Spoiled BraD

I knew it! Of course Brad is happy to be an intellectual giant. Oh, narcissism...

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Maddux, not Clemens -- Aria's protest

Commenting on my post yesterday, Aria seems bothered by Solow's comparing Clemens to best economists. He believes, it should be Maddux, his favourite. Sorry, I know nothing about baseball! Aria recommends me to read the bestseller Moneyball.
By the way, thanks for the link to a guy who declares DeLong as his blogger hero -- I'm not kidding!

Wheelan said it all

In Naked Economics, Charles Wheelan writes about how important human capital is:
"... I once interviewed Robert Solow... I asked if it bothered him that he received less money for winning the Nobel Prize than Roger Clemens, who was pitching for the Red Sox at the time, earned in a single season. 'No', Solow Said. 'There are a lot of good economists, but there is only one Roger Clemens.' That is how economists think..." pp.100.

The Sixth Ebertfest is coming to town

The Sixth Roger Ebert's Overlooked Film Festival is coming. Checked on to my calendar: "My Dog Skip" and "Once Upon a Time... When We Were Colored". What I like from Eberfest is discussion following movie screening. For this year, Ebert promises, there will be a surprise guest onstage after My Dog Skip. Kevin Bacon or Diane Lane?

Why I don't care with "fair trade" coffee campaign

I am a coffee addict. Lately, all coffee houses that I go to offer "fair trade" coffee. Even Starbucks claim to only use coffee from fair trade (I don't buy their claim). The idea is to protect small coffee farmers. But I am always suspicious with this kind of "protection". Because there is always room for manipulation in the middle. And as this article notes, "...another sticking point inside the movement are the requirements for being certified. Germany's Fair Labeling Organization (FLO), which certifies all fair-trade coffee in the world, charges farmers $2,431 to certify plus an annual base of $607 for recertification and $.02 per 2.2 pounds of coffee sold under the fair-trade label..." And you say you're helping the poor farmers?

Of course it's exclusive!

Is there a single organization in the world that is NOT exclusive? This whole criticism against certain political parties for being "exclusive" really annoys me. For example, one party is accused for being exclusive only for a certain segment of muslim population. Other is "exclusive" for being open only for christians. The critics say they can't accept such "exclusiveness" because it will lead to antidemocracy. To me, the criticism is just another form of religio-phobia. Why are those critics fine with political parties that are "exclusive" for "nationalists", "exclusive" for labor, etc? The worst thing is that, they seem not to understand that any organization is inherently exclusive. If an "organization" is open to all types of segment, personality, religion, education, etc, then why was it formed in the first place? By definition, organization is a group of people with the same objectives. Repeat: the same objectives. Is it possible that everybody's objectives are the same? No. That's why you form an organization. And that means: exclusive!

Moving more leftly?

I wrote once that I was a moderate, libertarian leftist. Yesterday Aria and I drove up to Chicago. We listened to Al Franken's audiobook, "Lies" (I hate long titles, so check it yoursef). Interestingly, I found myself agreeing to almost all of his argument against conservatives. Maybe it's not really the ideology that I am against with, totally. But I surely hate Ann Coulter, racist Russ Limbaugh, and especially King Liar Bill O'Reilly. Maybe that's why I agreed with all the bashes by Franken. Even though he seems to have big mouth too, sometimes. Am I liberal?

Dangerously comfortable zone

Had a chat with a colleague over the phone. He is a deputy director of leading research institute and also a respected economist. He was concerned with the fact that most bright, young scholars have been spoiled too much by the media. The information business is making good deal of money selling academicians into the public. Doesn't matter you're really capable or not. As long as you can talk with confidence, the media will grant you a celebrity label on your chin -- even though you are cheap talking. Some get really spoiled. They think they have achieved everything, while in fact they are rotting themselves. We agree, no matter how busy we are with projects, pursuing academic achievement should never stop. Otherwise, we're entering that red zone. One way to avoid this, we figure, is to maintain professional network with international academia.

First mover advantage vs "Burn the ship" strategies

I offered my rationale and strategy for voting: "... Before you vote for a particular party, let your friends (and enemies, if you have some) know that you will. Make sure you reveal your preference...".

Aria Novianto, on the other hand, offers a "first mover advantage" theory: "...In the bargaining game first mover has a huge advantage. Especially in short (one) period game. First, you set your terms, what you really want out of the candidates. Offer your support to your first choice candidates, their only options being to accept or reject your terms. If it's still early in the game, they know you have the option to offer it to others.... know this is too simplistic, but in general first mover has an upper hand....".

