UC Davis economics in the news (ish)
Well, I guess an email that gets published on Greg Mankiw's weblog is sorta like a letter to the editor getting published in a newspaper, which is sorta like news.
  ...since sliced bread?
  Definition of a Nash Equilibrium
If we start shooting around there [the other gang's territory], nobody, and I mean you dig it, nobody gonna step on their turf. But we gotta be careful, 'cause they can shoot around here too and then we all fucked.
--- Chicago Gang member

  The NeoAth delusion
Once again I find someone more articulate on this issue... albeit, it wasn't hard.

I suppose it's possible that a few ambivalent souls may pick up Dawkins' book The God Delusion and see "the empirical light." But just a few--and these folks were already predisposed for conversion. How do I know this? Because no self-respecting, god-fearing person would ever pick up a book that so openly condemned and ridiculed their belief system. Dawkins is so blatant in his scorn for religion, so unequivocal in denunciation of belief in all its forms, that he makes room for only two types of readers: the like-minded, and the masochistic.
... we tend to elect governors.
  Discounting asteroids, again
A while back, I wrote:
It seems to me that history has a direction. For some good things to happen other good things needed to happen first. The transistor had to be invented before the computer could be (well pretty much). I want good things to happen sooner so the other good things that depend on those first good things might happens sooner so that those things can lay the ground work for subsequent good things and, well, you get the picture...

(by the way, its exceedingly cool to quote myself)

and I still believe that. John Quiggin argues that we only have time preferences because we're afraid to die. An excruciatingly perceptive commentator wrote:
I think John’s substantive point regarding time preferences is that marginal benefits are discounted over time at the individual level because individuals fear they may die before they can consume in the future, but this reasoning doesn’t follow for the everlasting society, thus society shouldn’t have time preferences.

But we should think carefully about what we mean buy ‘consume’. What is the thing that’s providing us the marginal benefits, today and tomorrow? What is the thing that we’d be giving up today in exchange for it in the future?

That I value the marginal benefit of eating today higher than my marginal benefit from eating tomorrow (i.e. I’ve discounted my marginal benefit) seems to follow from my fear of death in the next 24 hours. I might not get the chance to eat tomorrow.

That I value the marginal benefits of ‘consuming’ new knowledge today, on the other hand, doesn’t follow from my fear of death. Knowing something today means I can know more things tomorrow. I have a time preference for learning today versus tomorrow because my consumption of learning today determines my consumption of learning tomorrow.

(The assumption of time separability has precluded my example, but it shouldn’t preclude it from the discussion… We, society, do and should have time preferences independent of our individual fears of death.)

That bit about time separability needs explanation. In the models Quiggin uses, and most economist use, to get a grip on these ideas he assumes benefits in each period are conferred by consumption in that period and only in that period. So your happiness today only depends on your consumption today.

This is a great assumption for two reasons. First, it seems true for most of the things we think about when we think about consumption. It seems right that me eating an apply today has little bearing on the happiness I'll get tomorrow from eating a banana.

Secondly and perhaps more importantly for us that hate algebra, this assumption greatly simplifies the models we have to deal with.

But there's lots of "consumption" that we do that does depend on how much was consumed in the past. That I learned stuff today means I can learn even more stuff tomorrow. That the PC was invented in the 70's meant the internet could flourish in the 90's. That DNA was mapped in the 90's means great genetic drugs will be invented in the next couple decades.

It might be weird to think of these things as consumption, but in our models that's what they'd be.

Who doesn't have a preference for these things to happen sooner? Does that preference have anything to do with our impending demise? I don't think so.

In any case, to relate this to the discussion of discount rates... I think the discount rate might be a sort of fudge factor in the models were we assume time separability. If we were better at algebra, we'd directly model the positive effect consumption today has on consumption in the future. Our simple models, however, don't do this and they undervalue consumption today.

Because we're not so good at the algebra, we discount future consumption to make up for this modeling error.
  Best discussion of the bordered Hessian ever!
Ever wanted to know why the positive semi-definiteness condition on the bordered Hessian characterizes the maximum in a constrained optimization problem?

Yeah, me too.

I guess I never made the connection that when I put the constraints, multiplied by the Lagrangians, in the objective function, I was treating the constrained problem as an unconstrained problem. Unconstrained problems have their second order conditions characterized by a positive semi-definite Hessian. The bordered Hessian is just the Hessian of the new problem. Va bene!

Not sure why I never made that connection before...
  Why are Price Controls bad?
The price of a good reflects its relative scarcity and the relative preferences for that good. Why is water relatively cheaper than diamonds? Because its less scarce. Why are Hondas more expensive than Hyundais? Because people prefer the former.

Price controls control prices but that can't hope to control those underlying factors. If you fix the price of diamonds low, it doesn't make them less scarce. Making Hyundais more expensive (by reducing the price of Hondas, say) won't make people like them.

What does the history of thousands of years of price controls tell us?

