Tyler Cowen's Blog, page 575

Insurance markets in everything

Afghan shopkeeper Nasratullah Niazai has developed a brisk new business over the past year. For about $2 a pop, he uploads into customers' cellphones a collection of Taliban songs and ringtones.

A skinny 22-year-old who operates a one-room computer store on the outskirts of the Afghan capital, Mr. Niazai is no Taliban. Neither are most of his customers.

Instead, the songs and ringtones romanticizing the insurgents' jihad against the infidel invaders serve as potentially lifesaving travel insurance for Kabulis who brave increasingly perilous countryside roads.

Sentries at improvised Taliban checkpoints, some only an hour's drive away from central Kabul, routinely check travelers' cellphones. As a result, government officials, police, soldiers, security guards, university students, translators for Western companies, construction workers and scores of others go to extraordinary lengths to scrub their phones of any evidence of links to the coalition and the Afghan government—and to masquerade as Taliban sympathizers.

Business has boomed in the past year, Mr. Niazai said. The songs that buyers like best, he said, are "the emotional ones sung by children with beautiful voices."

The story is here and the pointer is from @nickschifrin.

Marginal Revolution's Most Popular Posts from 2011

1. College has been oversold. It's hard to explain which posts go viral but this post, based on material from my e-book Launching the Innovation Renaissance, was a monster generating over 500 comments, 3000 likes and 800 tweets. The follow-up on puppeteerring in a wintry economic climate was also popular although not in the top ten.

2. Teacher's Don't Like Creative Students. Another monster with fewer page views than #1 but over 3000 likes and nearly 4000 tweets!

3. Philosophy Referee Signals.

4. Be Safe Break the Law, on the 55mph speed limit.

5. Possible progress in medicine, a link-post from Tyler noting a new drug that can kill many viruses.

6. What is quirky about the United States? A question from Tyler that generated many comments.

7. The Mexican Mafia another of mine that went viral with links from Time, Instapundit and Reddit.

8.  World Income Equality a graph showing how poor Americans are richer than rich Indians.

9. Explaining France, a post from Tyler explaining, well you know.

10. Common mistakes of right wing and market economists, a nice meaty post from Tyler, just a little bit more popular than Common mistakes of left-wing economists.

A few other notable posts in the top 25 were my posts on cities, India's Voluntary City and Cities as Hotels, Tyler's post on the S&P downgrade, my post on The Fruits of Immigration, which was  mostly just quotations but I worked hard on the final line which many people then linked to, and my post on The Great Male Stagnation.

Several posts from previous years continued to be popular. What Happened to M. Night Shyamalan? from 2010 was again popular this year probably because Slate expanded the idea into a feature called Hollywood's Career-O-Matic.

The importance of writing a good title is shown by Tyler's 2007 posts Why did the Soviet Union fall? and How many children should you have? neither of which generated many comments but both of which show up early in Google searches of precisely these questions. My 2008 post What is New Trade Theory? on Krugman's Nobel may also continue to attract attention for this reason.

2012 here we come!

Arbitrage through the ECB

Here is the new short-term auction of Italian debt:

The debt sold at 3.251 percent, sharply down from 6.504 percent at a previous auction in late November. Demand was 1.7 times the amount on offer, compared with 1.47 times previously.

Of course it is the long-term debt auction, due tomorrow, which is going to matter.  Here is a very good Edward Hugh essay on Italy.

Claims about potato chips

You may be surprised to learn that potato chips are a health food; almost all chips (expensive or not) emphasized the healthiness of their products by using phrases like "low fat", "healthier", "no cholesterol", or "lowest sodium level". But these health-related claims occur on expensive chips 6 times as often as on inexpensive chips (6 times per bag versus once per bag). This difference in health language is not, as far as we can tell, due to actual differences in the chips. No chips in our sample contain trans fats, but only 2 out of the 6 inexpensive chips talk about it. By contrast, every one of the 6 expensive chips mentions the lack of trans fats.

Expensive chips also turn out to be much more natural. Phrases such as "natural", "real", or "nothing artificial" are 2.5 times more likely to be mentioned on expensive bags (7 times on each expensive bag but under 3 times on each inexpensive bag).

Another way to differentiate is to use negative markers, words like "never", "not", or "no" ("never fried", "we don't wash out the natural potato flavor", "no wiping your greasy chip hand on your jeans"). Negation emphasizes bad qualities that a chip does not have, subtly suggesting that other brands have this bad quality. To get a more fine-grained analysis, we also regressed the number of negative words against the price. We found that a bag of potato chips costs 4 cents more per ounce for every additional negative word on the bag.

Finally, expensive chips are 5 times more likely to distinguish themselves from other chips, using comparative phrases like "less fat than other leading brands", "best in America", "in a class of their own". or "a crunchy bite you won't find in any other chip". Where text on the inexpensive chips focuses on the chips themselves, ads for expensive chips emphasize their differences from "lesser" chips.

…Mentions of tradition occurred more than twice as often on inexpensive chips. Our linear regression showed that every time a family or an American locale is mentioned, the price per ounce of the chips drops 10 cents. The inexpensive chips thus represent a model of authenticity rooted in family traditions and family-run companies, and set in regional locations throughout America.

That is from Dan Jurafsky.  His blog, on food and language, is interesting throughout.