It appears, we are looking at voter's behavior from different perspectives. Aria limits other peoples' options, make them accept his terms, because that's the better choice they have left with. Mine is, to limit my options, in order to increase my commitment, while trying to persuade others. The latter follows "burn the ship" strategy of General Tariq bin Ziyad in the war of Gibraltar.

This guy loves Rubin and hates Mankiw

I wrote once, Krugman likes Rubin. Here's more by Paul himself.

"...it's pretty clear what John Kerry's economic philosophy will be. He's surrounding himself with advisers closely tied to Bill Clinton, and even more closely tied to Robert Rubin, the legendary former Treasury secretary. In office, we can surmise, Mr. Kerry would follow a Rubinesque strategy of bringing long-term budget deficits under control through a mixture of tax increases for upper-income families and spending restraint. No doubt he would move slowly on deficit reduction as long as the economy remained weak, but his advisers would tell him, as Mr. Rubin told Mr. Clinton, that responsible long-run budget policies are good in the short run, too, because they help keep interest rates low...".

And, he really hates Mankiw: "...George Bush has, of course, tried to be the anti-Clinton in all things. His advisers rejected Rubinomics and hearkened back to Reaganomics, insisting that long-run tax cuts, never mind the effect on the budget deficit, are the key to growth. For three years, they've had nothing but red ink to show for their efforts. Now they've had one good but not great month...."

Romer on tragedies of the commons

Attended a talk by Stanford's Paul Romer on the tragedies of the environmental and intellectual commons. He argues that assigning property rights to environmental commons has been proven effective in many cases. However, when it comes to "intellectual commons", property rights system has to deal with way more complex an issue. He uses downloadable music as an example. It's very hard to impose property rights or royalty system in that particular market. Napster has pirated, been sued, reborn again with supposedly legal face. iTunes is more legally careful. But still, you can't stop all the illegal downloadings. How to solve this? Romer (and I agree) points out that the big chunk of rents go to the record label companies. They are the ones who inflate the price of ideas (read: music). [I am told by a friend once that Dave Matthews has solution to this: leave record companies, do life concerts].

Another good point from Romer's talk. He said, the Who's guitarist Pete Townsend was the founder of feedback (this is a technique in twisting sound in guitaring). What if Townsend assumed a monopoly rights to it? Meaning, everybody who wanted to use feedback technique has to play royalty to Townsend? Then we would never heard of Jimi Hendrix improvisation.

But I have a small problem with Romer's matrix. He graphs a matrix of commons against property rights. In the first column are environmental commons, and second intellectual (he used "ideas"). Listed in order of strength in property rights protection imposition in the first columns are land (100% protection), fresh water (about in the middle), and common pastures and fish in the ocean (both are 0%). In the ideas column, list include recorded music (100%), pharmaceuticals and "cross-docking" [like what WalMart does] (about in the middle), and PCR (polymerized chain reaction -- I have no idea what this is) and oral rehydration therapy (both are 0%). Look closely. In fact Romer mixes up between private goods and public goods. Land is 100%. Sure, because it is (in almost all cases) very close to being a private good (of course "assigning property rights" is trivial. You don't even assign it! It is earned). And recorded music, being more complex, is a quasi-public good: it's nonrivalrous, but it's excludable (trust me). He should have been more clear on this.

Update: My friend Basanta Dhungana has additional observation from the Romer talk yesterday. Basanta summed up: "...[Romer] opined that knowledge that generates knowledge (knowledge spill over) should not be regulated with full property right. Assigning full intellectual property right precludes other to innovate further. Therefore, government should invest on such knowledge based innovation..."

Econ: Toughest after CS, Phys, and Math?

Craig Newmark, guest blogger of Marginal Revolution writes on graduate study in economics. Interesting. Among all: "... of 28 graduate fields, economics ranks fourth-toughest (below computer science, physics, and math)...". Craig quotes this from an article by Roessler in econphd.net. The article also has tables of GRE score comparisons and econ depts rankings.

Cap-and-trade not good for mercury?

