  Suddenly the idea is meeting with greater public resistance:

Even though the vast majority of earners in France wouldn't be liable, Hollande's tax has been a headline-grabber in the presidential campaign, partly because football is proving to be among the most vocal of its critics. Only income above 1 million euros ($1.31 million) would face the top whack of 75 percent. The first million earned would be taxed at lower rates. Just 3,000 of the highest-earning taxpayers in France are likely to be affected.

From French league president Frederic Thiriez down, the refrain is often the same: top players will flee to countries with lower taxes, leaving France — the 1998 World Cup champion — with second-rate football. Thiriez estimates 120-150 players — about one-quarter of those in France's top division — earn enough to make them liable for Hollande's tax. In Italy, Germany, England and Spain, which have Europe's strongest leagues and clubs, top income tax rates range from 43 to 52 percent. The current top rate in France is 41 percent.

"It would be the death of French football," Thiriez told sports newspaper L'Equipe. To RMC radio, he spoke of a "catastrophe" and of France relegated to "play in the second division of Europe, along with Slovenia or countries like that."

Michel Seydoux, president of current French champion, Lille, said Hollande's tax would produce "an impoverished spectacle."

Still, there is pushback:

He's thrown back the criticism from football, suggesting it is living too well. Specifically, he cited the multimillion euro salary the Qatari owners of Paris Saint-Germain reportedly pay their Italian manager, Carlo Ancelotti.

"Football administrators need to clean house a bit," Hollande said. "Does the level of our league justify such astronomic salaries?"

…"When you see their cars in the garage here, it makes you sick," said Thomas Mascheretti, a fan who approved of Hollande's proposal.

File under: Ideas have Consequences.

The article is here, and for the pointer I thank Fred Smalkin.

Robert Shiller's new book

It is called Finance and the Good Society, you can buy it here.  The book's home page is here.

Assorted links

1. Emily Chamlee-Wright is to be provost and dean at Washington College.

2. NBA geography.

3. A Straussian reading of Tabarrok's Launching the Innovation Renaissance, by the excellent Eli Dourado; "Launching the Innovation Renaissance represents Alex Tabarrok standing athwart history, yelling "Back up 800 years!"".

4. Guns don't kill people, cannonballs do.

5. The language that is German, a response to Michael Lewis.

6. Farmer woman carrying dynamite home.

Three on Launching

1. The excellent Reihan Salam writes, "Tabarrok's Launching the Innovation Renaissance is my favorite manifesto in years. In a better world, it would be the roadmap for the U.S. center-right." Small steps towards a much better world, Reihan!

2. A truly Straussian Straussian Reading of Launching the Innovation Renaissance.

3. I will be speaking at Inventing the Future: What's Next for Patent Reform at AEI in Washington, DC on Wed. March 14, 12:30-2:00.

Some Economics of Pay What You Want Pricing

A number of musicians and game developers have experimented with pay-what-you-want pricing (e.g. see the important field experiment by Gneezy et al. and less formal reports from Radiohead, Norwegian composer Gisle Martens Meyer and the video-game makers 2D Boy and Joost van Dongen.)

Imagine that under the pay-what-you-want model consumers choose to split their consumer-surplus with the seller. Here is a neat little proof for the linear demand case that under this heuristic profits are as large as under monopoly pricing!  I have also assumed MC of zero which makes sense for digital goods and is also quite important to the result as pay-what-you-want can result in negative profits should consumers choose to pay less than marginal cost.

Split the consumer surplus is optimistic for the seller although splitting the gains does happen quite often in the dictator game so it is not without interest. Probably more importantly, pay-what-you-want pricing is going to be advantageous when the seller also sells a complementary good, such as concerts, which benefit from consumption spillovers from the pay-what-you-want good.

Matt's new book

As I had predicted, it is very good.  Most of all I like the suggestion that the economy is becoming more Ricardian with higher resource rents.

I am assuming that most of the United States will not follow Matt's policy prescriptions, which are unpopular with homeowners to say the least.  Which secondary adjustments and rent-seeking losses will result?  If you cannot easily live in Manhattan, next to the stylish people, how will you respond?  One option is to damn them and tune into NASCAR.  Instead you might compete more intensely for their attention and approval.  Write a blog.  Send them ads.  Try to chip away at the privileged status of their attention and capture some of that value for yourself.  Either way cultural polarization seems to increase.

For all their other virtues, lower rents also help satisfy the demand for affiliation.  I know people who are proud just to live in San Francisco and not only because it signals their income and status.  It sounds cool.  At what level of zoning is this consumer surplus maximized?

What is the most serious estimate of how much denser agglomeration — boosted by lower rents — would increase productivity?  I do not take the urban wage premium as the correct measure here, since at the margin the extra worker currently does not move in.  I would like to read a good study of this issue, which I have discussed with Ryan Avent as well.

Is this available improvement a level effect or a rate effect?

If people were the size of ants, without encountering any absurdities of physics or biology, how would the "public choice" of urban building change?  Would urban centers be equally exclusionary?

How much space do we need to live?  Say you have a 3-D printer nanobox which can produce (or obliterate) any output on demand.  Is a studio apartment then enough?  Just print out your bed come 11 p.m., or summon up your kitchen equipment before the dinner party.  How much of the demand for space is for storage and how much is for other motives?  My personal demand for space is highly storage-intensive, but I may be an exception in this regard.

If zoning stays too tight, are there (second best) general negative externalities from storage?

I don't recall Matt calling for the widespread privatization of government-owned land, but would he agree this is the logical next step?  It's hardly as important as freeing up more urban and suburban building, but is there any good reason for government to own all that turf?  I don't think so.  Let's keep the public works and military facilities and national parks, and sell most of the rest.

Here is Matt's summary of the book.

The evolution of labor markets, most of all in Spain

Temporary contracts were introduced in a labor reform approved in 1984 by the Socialist government of Felipe González, and they have remained in favor ever since – even more so during times of crisis, such as those currently being seen in Spain, where 93 out of every 100 contracts signed of late have been temporary.

Here is more.