Unsolicited Advice to Amazon and Google book search team

One way to gauge a quality of a non-fiction book is the number of questions in a book. I'm not able to search 'question marks' under Amazon book search. It would be good to develop a visualization tool that allows you to see these sorts of things (eg. question marks, number of quotations included, etc).

Assorted Podcasts

Shakespeare Studies with Stanley Wells

What do Greta Garbo, Madonna and Napoleon have in common? Why Glamour, Darling!

Lipsky, Lanman Discuss European Central Bank's Challenges

Makin, Fischer Discuss Market Regulation, Global Economy

Credit Crisis, Risk Management Assessed One Year Later

Levy, McCulley, Lipsky, Lanman Discuss Economy, Fed

Roberts on the Price of Everything

The Price of Political Connections

To illustrate our approach in action, let’s take a trip to Indonesia and turn the clock back to 1996. Former President Suharto, who by then had ruled the country with an iron fist for nearly 30 years, would be forced to step down a few years later. However, in 1996, Suharto’s government still exercised tight control over the economy: The president decided who could get loans, log for timber, build toll roads, or import rice. In other words, he decided who would make money and how much. If ever there were a time or place where we’d expect the market to place a value on connections, this would be it.

But the aging dictator was in poor health. And because none of his kids or cronies was seen as a capable successor, any leader who followed Suharto would be unlikely to honor (or enforce) the cozy business relationships established under his rule. Any threat to Suharto would translate into a threat to the value of connections, and bets would be placed accordingly.

And indeed, Indonesian investors didn’t disappoint. On July 4, 1996, the Indonesian government announced that Suharto was traveling to Germany for a health checkup. That may not sound like much, but who travels 10 time zones to get his pulse taken? Investors at the stock exchange were inundated with rumors that Suharto had already suffered a stroke or heart attack. The Jakarta composite index, an indicator of Indonesian stocks’ overall performance, much like New York’s Dow Jones Industrial Average, fell 2.3 percent on the day of the news.

What was merely bad for Indonesian stocks turned out to be devastating for well-connected companies. One such firm was Bimantara Citra, a media conglomerate run by Suharto’s son, Bambang Trihatmodjo. In the weeks leading up to the July 4th announcement, both the Jakarta exchange and the price of Bimantara Citra bounced around a bit, not gaining or losing very much value. Then, with the market awash with rumors in the first week of July, Bimantara’s stock price took a nose dive. The prospect of the company without its connections had shareholders dumping their stock and running for the exits, driving its price down more than 10 percent in just a few days, obliterating about $100 million of its value. (As the chart shows, Bimantara starts its steep slide even before the announcement, probably reflecting early selling by those with close ties to the Suharto family or his doctors.)

One can just imagine what would have happened to Bimantara shares if the 75-year-old Suharto had died suddenly. In fact, our estimates, based on stock returns during a number of Suharto health scares, suggest that a complete severing of Suharto connections would have resulted in a 25 percent loss for similarly well-connected companies. How much is 25 percent of a company’s value? When Apple announced its iPhone to great fanfare in 2007, its shares went up 8 percent; when Pfizer was unexpectedly forced to withdraw its bestselling antibiotic Trovan in 1999, its shares fell 10 percent. So, connections in Indonesia were worth a lot more than a blockbuster new drug or the next big technology gadget—or even both of them combined.

Of course, Suharto’s government was considered one of the most corrupt dictatorships of its time, so we should not make generalizations based only on its extreme example. Luckily, researchers have since created market-based measures of political connections in many other countries. Mara Faccio, an economist at Purdue University, has measured the value of political connections for nearly every country with a well-functioning stock market. She has followed the political careers of business tycoons (and the business careers of politicians), traced bloodlines to detect family ties, and read the society columns of local newspapers to track who dines with whom. Her conclusion? Close political-corporate ties exist in nearly every country. In Russia, fully 87 percent of the Moscow stock exchange’s value is in companies with close Kremlin connections. Maybe this isn’t such a shock in the unruly capitalism of post-Soviet Russia. More surprisingly, nearly 40 percent of the London Stock Exchange is politically connected.