So one of my committe members asked me in my defense day. Why so bother with PCB pollution? Those heavy metals stay at the bottom of the lake. How should that be a concern for homeowners? As I noted in some footnotes, these pollutants may cause cancer and other defects. I should have really moved them from footnotes to the text. Today Krugman writes about policy on mercury, one of the PCB substances. He goes further as to assess the recent policy administered by the goverment, the cap-and-trade policy. He points out that C&T is only good for light pollutants. But it would be wrong to use it to control heavy metals. As for mercury case, polluters would rationally buy the permits and... we're waiting for the next Chernobyl.

Movies and economics

I was thinking last night about home. I pictured myself back to classroom, trying to make economics less dismal than what appears in textbooks. Among others, I will most likely teach Environmental Economics. The toughest part, I believe, is to convince students that this topic is important. Alas, they won't pay attention if it is not interesting. Should I just go with the standard procedure: intro - externality - social cost vs private cost - optimum policy - valuation technique - current issues - exam? If I go that way, more than 50 percent students would yawn in my classes. So here's what I'm going to do. In the first day, I will have them watch "Erin Brockovich". I will ask them to write a review for me. In the next meeting, I will discuss what "externality" is, using that movie as the illustration. Throughout the semester, I will also entertain them with "A Civil Action". Get the idea? Indeed, if I have to teach business class, I would prepare movie session with "Wall Street". Similary, "Rosencrantz and Guildenstern are Dead" for game theory and probability classes, "Disclosure" for labor economics, "It's a Wonderful Life" for risk and uncertainty class.... [stop me, I could go on and on....]

D'oh!!

The Simpsons stars are on strike for raise. Dan Castellaneta (Homer), Nancy Cartwright (Bart), Yeardley Smith ( Lisa), Julie Kavner (Marge), Hank Azaria (Moe and Apu) and Harry Shearer (Mr. Burns and Ned Flanders) are "... demanding a a salary of $360,000 per episode, or nearly $8 million for a 22-episode season. Each actor currently is paid $125,000 per episode, the source said..." Some say this is too much (peek up at alt.tv.simpsons). But come to think of it, The Simpsons contributes more than $1 billion a year for Fox! If Ray Romano can get $1.8 million per episode of Everybody Loves Raymond, why can't Homer and friends get some increase? Go for it, Homer!

Fish had hands?

Amazing report from Scientific American (subscription might be required). A team of Univ. of Chicago scientists found a fossil of "tetrapod" -- swimming creature with four hands, from 365-million years ago. Read longer account from Science (with a link to pdf version).

Smear without Fear

Krugman goes light today, and I don't think I want to use other phrase to discuss his column: Smear without Fear -- it really fits, already. This is about Letterman's Night Show's take on Bush last week. Letterman diplayed a clip showing a boy got bored with Bush delivering a speech. The boy's gesture was extremely funny. When I saw the rerun (I was then waiting for a connecting flight from Denver to Bloomington in O'Hare airport, Chicago) in the CNN, I couldn't help myself laughing outloud. But, honestly, I wasn't sure if it was real or not. I didn't even notice it was originally brought by Letterman. Anyway... Krugman writes about it today. The story about how the CNN anchor Kagan had to explain what was "supposedly" going on (allegedly under White House pressure), how Letterman denied it, etc are even funnier than the show itself. It appears that Krugman just got another small little side weapon to attack W. A quote for you:
"... And administration officials shouldn't be able to spread stories without making themselves accountable. If an administration official is willing to say something on the record, that's a story, because he pays a price if his claims are false. But if unnamed "administration officials" spread rumors about administration critics, reporters have an obligation to check the facts before giving those rumors national exposure. And there's no excuse for disseminating unchecked rumors because they come from "the White House," then denying the White House connection when the rumors prove false. That's simply giving the administration a license to smear with impunity..."

Reading Rubin

My pick for in-flight reading in my trip to DC and CO was Robert Rubin's memoar, "In an Uncertain World". I haven't finished it, but it sure is a really entertaining reading. Chapter One was about the Mexican 1995 crises and how the White House, Fed, and Treasury handled the fiasco. How the "three marketers": Alan Greenspan, Robert Rubin, and Larry Summers struggled to convince the Congress and the American public to disburse a $25 billion rescue package to Mexico. Thrilling and dramatical! The book tells the story of how many leading figures in the American politics (D'Amato, Gingrich, Bush, etc) responded to Rubin's proposal. The chapter also pictured how cool Bill Clinton reacted and how he was willing to risk his career by endorsing the most "unpopular, risky decision" offered by Greenspan-Rubin-Summers trio to deal with the "first crisis in the new millenium". I can see why Krugman who hates so many people loves Rubin. Great book -- so far.