The value of infrastructure

I liked the title of this one: "Hopping Mad: Uganda Power Cuts Hit Grasshopper Harvest," excerpt:

"Every evening I first pray for there to be power — and then I pray that the grasshoppers will come," Turyamugumya told AFP.

Stripped of their wings and fried with onions, grasshoppers are a delicacy in Uganda's central region — gobbled up by the handful and washed down with beer in bars around Kampala.

This time of year should be peak season for the insect catchers but Turyamugumya — who uses bright lights to attract the flying insects before disorientating them with smoke and trapping them in disused oil drums — says that business is tough.

"The problem has been power, it is on and off. Like last night, the whole night it was off," Turyamugumya, 33, says.

From bakeries to beauticians to building firms, small businesses across Uganda have been struggling to cope with worsening power cuts in recent months.

…Power problems mean that the price he pays for grasshoppers at the market has gone up — and that means insect-loving bar-goers are having to pay more for the snacks. The price for the smallest bag has doubled to around $0.45 (34 euro cents).

For the pointer I thank Daniel Lippman.

Why is India so low in the Pisa rankings?

That is a request from J. and here is one recent story, with much more at the link:

A global study of learning standards in 74 countries has ranked India all but at the bottom, sounding a wake-up call for the country's education system. China came out on top.

On this question, you can read a short Steve Sailer post, with comments attached.  Here are my (contrasting) observations:

1. A big chunk of India is still at the margin where malnutrition and malaria and other negatives matter for IQ.  Indian poverty is the most brutal I have seen, anywhere, including my two trips to sub-Saharan Africa or in my five trips to Haiti.  I don't know if Pisa is testing those particular individuals, but it still doesn't bode well for the broader distribution, if only through parental effects.

2. Significant swathes of Indian culture do not do a good job educating women or protecting their rights, even relative to some other very poor countries.  On educational tests the female students are at a marked disadvantage and that will drag down the average.

3. Countries taking the test for the first time may face a disadvantage in manipulating the results to their advantage; admittedly this cannot account for most of the poor performance.

4. Indian agricultural productivity is abysmal, in large part due to legal restrictions.  I discuss this in more detail in my next book An Economist Gets Lunch, due out in April.  That hurts the quality of life and opportunities for hundreds of millions of Indians, including of course children.

Overall, India has a lot of low-hanging fruit, but the country has further to go than many observers realize.  A quadrupling of per capita income would put them at what, the level of Thailand?

Assorted links

1. Movie reviews by Kelly Jane Torrance.

2. Mike Brown will stay on task.

3. The collapse of Honduras into violence.

4. My 2007 post on Ron Paul.

5. New issue of the Erasmus Journal for Philosophy and Economics.

6. Herb Gintis reviews Kahneman.

The governance premium?

I don't (yet?) believe this as written, but the view looks like this:

The world is changing more rapidly, so automatic pilot isn't good enough any more.  "Good governance" and most of all adaptability have become more important.  This will benefit the Nordic countries, the UK, Germany, Switzerland, Canada, and Singapore.  It is mostly bad for India, Russia, and the Mediterranean countries, plus other countries with lots of corruption.  It remains to be seen which category the United States and China will fall into.

Tabarrok on Innovation at EconTalk

I had a fun discussion with Russ Roberts at EconTalk about some of the ideas in my book  Launching the Innovation Renaissance (Amzn, Nook, iTunes). You can listen to the podcast online or download it as an MP3.

The new Robert Gordon paper on productivity

Via Reihan, here is the abstract and paper:

This paper provides three perspectives on long-run growth rates of labor productivity (LP) and of multi-factor productivity (MFP) for the U. S. economy. It extracts statistical growth trends for labor productivity from quarterly data for the total economy going back to 1952, provides new estimates of MFP growth extending back to 1891, and tackles the problem of forecasting LP and MFP twenty years into the future.

The statistical trend for growth in total economy LP ranged from 2.75 percent in early 1962 down to 1.25 percent in late 1979 and recovered to 2.45 percent in 2002. Our results on productivity trends identify a problem in the interpretation of the 2008-09 recession and conclude that at present statistical trends cannot be extended past 2007. For the longer stretch of history back to 1891, the paper provides numerous corrections to the growth of labor quality and to capital quantity and quality, leading to significant rearrangements of the growth pattern of MFP, generally lowering the unadjusted MFP growth rates during 1928-50 and raising them after 1950. Nevertheless, by far the most rapid MFP growth in U. S. history occurred in 1928-50, a phenomenon that I have previously dubbed the "one big wave."

The paper approaches the task of forecasting 20 years into the future by extracting relevant precedents from the growth in labor productivity and in MFP over the last seven years, the last 20 years, and the last 116 years. Its conclusion is that over the next 20 years (2007-2027) growth in real potential GDP will be 2.4 percent (the same as in 2000-07), growth in total economy labor productivity will be 1.7 percent, and growth in the more familiar concept of NFPB sector labor productivity will be 2.05 percent. The implied forecast 1.50 percent growth rate of per-capita real GDP falls far short of the historical achievement of 2.17 percent between 1929 and 2007 and represents the slowest growth of the measured American standard of living over any two-decade interval recorded since the inauguration of George Washington.