-How Economics Can Defeat Corruption by Raymond Fisman, Edward Miguel

Freakonomics Blog and Parental Control

The internet access I use have parental control. Guess the reason they give for blocking the NYT's Freakonomics Blog- weapons-websites which promote legal weaponry such as firearms, knives, swords, or related items. These sites may offer sales, collection or maintenance information, or promote legal ownership of weapons.

Long live the Choice Architects of the World

As all women who have ever shared a toilet with a man can attest, men can be especially spacey when it comes to their, er, aim. In the privacy of a home, that may be a mere annoyance. But, in a busy airport restroom used by throngs of travelers each day, the unpleasant effects of bad aim can add up rather quickly. Enter an ingenious economist who worked for Schiphol International Airport in Amsterdam. His idea was to etch an image of a black house fly onto the bowls of the airport’s urinals, just to the left of the drain. The result: Spillage declined 80 percent. It turns out that, if you give men a target, they can’t help but aim at it.

Link of the Day

Understanding Uncertainty

The Drukard's Walk

A great talk from Authors@Google;
The Drunkard's Walk: How Randomness Rules Our Lives
by Leonard Mlodinow

Related;
Numbers Guy Interview: Leonard Mlodinow;

WSJ: If you can pick an index-outperforming stock 51% of the time, how many picks do you need to make to have better than a 99% chance of outperforming the index? (We’ll assume your picks are uncorrelated and that the magnitude of any outperformance or underperformance is the same.)

Mr. Mlodinow: Consider a stock analyst versus an index fund in a kind of stock-picking World Series. The law of large numbers says if you play a best-of-X series you can be confident that the best team will win — if X is large enough. But for small X, say, a best-of-seven series, there is a surprisingly large chance that the lesser team will win. So in sports just because one team is superior doesn’t mean it will win the series.

The same uncertainty applies to the market. For example, suppose the stock picker has a 51/49 edge over the index fund, meaning he or she will outperform it, in the long run, in 51% of the years in which they compete. How long is the long run in this case? The mathematics shows that in order to justify 99% confidence that the stock picker will outperform the index fund more often than it underperforms it, the contest would have to go on for about 13,700 years...

WSJ: After a particular drug is on the market, it will cause a particularly serious adverse effect to happen to one of every 3,000 patients in an epidemiological, i. e., post-hoc analysis. In retrospect, how many patients must be tested in the randomized, double-blinded, placebo-controlled, clinical trial to achieve 95% confidence that the side effect will show up?

Mr. Mlodinow: You need roughly 14,000 patients. Here is how you get that: The process is governed by the binomial distribution, which can be approximated by the normal distribution. The chance of an adverse reaction in any one patient is one in 3,000. Since you want a 95% confidence interval for one (or more) reactions, you want enough patients so that 1.00 is 1.64 standard deviations (or more) below the mean. With 14,000 patients the mean number of adverse reactions will be about 4.6 and the standard deviation is about 2.2, which gives you what you require. (I have rounded my answer to the nearest 1,000).

Correction: To achieve 95% confidence that the side effect will show up, you need 8,985 patients receiving the drug. This blog post misstated the number as 14,000. See the comments of this post for more details.

WSJ: Might we need to proceed irrationally in our lives to succeed? In other words, if we really believed that so much of success was the result of luck, wouldn’t a lot of us just give up trying?

Mr. Mlodinow: Some theorize that this is the evolutionary reason that we like to assume we are in control, even when we clearly aren’t. That may be so, but I don’t mourn the role of luck, I celebrate it. All else equal, it is a lot more fun not knowing how your book will do, or how your life will turn out, than it would be if everything could be determined by a logical calculation. Moreover, the fact that luck matters means you can help yourself by being persistent. A failure doesn’t mean you are unworthy, nor does it preclude success on the next try. As Thomas J. Watson, the highly successful IBM pioneer, said, “If you want to succeed, double your failure rate.”

Teaching Economics -'Aim high in steering'

The latest EconTalk with McCloskey is highly recommended- the last part of the discussion talks about the art of teaching economics.