Mining law vs decentralization

Just got back from Denver, CO, preceded by a short reroute to Washington D.C. Met with collegueas: Mbak Ani (IMF), Mbak Lala (LPEM), Mas Iben (Embassy), Mas Yossi (WB), Sjamsu (Georgetown Univ.). Started working on a project about Indonesian mining industry, a collaboration between the Univ. of Indonesia and Colorado School of Mines. A little worried with too many political interests involved: mining associations, Department of Energy and Mines, Department of Forestry, and the Ministry of Environment. The main objective of the project is to draft a new mining law for Indonesia. We have produced a world-class investment law in 1967. Many countries copied it. We had a two-tier contract law that were adopted by Ghana and other countries. But things have changed rapidly. Other countries have reformed their law and regulations. We haven't. Now that everybody in Indonesia talks about decentralization, there is an urgent need to adjust the law. Main problem is that there is a huge hole between the central government and the local, independent bodies ("bupati"). How do we deal with mining contracts subject to this decentralization euphoria? This is a big issue. And politically sensitive. An international, independent institution would be ideal for doing the assessment. But the IMF and the World Bank have bad reputations back home. That leaves the universities and independent research centers. And that's how the LPEM was involved.

Figures lie, liars figure

That's a quote from an article in the Economist. The article cites a recent work by McCloskey and Ziliak on how economists often use statistics blindly, or worse, misuse them. (Not really related, but this reminds me of John's advice to me about the danger of focusing too much on significance and too less on magnitude -- I remember it, because he cited McCloskey, as well). Most interesting from the article is, McCloskey and Ziliak criticize Becker: "... that addiction is rational, mainly on the basis that people's response to changes in price is statistically significant. This is interesting, but does not really explain much...". Hm, a divison inside the "Sweetwater Camp"?

Thanks to Y. Chang for the link.

Thanks, Bob Edwards!

Sad news this morning. "...Morning radio will soon lose one of its most familiar news anchors. Bob Edwards, who for nearly 25 years has greeted millions of weekday listeners with the distinctive and richly toned opener "This is `Morning Edition' from NPR News," is being replaced as host of that flagship morning program...." I have gotten used to Bob's "Morning Edition" every day. It feels something is missing not to listen to his program at least once in two days. Well, I hope at least the NPR replaces him with another good host, Steve Inskeep.

Treat them like what Eliott Ness did to Al Capone

In a two-day series of op/ed in the Jakarta Post (here is the first one and here the second), Ross McLeod an Indonesianist at ANU talks about the collapse of IBRA. He concluded that Indonesia has lost $60 billion along the way. Citing Frecaut's paper in BIES, he suggests to get the money back from those criminal conglomerates through taxation mechanism. The way the U.S. IRS got Al Capone back then. Makes sense. For recent assessment on the general economy, read the special issue of BIES.

Pram wants to die in smoke. Let him do.

An article in Reuters on Indonesian kretek. Pram is used as an illustration. Why Pram? Had the article writer changed Pram's name, no one would really care. As for Pram, my favourite author, he chooses to smoke. And to die smoking. Which is fine. Still, I don't find any plausible reason why the article should use Pram to tell stories about Indonesian kretek.

Working Moms Good for Daughters?

Tyler Cowen argues that "...If a mother works, her daughters are more likely to earn an income commensurate with their familial status. Working moms should feel less guilty..." Well, that's only money, Tyler. Are those daughters happy? Are those daughters not lonely? I don't find the argument compelling. My take: working moms should feel less guilty (if they raised daughters who turn out to earn high income and be succesful and be happy and...), and so should non-working moms (if they raised daughters who turn out to earn high income and be succesful and be happy and...)

Which one is smarter: Buy One Get One Free or Half Price?

I agree with Alex Tabarrok's answer.

Money vs Value

Poor Glenn. He confuses money and value: "...People's willingness to make donations, sometimes sizable, in support of things they can get for free is something that has surprised me about blogging, and suggests that the portrayal of human behavior I got in Econ 101 was incomplete..."

