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Weekly quote #33: Mike Munger July 9, 2008

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This week’s EconTalk has Mike Munger as guest, talking with host Russ Roberts about public transportation. The quote shows up at a little after the twelve-minute mark of the podcast, and is spot on as to why I don’t really see the difference between the public and the private sector (except for the public sector’s (usually) greater access to legal power):

“It’s not just true that people respond to incentives in markets. People respond to incentives in every situation they find themselves. And so, the way that we compensate drivers — it doesn’t matter if it’s a market setting or if he’s employed by the government, it’s going to have implications for his behavior.”

People respond to incentives, period. Regardless of whether it’s a railroad tycoon or a parliamentary tycoon, the incentives are directly influencing the decisions being made.

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Correlation paradox July 8, 2008

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Wikipedia’s article on the resource curse defines it as the problem that “…countries with an abundance of natural resources tend to have less economic growth than countries without these natural resources.”

Mark Thoma at Economist’s View has a post up describing recent work indicating that this particular curse might be as real as… well, as any other curse. His post quotes an India University news article, on the work of IU and Duke economists  Michael Alexeev and Robert Conrad, which says that the idea of the curse, which is decades-old, can be chalked up to bad data analysis and the old ‘correlation as causation’ issue:

“In essence,” Alexeev said, “the logic of the earlier work was as follows: Most countries with high GDP have good institutions. Natural resource-rich countries, however, have high GDP but poor institutions. Therefore, natural resources must lead to poor institutions.”

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Crisis = dangerous opportunity July 3, 2008

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There’s a popular expression about the Chinese pictogram for crisis is made up of two other characters which is, of course, too true to be correct.

At any rate, here’s an op-ed that originally appeared in the Financial Times (link to the original at the end of the CFR copy) about how the current crisis involving rising food prices worldwide could just be an opportunity (albeit a dangerous one) for the Doha round of international trade negotiations.

I found two of the statements made in the op-ed very interesting, because they seem to go against what my (so far still woefully limited) reading of economics would indicate — but one of the authors is Jagdish N. Bhagwati, Senior Fellow for International Economics at CFR, so I assume he knows what he’s talking about much better than I. So, now I have to go figure out what I don’t know about the two claims:

1. “…a substantial reduction in agricultural subsidies… would reduce the supply of grains from some countries that subsidise them and increase it from other countries… The net effect on supply would be negative.”

Why would reducing the supply in some countries but increasing it in others, with no change in demand that I can see, produce a net reduction? Is this only in the short-term, until the supply can rise to meet demand again, or does it involve some sort of time-lag, or is it something else I’m missing?

2. “…the impact of reduced tariff barriers on agriculture would be to aggravate food shortages. The reason is that such tariff reductions would lead to reduced food prices and increased demand for grains within the OECD countries.”

So, if demand is increasing, is this again referring to the short-term, until suppliers can increase production to meet the higher demand? I realise that there is a finite amount of arable land on the planet, but a lot of that is currently not used for food production, because it’s not profitable — wouldn’t increasing demand be met by brining those lands into use, and isn’t there enough of it to meet demand, even taking good old Malthus into consideration?

Any way, color me slightly confused.

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weekly quote #27: W. Brian Arthur May 12, 2008

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W. Brian Arthur’s paper “Cognition: the black box of economics” (which, according to the version I’ve read is chapter 3 of The complexity vision and the teaching of economics excerpted) is about how economics views the process of cognition and its implications for teaching and studying the field.

Within the paper is a section titled ‘The mind as a fast-pattern completer’ which I found quite engrossing. In it Arthur discusses what makes our minds what they are; I was caught up fairly early into it when Arthur wrote that “[i]n association we impose intelligible patterns.” That alone deserves to be cited (the idea that we create, rather than ’see’, patterns, is a big deal to me), but I found this quote, probably the longest I’ve done yet, the best of it:

“Our minds then are extremely good at associating things, using metaphors, memories, structures, patterns, theories. In other words, the mind is not given. It’s not an empty bucket for puring data in. The mind itself is emergent. This idea is new in Western thinking but there’s plenty of precedent for it in the East… The mind doesn’t contain ideas. It’s these ideas — these associations — that instead contain the mind or constitute the mind. The mind is not fixed in any way; it consists in its associations and the apparatus to manipulate these. In this sense it’s emergent. So strictly speaking I shouldn’t say as I did earlier that meaning resides in the mind, because deep enough within cognitive philosophy the concept of mind itself dissolves. Meaning resides in associations our neural apparatus connects with the data presented. We are far now from seeing reasoning as deduction that takes place in a container of variables whose values are updated by “information.” If reasoning is largely association, it depends on the past experiences of the reasoner. The framing of a situation, the “sense” made of it, are therefore dependent on the reasoner’s history. And so is the outcome.”

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why I like econ May 1, 2008

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The Filter^, with help from Mises, explains.

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weekly quote #26: Samuel Bowles April 29, 2008

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I’m continuing to work my way through Samuel Bowles’s Microeconomics, which was the source of last week’s quote. In my humble opinion, especially given my own idiosyncratic interests in certain particular aspects of economics and behavior and the detached arguments of the Ayn Rand school of thought, this one (page 268 of my copy, from chapter 8, with citation of Coase’s “The institutional structure of production” in the original) is even better. It summarizes a description of an employee-employer contractual relationship that takes into account the realities of human interaction:

“There are three basic ingredients of a more adequate model. The first is the insight of Ronald Coase, mentioned at the close of chapter 7, that “what are traded on the market are not, as is often supposed by economists, physical entities, but the rights to perform certain actions.” The second is Marx’s commonplace that exchange requires the owners of the productive services to interact face to face. The third is Henry Ford’s discovery that employees may reciprocate good pay with hard work.”

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weekly quote #25: Samuel Bowles April 23, 2008

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Here’s Samuel Bowles, in chapter 5 (page 168 in my copy) of Microeconomics: behavior, institutions, and evolution, describing one of my most beloved irrational concepts:

“When people collaborate in a productive activity — a firm, a marriage, a group of fishers seeking to restrict overexploitation of their resource, a landlord and a sharecropper — they typically produce a joint surplus, a level of benefits net of costs such that each may be better-off engaging in the joint activity than if they did not.”

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opinion-polling reality March 17, 2008

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In this post, we have The Austrian Economists on the media on the recession.

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weekly quote #20: Ofer H. Azar February 20, 2008

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I just read “Relative thinking theory”, Ofer H. Azar’s paper from the 2007 (#36) issue of The Journal of Socio-Economics. the following is from pages 18-19 of the .pdf version, in section 5 (Is relative thinking beneficial today?):

“Thinking about absolute levels allows us to implicitly think also about ratios and percentages when this is relevant; but thinking automatically about percentages regardless of the context leads to non-optimal decisions, for example, making too little effort to save money on high-price goods, and too much effort to save on low-price goods…

The conclusion that relative thinking is not beneficial, however, might change if we introduce various sorts of bounded rationality, such as deliberation costs, limited ability to analyze problems, and limited memory capacity…”

‘Thinking about absolute levels’ here means taking an absolute value into consideration; for example, saving $10 on a purchase. ‘Thinking about relative levels’ would mean that one would consider saving that $10 based on whether the purchased good cost $50 or $500.

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