Discipline of economics, McCloskey was Russ's teacher of micro, style of economic teaching that is puzzle-solving, intuition based. Profession has become more Samuelsonian, more mathematical. Where would you like economics to go if you had your druthers? Teaching 18-year olds. Adam Smith, more Smithian economics, economics where maximizing is in a context of ethics where the economic actor is thought of as being a human instead of a maximizing machine. The Economic Conversation, elementary book, students and faculty are urged to talk about economics. It's not the math itself that's the problem; it's the thinking that mathematical thought is the same thing as economic thought. Math is a tool. If all we do is run models over and over again, what is point of scholarships? Chess problems, econometrics. Hayekian direction as Russ's personal revolt against Max U. Either the use of emergent market based thinking or the conversational exploration of concepts are hard to write exams for. Compulsion to grade. Time-consuming to give a grade. When we have to give a grade we fall back on the Max U kind of problem. Language is how an economy operates and it's how a science operates. An emergent market is a talk shop. Austrian approach: These conversations are creative and that's why they can't be formulated as exam problems. Information. Talk about the role of language in the economy. Best economic education tragically takes place outside the classroom. "Aim high in steering.

Though teaching style have not made much progress, textbooks are improving for the better.

Related;
Intermediate Macroeconomics- from draft of textbook by Kevin Hoover

Current intermediate macroeconomics texts suffer from three common problems:

♦ Theory is detached from the facts of the U.S. economy. Textbooks often include boxed case studies to illustrate theoretical principles and illustrative graphs and tables of current data. The numbers in the chapters on national income accounting are updated with each edition. Yet, the facts of the economy are usually peripheral – not woven tightly into the main exposition. And it is common for students to emerge nearly as ignorant at the end of the course of the basic features of the U.S. economy as at the beginning.

♦ Exposition of theory is not well adapted to the real world. Macroeconomic news generally reports rates of change (e.g., growth rates, inflation rates), while typical textbooks focus on levels (e.g., the aggregate supply and demand curves determine the level of prices and GDP). The teacher knows how to translate from one context to the other, but the average student finds it difficult. Much of real world macroeconomics is closely tied to the complexities of financial markets. Textbooks typically focus on “the” rate of interest as determined by the supply of and demand for money, leaving a richer analysis of financial markets to later money and banking courses.

♦ Too much stress on theoretical closure and advanced topics at the expense of first principles. Many intermediate macroeconomics textbooks read like graduate textbooks without the mathematics.

From another forthcoming Intermediate Macroeconomics book by Chad Jones;

Economic growth is the first major topic explored in the book. After an overview chapter describes the facts and some tools, Chapter 4 presents a (static) model based on a Cobb-Douglas production function. Students learn what a model is with this simple structure, and they see it applied to understanding the 50-fold differences in per capita GDP that we see across countries. Chapter 5 presents the Solow model—but with no technological change or population growth, which simplifies the presentation. Instead, students learn Robert Solow’s insight that capital accumulation cannot serve as the engine for long-run economic growth. Chapter 6 then offers something absent in most (all?) other intermediate macro books: a thorough exposition of the economics of ideas and of Paul Romer’s insight that the discovery of new ideas can drive long-run growth.

Chapter 12 is where the payoff occurs, and we see the simple, familiar AS/AD framework. The innovation is that the graph is drawn with inflation on the vertical axis rather than the price level—perfect for teaching students about the
Volcker disinflation, the Great Inflation of the 1970s, and modern monetary policy. All of the short-run analysis—including explicit dynamics— can be performed in this single graph. Another innovation in getting to the AS/AD framework is a focus on interest rates and the absence of an LM curve. The central bank sets the interest rate directly in Chapter 11; Chapter 12 introduces a simple version of John Taylor’s monetary policy rule to get the AD curve. A final innovation in the short-run model is that it features an open economy from the start. Business cycles in the rest of the world are one source of shocks to the home economy. To keep things simple, however, the initial short-run model does not include exchange rates...

Relative to many intermediate macro books, this text features more emphasis on the world economy. This occurs in three ways. First, the longrun growth chapters are a main emphasis in the book, and these inherently involve international comparisons. Second, the short-run model features an open economy (albeit without exchange rates) from the very beginning. Finally, the book includes two international chapters in Part 4: in addition to the standard international finance chapter that appears as Chapter 15, Chapter 14 is entirely devoted to international trade.