Patrioct Act at U of I

"...While some Illinois universities believe the USA Patriot Act has caused a decline in international student enrollment, there has been no evidence of such an effect at this University...", reported the Daily Illini today. In the print edition, the paper has a chart taken from Univ. of Illinois Office of International Student Affairs. It doesn't need much time to figure out that this news is at best misleading, if not lying. The chart says at Fall '99 the number of international students was 3,454; Fall '00 3,798; Fall '01 4,287; Fall '02 4,555; and Fall '03 4,769. That's it. No single word about the actual growth. In fact, from Fall '99 to Fall '00 the rate was 10%. The next year the rate grew to 13%. Then came the Patriot Act. Unsurprisingly, the rate at Fall '02 was down to 6.25% and even worse at Fall '03: 4.6%.

Corner to be Missed

My officemate Basanta took a picture of my desk. Will miss this desk and all the Mumford-ians so much...

[Mumford picture courtesy of University of Illinois Office of Planning and Programs]

Dismal Research

You usually read a disclaimer like "... if the true model is... bla, bla, bla...". This implies that all estimating models are wrong. You report the least wrong one. As simple as that. As dismal as it can be.

Musgrave

Dave Warsh wrote about Richard Musgrave. First heard about this person from the theory of taxation class. Wasn't really aware how big influence he had been to the field of public economics. Of particular interest from Dave's piece, is how Musgrave and Samuelson made friends:

"... [Musgrave] and Samuelson had been close friends for 20 years, ever since they had been graduate students together. Musgrave frequently expressed pleasure in later years at having led Samuelson to the problem that he so successfully solved. Samuelson in turn occasionally mused that perhaps he had cost Musgrave — or Abram Bergson or John Rawls or some combination – a Nobel Prize..."

Utility Function Explained

My skeptical friend from engineering asked, what made a utility function. How would I explain completeness, reflexivity, transitivity, countinuity, monotonicity and local non-satiation? In that order, I mumbled:

I’m looking at three fruits on the table: mango, durian, and papaya. 1) I like mango more than durian; and I like durian more than papaya. 2) I like mango more than papaya. 3) If mother adds a fourth fruit, a banana onto the table, and I happen to like it almost as much as I like mango, then I like banana more than durian or papaya. 4) I like two mangoes plus two durians more than one mango and one papaya only. 5) I still like two mangoes and one durian compared to one mango and one papaya. 6) I always like it if mother gives an extra slice of mango, no matter how small it is.

Solution to Vanishing RSVP: Tickets

Tyler Cowen of Marginal Revolution brought up the issue of declining rates of RSVP. People don't care anymore with RSVP. They will show up in the party if they want, regardless of having reserved the seats or not. To the party organizers this would be a pain in the neck. I offer a solution: activated tickets.

Mozilla Firefox - The Browser, Reloaded

The coolest browser has just launched! I have been using Nestcape's Mozilla so far. It's definetely superior to Microsoft's Internet Explorer. Not only for it offers antipopup and tab-browsing, it also looks prettier. And it's free! Now I use Firefox the next generation of Mozilla, launched today. This superbrowser really makes IE ancient. Goodbye annoying popups, welcome integrated search, efficient navigation and tab-browsing. Congratulations, Netscape! You're really "taking the web back".

US-Canada Drug Fiasco: Price Control or Patent Power Game

The Tech Central Station, where "free markets meet technology" as they claim, hosted a very important debate on recent US-Canada drug (re-)importation issue (thanks to Cowen for the link). As we recall, there has been arguments for and against the importation of pharmaceuticals from Canada to the US. A Trade-101 econ student (assuming his professor is a free-market ideolog) will definetely say that it's not fair to put ban on Canadian goods that are cheaper than American's. Let the market works and let the more competitive goods flood in. Well, this issue is far more complicated than that. Hats off for TCS for hosting this with such important panelists including the "ultimate free market pro-capitalist economist in the world", Milton Friedman. As it turns out, Dr. Friedman argues that this is not about price control. It's about patent. And the FDA has corrupted the system so bad that it costs nearly $800 million for a single new drug entity to enter the market in the US system. Canada does not have that high patent cost. They therefore can beat the drug price. Question: would the US let the Canadian drugs come in? Yes, if it has nothing to do with patent law. No, if it needs to enforce the patent law. But, is that efficient? No, the FDA has made it extremely inefficient....