The first thing undermined or destroyed is self-rationing. When you pay the full price of going to a doctor, you go there when you have a broken leg but not when you have the sniffles or a minor skin rash. When the government makes health care "affordable," you go there for sniffles and a minor skin rash.

The underlying reality has not changed, however. The doctor's time is still limited, and the time that you take up with your sniffles or skin rash is time that somebody else with a broken leg -- or perhaps cancer -- has to wait to get an appointment.

Government-run health care systems in countries around the world have longer waits -- sometimes months -- to get medical attention. In other words, the rationing goes on, but more haphazardly, because prices do not force people to ration themselves according to the seriousness of their problem.

It is the same story when housing prices are controlled by government. Rent control has allowed some people to take up more housing space than they would if they had to pay the full price that reflects other people's demand for housing.

The net result, whether in New York or San Francisco or elsewhere, is a lot of apartments with just one person living in each, and lots of families who cannot find a vacant place to move into. Housing shortages have resulted from rent control in cities around the world.

Housing shortages mean that some people are forced to live far from their jobs and commute, and some become homeless on the street. Homelessness tends to be greater in cities with rent control -- New York and San Francisco again being classic examples.

Economists have long been saying that there is no free lunch but politicians get elected by promising free lunches. Controlling prices creates the illusion of free lunches.

-- Thomas Sowell
  I hate Algebra too
  I don't care who you are...
...abortion is gross. And if you want this point driven home, listen to these Supreme Court oral arguments.

About minute 35 Chief Justice Roberts asks, "So we just say your hypothetical about extraction of the [fetus'] leg it seems to be would not be covered by the statute." Once, Roberts slips and calls the fetus a "baby" and all of the participants describe the killing of the fetus as its "demise."

Hearing such a cool discussion of these gruesome facets of partial abortions evokes two emotions: First, I felt outrage that there should be any question as to what is legal or not, what is right or wrong with the acts that are being described (e.g. "the doctor only uses disarticulation when it's necessary to clear an obstruction because the continued extraction"). Second, I felt pride that we have a system were such facts can be discussed coolly and thoughtfully, where all parties should leave the proceedings feeling their side was heard and that a fair judgment will be handed down.

That said, the state's rights discussion starting at about minute 18.5 was interesting in that the Court seems somewhat awkward discussing the topic. I got the distinct impression that the Justices all know that the original principles of state's rights have been violated, but that they're stuck with this strange interpretation of the Commerce Clause. They don't allow cameras in the Supreme Court, but I imagine if they did we'd have seen a few bitten lips on the one side and a shared knowing glance or two on the other.
  How you're going to die...
  If we were to elect a Senator as President, it would be...
... John McCain.

We're not going to elect a Senator as President, though.

Before 1960, it was impossible for Americans to elect a Catholic. Before 2008, it was impossible for us to elect a Mormon.

Or maybe we should be practicing our New York accents?
  The great Northern California tour of universities!
Your Brain is Yellow

Of all the brain types, yours is the most intellectual.
You crave mental stimulation, and your thoughts tend to very complex.
Your thoughts tend to be innovative and cutting edge, though many people don't understand them.

You tend to spend a lot of time thinking about science, architecture, and communication.
What Color Is Your Brain?
  Scheme and Perl - Theory and Practice
I learned Scheme in school and my favorite text books, in any subject, is Structure and Interpretation of Computer Programs, but every day of my working life I used PERL to hack something or other together...

  Research: the definitive guide
Next, concoct plausible explanations for your new, statistically significant anomaly. ... Under no circumstances should you test these explanations... In other words, your explanations, though plausible, are false. The result is probably due to random variation. This should not discourage you from completing your article. Write up your doubts in a separate note several months later.

Finally, check the literature to make sure your idea is original. If it isn’t, which is likely, mention your predecessor prominently in your acknowledgments, and include a footnote in which you pick a few nits.
  Best thing I've read (so far) today
(erm, is it tomorrow yet?)
In my opinion, public policy on greenhouse warming needs desperately to steer a middle course, which is not yet there, for dealing with possible climate-change disasters. This middle course emphasizes the option value of waiting for better information, takes seriously whether or not possibilities exist for …nding out beforehand that we are on a worst-case trajectory (and knows how much early-warning sensors cost to install), confronts the possible options of undertaking politically-incorrect emergency measures if a worst-case nightmare trajectory happens to materialize, and otherwise attempts constructively to have some kind of a game plan for what might be coming up. The point is to supplement traditional mid-distribution analysis of, and action on, climate change by putting research dollars into early detection of rare disasters and beginning a serious public dialogue about contingency planning for worst-case scenarios akin to the way Americans might debate the pros and cons of an anti-ICBM early warning system. It may well turn out that the option value of waiting for better information about catastrophic tail events is negligible (because early detection is impossible, or it is too expensive, or it comes too late, or because nothing practical can be done about undoing greenhouse warming anyway), but these are conclusions we need to reach empirically, rather than postulating them initially.