Brad DeLong can improve;

I wrote this book out of a sense that undergrad macro needed to have the barnacles scraped off of its hull. It is more than three-quarters of a century since Keynes wrote his Tract on Monetary Reform; it is two-thirds of a century since Hicks and Hansen drew their IS and LM curves; it is more than one-third of a century since Friedman and Phelps demolished the static Phillips curve, and since Lucas, Sargent, and Barro taught us what rational expectations could mean. All this time undergrad macro has been becoming more complicated, as new material is added while old material remains. It seemed to me that if I could successfully streamline the presentation of material, both traditional and more modern, the result would be a more understandable and comprehensible book. I hope that I have succeeded—that this book does move more smoothly through the water than its competitors, and will prove to be a better textbook for third-millennium macroeconomics courses.

Marriage Counseling from Prostitutes

Your Sex Industry Questions Answered;

What’s the best way to keep the john around for a long time?

A: Dorothy says that “the best” sex workers will try to persuade their clients to discuss their marriages openly:

See, if you can start providing that kind of help, then the man thinks you’re not trying to hurt him, and he’ll come back for more. He’ll start being one of your regulars, and there’s nothing better than a man who keeps on paying!

Hamermesh's Economic Thought for the Day

March 6, 2008—Lecturing on divorce today, I was reminded of the refrain in Clay Walker’s song “Then What”: “Then what, what you gonna do, when the new wears off and the old shines through, and it ain’t really love and it ain’t really lust, and you ain’t anybody anyone’s gonna trust. … when you can’t turn back for the bridges you burn….” in talking of a man about to engage in an extramarital affair. The guy in the song is willing to throw over his marriage, even though he may know that in the future the affair will come to nothing and he will lose his family. He values the present pleasure much, much more than he worries about the future pain. It’s not just that he has a high discount rate; he values pleasure now much more than he is bothered by pain next year, even though, if he were asked about an affair in three years compared to the pain it would cause him the following year, he would choose not to have an affair. We economists call this strange valuation of present and future hyperbolic discounting.—people overemphasize current pleasure and pain in comparing actions at different points in time.

Quote of the Day

“It ain’t the things you don’t know that hurt you, it’s the things you know that ain’t true.” -Robert Solow

(cited in Popular Myths about the World Economy)

Debating Economics

Will Wilkinson vs Stephen Marglin
on The Dismal Science: How ­Thinking Like An Economist Undermines Community

Watch it on Blogging Heads

Related;
Mankiw’s Principles of Economics, ‘dumped down’

Econ Talk- a must listen

Sowell on Economic Facts and Fallacies

Sowell Interview

Thomas Sowell on Economic Facts and Fallacies

Daily wisdom from Daniel Hamermesh

From Economic Thought of the Day-

Exodus 21:37 states, “If a mean steal an ox, or a sheep, and kill it, or sell it, he shall pay five oxen for an ox, and four sheep for a sheep.” The question is why the penalty for an ox is higher than for a sheep. Rashi, the great 11th century Biblical commentator, gives two reasons: 1) To steal a sheep you have to drive it away, whereas you can carry a sheep, which he argues is easier. 2) The ox provides its owner value as labor—it is not just material. The first explanation makes sense to me—if it’s easier to steal something, the penalty should be greater to provide an incentive not to steal. The second one makes less sense—surely the sheep also provides value as labor, insofar as it grows wool that the shepherd can harvest, just as the ox-driver can harvest what he has grown in the furrows ploughed by the ox. I don’t see the economic distinction here.

Don Boudreaux- 'Watch out for trade deficits'

Boudreaux article and talk on the stimulus plan and role of Fed

Related;
Creating Money (or Jobs) Out of Thin Air
Boudreaux vs. Macro
Economic stimulus….

Amazon recommendations I received today

Choice and Consequence (Paperback)
by Thomas C. Schelling

The Portable Atheist: Essential Readings for the Nonbeliever
by Christopher Hitchens (Editor)

Hoisted from Comments- Logic of Micro and Macro

Hoisted from comments to a Peter Boettke post- Mario Rizzo writes;

Perhaps I am wrong but it seems to me that all of the popular books that stress the economic rationality of various kinds of human behavior are, broadly speaking, microeconomics books. When it comes to macroeconomics, the popular literature and most of the scholarly literature emphasizes the collective irrationality of individual behavior -- for example, people lose confidence in the macro environment and then slow down their spending thus making matters worse, etc. What does this separation or dichotomy imply? We are rational in the small and irrational in the large? This is a first-class mess.