To Vote or Not to Vote

(Most) economists like to think that everybody (except themselves) act rationally. Why don't you vote? Because you think that the odds of your vote to making a change is 1 over 200 million. If some candidate would win regardless of your single vote, you'd better not vote. If that candidate would lose even if you vote for him, you'd better not vote. Better use your time for something more productive. Not voting is, to (many) economists, rational ignorance.
But this view is too simplistic. It does not take account for intertemporal investment, multiplier effect, and warm glow of satisfaction. The first two are related. You are someone who have many friends (and hopefully have comparative influence over them). Before you vote for a particular party, let your friends (and enemies, if you have some) know that you will. Make sure you reveal your preference. That's it (You can call it "indirect campaign", not really so. Journalists will call you a "vote-getter". Be it). If that candidate lose after all, you at least have invested a "trust". In the next election period, those friends, provided that you maintain your credibity, will still vote for the same party. The third one, warm glow, is a mere subjective feeling. You like a candidate or a party (same ideology, same objectives, whatever). Act of voting gives you a warm glow of satisfaction. You know that your vote will not have any significant impact. But you won't trade your voting time with another activity, especially if you can do the latter the next day with the same expected benefit with if done today (in economics classroom term: your marginal satisfaction from voting exceeds your marginal cost from sacrificing your time). This warm glow factor, I believe, is way more evident than the first two: not everybody has a "circle of influence", but everybody has "moral sentiment".
Don't just use simplified economics, especially if wrongly. Put some common sense. As Tibor Scitovsky once put it: "Only common sense and not economic science can justify taking $100 from a millionaire and giving it to beggar".

What Econometrics is All About

So I have been trying to apply a latent segmentation model to my dataset. Consulted with Jennifer Thacher at the University of New Mexico. She's good in implementing this model using Gauss program. And Jennifer has funny, albeit true, quote about econometrics in her website:

"...Three econometricians went out hunting and came across a large deer. The first econometrician fired, but missed, by a meter to the left. The second econometrician fired but also missed, by a meter to the right. The third econometrician didn’t fire, but shouted in triumph, 'We got it! We got it!'...."

Comment on "Choice, Choice, Choice!"

Somebody sent me email commenting on "Choice, Choice, Choice!" (see below). The comment reads:

"...Cool! One other point that shows Schwartz's argument is not logical...
More choice - > lower likelihood of purchasing (suppose that's right)
Lower likelihood of purchasing -> lower consumer satisfaction (What?!!! where on earth is a purchase the sign of satisfaction?)
Lowered satisfaction with the product A may as well signify increased overall well-being of the consumer. In many cases consumers "postpone" a choice, not "give up". The only loss at the consumer side is that they require more time to process information. But still the cost results because the consumer thinks it is worth their exploration. (Maybe aco thinks it is not worth to explore the varieties of cokes given the risk of ruining appetite). Schwartz should have stopped by saying giving more choice to consumers may not do good for the business.
And the example of job seekers. Isn't it more frustrating to sell a coat than to sell a pair of socks? Is it really because of the number of choices?
It's always fun to see challenges against economics. Makes me think. Thank you for the good reference..
..."

Finally: Exxon Valdez

Exxon Mobil Corp. has to pay severe punitive damages due to its 11 million gallons oil spill on Prince William Sound Alaska, 15 years ago. The federal judge imposed a total of $6.7 billion. This is historical decision by Judge Russel Holland of Anchorage. Exxon-Valdez case has been a classic example for explaining the rationale of contingent valuation in classrooms. Looking aback, today's decision is a culmination of economists long time debate on how to value this non-market damage (see the documented debates in Hausman, 1993: Contingent Valuation - A Critical Assessment. The editor, Jerry Hausman was one of the economists hired by Exxon. See also Richard Carson's new book. Carson led the contingent valuation study team at that time. The team proposed a severe punishment on Exxon).

The Maid Dilemma

The Jakarta Post reported that Indonesia has threatened not to allow export of maids to Singapore if the latter does not put more effort to protect the maids safety. Many Indonesian maids died fell from tall buildings (they were asked, e.g. to do tasks such as hanging wet laundry from a high-rise flat).
This is tricky. Those maids need money. They can't really get enough at home due to tougher competition. Meanwhile, the pay in Singapore is well above what they can earn in Indonesia. On the other hand, the Singaporean households cannot pay their own labor. Indonesians muscle are more competitive. Supply meets demand. Even if Indonesia puts ban on its maids, black market will work perfectly. Instead of issuing threat, Indonesia should help make home more attractive to those maids. Provide incentive to labor-intensive firms who employs more low-skilled workers.

Choice, Choice, Choice!