Until we start seriously posing and trying to answer tough questions about rare global-warming catastrophes, we will not make real progress in dealing constructively with the nightmare scenarios and we will continue to cope with them inadequately by trying to shoehorn disaster policy into an either-or response category where it won’'t fi…t. The Stern Review has its heart in the right place --- –it is not nice for us to bequeath to our great-great-grandchildren the enormously unsettling uncertainty of a very small, but essentially unknown (and perhaps unknowable), probability of a planet earth that in hindsight we allowed to get wrecked on our watch. However, the Review does not follow through formally on this really unsettling part of the global warming equation –which a generous interpretation of its bad economics might say is the underlying motivation for its overall alarmist tone –except indirectly, by choosing [unrealistic model parameters] in order to reverse-engineer the drastic slowing measures that it intuitively wants to impose on greenhouse gas emissions to neutralize the nightmare scenarios.
--- Martin L. Weitzman
  Best thing I've read (so far) today
... the night is still young. In any case, its appropriate, today being Lincoln's birthday and all, that the best thing I've read today would be something Lincoln said:
I have said and I repeat it here, that if there be a man amongst us who does not think that the institution of slavery is wrong in any one of the aspects of which I have spoken, he is misplaced and ought not to be with us. And if there be a man amongst us who is so impatient of it as a wrong as to disregard its actual presence among us and the difficulty of getting rid of it suddenly in a satisfactory way, and to disregard the constitutional obligations thrown about it, that man is misplaced if he is on our platform. We disclaim sympathy with him in practical action. He is not placed properly with us.
--- Abraham Lincoln

There's irony in grabbing this off Prof. Delong's weblog. Lincoln, after all, was a partisan--- "The sentiment that contemplates the institution of slavery in this country as a wrong is the sentiment of the Republican party... The Democratic policy in regard to that institution will not tolerate the merest breath, the slightest hint, of the least degree of wrong about it." --- but he was able to mix partisanship with pragmatism. He was not shrill.
  History reading group
Here's some citations I'd like to add to the history reading group's list:
  Best thing I've read (so far) today
Before I go on, I must be explicit that I have long been skeptical of "green." Unlike "green" folks, I am not especially inspired by nature. Yes, often nature is pretty and soothing to visit. But to get my blood pumping with excitement and awe you must show me a cityscape -- Manhattan's skyline, above all -- and not forests or mountains or beaches. My tastes run decidedly in favor of those amenities of civilization that allow me to escape nature. So the reason I am skeptical of "green" is that "green" people, more and more, seem to elevate their taste for nature into a moral proposition -- which, because I don't share their taste for nature, causes them to regard me and others like me as morally deficient.
-- Don Boudreaux

(I should note, I don't share Don's preferences... I just think its important to say that just because I have a preference for something, nature for example, I shouldn't feel compelled to hoist my preference for that thing onto others, as the NeoAths do by making those preferences "moral propositions".)
  Insurance Companies aren't profit mazimizing
Or so says Paul Krugman:
Right now, many people are uninsured because ... insurance companies "game the system to cover only healthy people." So the Edwards plan, like Schwarzenegger’s, imposes "community rating" on insurers, basically requiring them to sell insurance to everyone at the same price...
[M]arketing and underwriting — ... screening out high-risk clients — are responsible for two-thirds of insurance companies’ overhead. With insurers selling to government-run Health Markets, not directly to individuals, most of these expenses should go away, making insurance considerably cheaper...
So this is a smart, serious proposal. It addresses both ... the uninsured and the waste and inefficiency of our fragmented insurance system.(emph added)

In other words, inefficiency could be reduced, i.e. profits could be higher, if insurance companies didn't screen the "high risk" clients.

Those Insurance CEOs should be fired and someone who knows how to maximize profits in that market needs to replace them. Perhaps Krugman, or John Edwards, could do a better job?

(h/t MR, my fav econ blog)
  Price Controls = Bad
Ok budding third world despots, I see you there Scott, let's say it together.... Price... Controls... are... BAD!!!!
  My mental model of Instapundit says...
  New Atheist
Crap. You know you're in trouble when the person you think of as being more articulate than you has to then pass the argument on further to someone they think is more articulate. This means I'm double inarticulate or Sam Schulman is really, very, super articulate.

Those people I called The Global Warming Advocates, you know the one's dispensing "truth", are better referred to as New Atheists. Henceforth, the The Global Warming Advocates will be known as New Atheists. NeoAths for short.
  Don't ask questions that shouldn't be asked
  “What in the name of Christopher Sholes would I want with ten Kensington 64362 Keyboards?”
  If your pissed off about Exxon's hugemongous profits...
...buy shares in the company, take the dividends and invest them in alternative fuels or peace research or whatever. Sheesh.

While I'm at it... Exxon doesn't cause global warming, people that buy Exxon gas do. These profits would not exist if there was no demand for their products.
  Fun numbers
  John Searle
"If you can't say it clearly, you don't understand it yourself."
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