Hoisted from comments- Saving Tim Harford!

Gavin Kennedy writes;

The problem with Tim Hardford’s account of the division of labour is this sentence:
“Adam Smith never actually visited a pin factory. While sitting at home in Kirkcaldy and penning the most famous passage in economics, he was inspired by an entry in an encyclopedia.”

Yet Adam Smith in Wealth Of Nations makes the specific statement that ‘I have seen a small manufactory of this kind [the process described as the ‘18 operations’ to produce pins] where ten men only were employed, and where some of them consequently performed two or three distinct operations’.

I have asked Tim Harford for the evidence for his assertion that he never visited a pin factory. He most likely took the French 18 operations from Diderot’s Encyclopedia (1755), which was also based on Chamber’s Cyclopaedia (1741).

But if Adam Smith states he visited a ‘small manufactory’ he almost certainly did. He most probably visited one of which there were several near him in Kirkcaldy (1766-73), though at the time when he first made notes on the division of labour in his ‘Early Draf’ (1762) he was teaching in Glasgow and there were many manufactories (small forges, etc.,) nearby.

I await Tim Harford’s explanation for his assertion

Harford refers to David Warsh's book, chapter 3 in the references. It is actually chapter 4.

“These first three chapters and the plan of the book provided the whole kernel of what we would call today a theory of growth. Much stress has been laid over the years on the significance of the description of the pin factory. In fact Smith never visited one. Apparently he based his account on an article in an encyclopedia. Never mind that Smith was widely traveled and sharply observant everywhere he went. His failure to expend much shoe-leather in this case has occasionally been cited to discredit him. Such cavils entirely miss the point.”
-Knowledge and Wealth of Nations, p. 40 ( you can go to Amazon’s search inside the book feature)

No Tim Harford didn't lie, he was just quoting David Warsh.

Latest Freakonomics Column up

Unintended Consequences
By STEPHEN J. DUBNER and STEVEN D. LEVITT

The Case of the Red-Cockaded Woodpecker

Consider the Endangered Species Act (E.S.A.) of 1973, which protects flora and fauna as well as their physical habitats. The economists Dean Lueck and Jeffrey Michael wanted to gauge the E.S.A.’s effect on the red-cockaded woodpecker, a protected bird that nests in old-growth pine trees in eastern North Carolina. By examining the timber harvest activity of more than 1,000 privately owned forest plots, Lueck and Michael found a clear pattern: when a landowner felt that his property was turning into the sort of habitat that might attract a nesting pair of woodpeckers, he rushed in to cut down the trees. It didn’t matter if timber prices were low.

This happened less than two years ago in Boiling Spring Lakes, N.C. “Along the roadsides,” an A.P. article reported, “scattered brown bark is all that’s left of once majestic pine stands.” As sad as this may be, it isn’t surprising to anyone who has examined the perverse incentives created by the E.S.A. In their paper, Lueck and Michael cite a 1996 developers’ guide from the National Association of Home Builders: “The highest level of assurance that a property owner will not face an E.S.A. issue is to maintain the property in a condition such that protected species cannot occupy the property.”

One notable wrinkle of the E.S.A. is that a species is often declared endangered months or even years before its “critical habitats” are officially designated. This allows time for developers, environmentalists and everyone in between to have their say at public hearings. What happens during that lag time?

In a new working paper that examines the plight of the cactus ferruginous pygmy owl, the economists John List, Michael Margolis and Daniel Osgood found that landowners near Tucson rushed to clear their property for development rather than risk having it declared a safe haven for the owl. The economists make the argument for “the distinct possibility that the Endangered Species Act is actually endangering, rather than protecting, species.”

So does this mean that every law designed to help endangered animals, poor people and the disabled is bound to fail? Of course not. But with a government that is regularly begged for relief — these days, from mortgage woes, health-care costs and tax burdens — and with every presidential hopeful making daily promises to address these woes, it might be worth encouraging the winning candidate to think twice (or even 8 or 10 times) before rushing off to do good. Because if there is any law more powerful than the ones constructed in a place like Washington, it is the law of unintended consequences.

See their comment on background papers