Barry Schwartz, a professor of psychology at Swarthmore College wrote an interesting article on why more is less. He argued:

"... [T]here is growing evidence that the emotional logic (the psycho-logic) is deeply flawed. Indeed, for many people, increased choice can lead to a decrease in satisfaction. Too many options can result in paralysis, not liberation..."

Albeit confusing, I for one, believe that (even too) many choices is good. Schwartz used some examples:

"...Sheena Iyengar and Mark Lepper, psychologists at Columbia and Stanford respectively, have shown that as the number of flavors of jam or varieties of chocolate available to shoppers is increased, the likelihood that they will leave the store without buying either jam or chocolate goes up. According to their 2000 study, Ms. Iyengar and Mr. Lepper found that shoppers are 10 times more likely to buy jam when six varieties are on display as when 24 are on the shelf.... In a study that Ms. Iyengar, Rachel Elwork of Columbia and I are working on, we found that as the number of job possibilities available to college graduates goes up, applicants' satisfaction with the job search process goes down. This is particularly true for job seekers whose aim is to get the "best possible" job — while people in this group receive more and better job offers than those who are aiming for "good enough" jobs, they also tend to be less satisfied with their career decisions than their less demanding counterparts. They are also more anxious, pessimistic, disappointed, frustrated and depressed.... In another study under way, Ms. Iyengar found that as the number of mutual funds in a 401(k) plan offered to employees goes up, the likelihood that they will choose a fund — any fund — goes down. For every 10 funds added to the array of options, the rate of participation drops 2 percent. And for those who do invest, added fund options increase the chances that employees will invest in ultraconservative money-market funds..."

I am not surprised. But take me as a counterexample. I noted there were so many old and new varieties of Coca Cola. Diet, strawberry, etc, etc. Yet, I stick with the original Coke, no matter what. Have I tried the others? Not necessarily. So why do I keep going with original Coke? Because I like it and I don't have any incentive to even try others. Easy. Schwartz should have told about taste. And those consumers in his example are simple yet real example of confused consumers. In fact they still can be modeled in economics. Just add an empty set as one of the alternatives for them and off you go.

As an aside, many choices means higher competition on the supply side (and demand side to some extent, but not as great). It will put downward pressure to the price. So those consumers in Schwartz examples might as well come back the next day buying whatever she ends up choosing but with lower price.

Non-market Valuation

Commenting on Cowen's provocative thought on the economics of fashion, Kiesling relates it to environmental economics. So much relevant to what I am working on now, here's a quote from Kiesling:

"... I think the consumer preferences underlying shopping and fashion are hugely complicated, and hard to disentangle. One reason for that is very similar to what I discussed with my students today about contingent valuation studies to determine the value of environmental amenities: our preferences are constructed, and are highly contextual; they aren't just written in a book or tattooed on the back of the neck. In many cases we don't even know what our preferences are over something until we are confronted with it. And then once we are confronted with it, we do the "compared to what" opportunity cost calculation, and choose whether or not we want to buy it. We may not be able to articulate all of the aspects of the choice, either... Just like the desire to preserve charismatic megafauna, fashion also has a very visceral, emotional component to consumer preferences, something that reaches into the core of our souls and taps into the human desire to do things with our resources that represent something about our individual beings...
Unlike fashion, though, environmental amenities are non-market goods; markets do not typically exist as mechanisms to enable us to determine how we value them, and whether others value them more or less than we do..."

Yup, that's exactly how it is. Non-market valuation. Kiesling is talking about using contingent valuation. My work is an extension of this approach, namely contingent valuation with conjoint eliciation process. This is more indirect than the standard contingent valuation. The latter has been subject to criticism for its common form, referendum choice, is subject to high protest response rates. The conjoint elicitation process tries to ease some pressure on the respondents by providing a set of repeated choice occasions meant to map the repondents preference over certain specified choice attributes.

Voucher or Affirmation?

Terry Moe of Stanford University writes in NYTimes in favor of public school voucher system. He reported, "... Washington's public schools got some very good news when Congress approved a plan to provide school vouchers to low-income families in the nation's capita...". Milton Friedman, Gary Becker, and the likes, sure are happy to hear about this. Vouchers are meant for students from low income families that could be spent at private schools (or public schools -- but in general, elementary private schools are in better shape, you do the math). Friedman proposed this policy long time ago. He believed that poorer students attended the worst public schools, since they could not afford either private schools or good suburban schools. Vouchers help level the playing field. Agreed.

Greedy Smarty

Can't believe this. Wrote the Daily Illini today, an ad posted in the NYTimes said that the Nobel prize awarded to Prof. Lauterbur a couple of months ago was a mistake. It says "The Noble Prize will make itself irrelevant to the true history of the MRI [magnetic resonance imaging -- Aco]. It will also lose its credibility as an award for scientific achievement". Lauterbur is a U of I professor. He co-won the Noble with Dr. Peter Mansfield of the U of Nottingham, England. This ad says, it should have been Dr. Raymond Damadian who got the Noble. I know nothing about MRI (newspapers teach: it is "a process in which a scanner picks up different tissue cells within the human body and projects them as an image in order to detect cancer cells earlier" -- whatever), but this news strikes me as that even high-level intellectuals can be so greedy. The poster, Fonar Corp (a manufacturer of MRI scanners) even dedicates a full page for the controversy. Fonar is Damadian's company. Money. But they say, it's not: "Sorry, we didn’t think the Nobel Prize is about money. We thought it is about the unprejudiced recognition of scientific achievement. So egregiously flawed is this policy that Alfred Nobel himself, who held 355 patents, would not qualify for his own prize!". Wow, that's a strong one. Dr. Lauterbur has no comment on this cheap campaign. He'd better not.

Best Books

The National Review releases its list of the 100 Best Non-Fiction Books of the Century. The panel looks pretty balance. Economists included in the list: Hayek, Friedman, Schumpeter, Keynes, Myrdal, von Mises. Hm, score 4-2?

Honesty vs Revelation

The Jakarta Post reported, Singapore ends secrecy over data on Indonesian trade. Finally. What took them so long just to be honest?

"... [Indonesian t]rade with the city-state's neighbor totaled S$26.2 billion (US$15.4 million) last year, making Indonesia its seventh largest trading partner..."

Stubborn W

Even his fellow Republicans start worrying about him. Bush has gone too far with his spending. He just doesn't care. All he needs is to win again. An article in NYTImes describes how long time supporters (incl. Heritage Foundation, Club for Growth, WSJ) of Bush and the GOP in general have growing exasperation toward Bush stubbornness.

"... The government ran a deficit of $374 billion in the fiscal year ended Sept. 30, and the deficit is expected to be around $500 billion for the current fiscal year. When Mr. Bush took office three years ago, the Congressional Budget Office forecast a surplus of $5.6 trillion for the following decade..."The Republican party has long been the party of small government," an aide to a senior Republican senator said, "but the era of small government has ended for the Republican Party."...."

Greening the Wrong

Greenpeace and Walhi are campaigning to save Indonesia forest. Tell you, friends. You can't stop illegal logging by campaigning whatsoever. Why not do this: create an incentive not to log illegally: 1) Use your campaign budget to help enforce the monitoring and/or 2) Better yet, facilitate credit to small scale enterprise on transforming the raw wood into furniture and the likes.

Toyota (Un)Smart Product

Toyota Motor Corp. is offering automatic parallel parking mechanism. This is stupid. As Cowen pointed out, a person who cannot parallel park, should not be able to operate that mechanism either. As for me, not only this product is foolish, even the Prius itself is so unattractive.

Hayek

Virginia Postrel on Hayek. Brought to my attention by Kiesling. Indeed, many of those friends who claim themselves as market orientalists have underrated Hayek in the shadow of Friedman. Among all:

"...Hayek, who died in 1992, was not just any economist. He won the Nobel Prize in economics in 1974. His 1945 article, "The Use of Knowledge in Society," is a touchstone work on the role of prices in coordinating dispersed information. His 1944 bestseller "The Road to Serfdom" helped catalyze the free-market political movement in the United States and continues to sell thousands of copies a year.
... Economist Milton Friedman calls him "the most important social thinker of the 20th century." Hayek's most significant contribution, he explains, "was to make clear how our present complex social structure is not the result of the intended actions of individuals but of the unintended consequences of individual interactions over a long period of time, the product of social evolution, not of deliberate planning.... Born in Vienna in 1899, Hayek fought in World War I and earned degrees in law and political economy in the rich intellectual atmosphere of the University of Vienna. In the early 1930s, he was invited to join the faculty at the London School of Economics. There, he made his name as the leading intellectual opponent of John Maynard Keynes. (The two men were nonetheless friends.) Keynes believed that economic slumps could be cured by government deficit spending, while Hayek argued that those policies would only exacerbate the underlying problem of excessive production capacity...."