Freedom, Justice, and Economics

“You fight your superficiality, your shallowness, so as to try to come at people without unreal expectations, without an overload of bias or hope or arrogance, as untanklike as you can be, sans cannon and machine guns and steel plating half a foot thick; you come at them unmenacingly on your own ten toes instead of tearing up the turf with your caterpillar treads, take them on with an open mind, as equals, man to man, as we used to say, and yet you never fail to get them wrong. You might as well have the brain of a tank. You get them wrong before you meet them, while you’re anticipating meeting them; you get them wrong while you’re with them; and then you go home to tell somebody else about the meeting and you get them all wrong again….. The fact remains that getting people right is not what living is all about anyway. It’s getting them wrong that is living, getting them wrong and wrong and wrong and then, on careful reconsideration, getting them wrong again. That’s how we know we’re alive: we’re wrong. Maybe the best thing would be to forget being right or wrong about people and just go along for the ride. But if you can do that–well, lucky you.

Early in American Pastoral, Philip Roth’s stand-in Nathan Zuckerman reflects thus in the midst of recounting his dinner encounter with The Swede. I think Roth/Zuckerman are right that it’s common to undertake this kind of presumption about people, and common to feel all too alive as a result. No doubt people are free to presume like this….

But what’s most interesting to me are the last two sentences, the idea that (i) people might be better off not to presume like this, and (ii) we might have a choice about it (not to mention (iii) that getting people badly wrong might do them injustice). It would be no surprise to me if Roth himself can’t help his long flights of speculation, if upon seeing someone he immediately begins constructing a narrative about him or her, full of family, inner life, and childhood sources of persistent angst. Roth’s objective in doing so is presumably to entertain, either to entertain a present or future audience, or just to entertain himself. If I were to launch into such a flight of speculation about, say, a professional acquaintance, I could be detrimentally distracted from the substantive content of our interactions. It would be better for me to concentrate on the equilibrium we’re discussing than to imagine whether his parents made his favorite baked ziti often enough when he was a kid.

… So to react to Roth’s last sentence above, I guess I think many of us are “lucky”– but lucky in a deliberate way, lucky to be able to concentrate on what matters to us about other people, lucky to be able to concentrate on the substance and character they choose to put forth. And if “unlucky,” we have a choice about how to speculate, too. I most often choose to speculate sympathetically– and if wrong, sure, plenty content to be alive.

For three reasons I was struck by the ads preceding a showing of Indiana Jones and the Kingdom of the Crystal Skull at the George St Odeon in Oxford exactly one week ago. First, they began at exactly the time the show was listed to begin. I’m used to theaters that pitch to and entertain early arrivals, at least with a bit of movie trivia.

Second, the ads were abysmal. A week later I still feel the twisting in my stomach that I mostly had associated with Full House reruns. Most of the ads were bookended by an acknowledgment to some agency that had presumably bid for the right to the screen time and compiled the ads to show. If I were Odeon, I wouldn’t want to immiserate my consumers like that– I would want to keep control of the content.

Third, the ads went on for a full half hour despite (here’s the kicker) the fact that all tickets were for reserved seats. US theaters typically induce moviegoers to watch pre-movie ads by dangling the carrot of a better seat for the main feature. If you dare to try to arrive late and skip the ads, you may find yourself craning your neck from the front row. But next time I’ll know to buy my reserved seat ahead of time and confidently show up half an hour late.

All of this does provoke a question. I made the mistake of showing up on time because I don’t go to the movies all that often (though slightly more often than Professor Jones appears!). But how can this advertising structure persist?

• If typical moviegoers like the ads more than me, one would expect the ads to start before the film’s scheduled start time.
• Perhaps the ads are intended to be so bad as to cause people to wait in the lobby, where temptations of course abound. But then I don’t see why people with reserved seats would arrive on time.
• Or, more hopefully, perhaps the awful ads make the movies themselves seem better. Then with small costs for running the projector, the ads might begin only at the scheduled time, and people might come on time to watch them.

The third bullet is the only explanation that sticks for me so far– and it requires that British moviegoers prefer Indiana Jones preceded by half an hour of drivel to Indiana Jones alone.  Plausible?  Not impossible…

I was impressed to discover today that a decade-old paper by Richard Blundell and Steve Bond, “Initial conditions and moment restrictions in dynamic panel data models,” has 1503 cites on Google Scholar. The paper discusses the validity of panel data estimation approaches using particular selections of GMM identification restrictions. Techniques validated by the paper have become ubiquitous for their generality.

Saltwater empiricists in the US, however, tend to expect clean experimental variation. And freshwater empiricists in the US also generally pursue a different approach, relying on identifying restrictions that come from models with more structure. The Blundell-Bond paper and the related literature suggest a generically valid approach conditional on certain lags and lagged changes of error terms and dependent variables being uncorrelated.  I am led to the question: which real-world settings reliably satisfy the required conditions?

As the horror caused by Cyclone Nargis comes into sharper focus, I realized I had the nagging feeling that this storm was largely ignored by the press even as the enormity of its threat grew apparent. To assess the press’s attention, at 9:09pm GMT on Tuesday, May 6, I conducted this Google News search, using the Advanced news search tool, for all mentions of the pair of words “Myanmar” and “cyclone” over the past month.

Credit goes to the Hindu Business Line for the first journalistic mention of the cyclone, the only news story on April 27 to fit my search criteria. Bangladesh’s The Daily Star was the only publication to report on Nargis on April 28. Five hits match from April 29, of which two are irrelevant to Nargis. The three relevant hits came from the two sources already on the story and the Howrah News Service.

On April 30 the AFP, Thaindian.com, and Hindu Business Line had stories. Only six stories were published on May 1. My Google News search turned up 17 hits, finally including major Western sources like IHT and AP, on May 2. However, those stories blandly describe power outages and cancellations of plane flights in Yangon.

Little surprise, you might say: This New York Times graphic charts the time path of the storm along the Myanmar coast, and shows that the eye of the storm was not set to pass Yangon until 6:30am on May 3.

On August 27, 2005, 249 stories in the Google News archive came up in a search for Hurricane Katrina, which made landfall in the early morning hours of August 29. On Saturday the 27th, the CNN Live Saturday transcript reads in part, “We begin with a nerve-racking wait along the central gulf coast. Just a couple of days from now a monster of a storm is expected to pound the region. Right now, hurricane Katrina is swirling in the warm gulf water as a Category 3 and it’s getting better[sic] and stronger.”

Yangon’s population of 6 million dwarfs New Orleans’; a disproportionate share of Myanmar’s population of 60 million live near the shore, in the Irrawady Delta, directly in Nargis’ path; Nargis was a Category 4 storm while Katrina (at the time of landfall) had weakened to Category 3; poorer construction standards meant scant protection for already much-embattled residents of Myanmar.

I do not mean to minimize the tragedy of Hurricane Katrina, but rather to highlight most of the press’ blindness to the impending catastrophe of Cyclone Nargis. For the Burmese, cut off by a repressive regime, an outside clamor might have led to additional, live-saving precautions.

(Data, continued:   May 3, 40 hits; May 4, 140 hits; the most recent four hours, >1000 hits.)

To the Map of the (financial) Market, it’s a thrill to add a new brilliant graphic, this map of the market for goods and services.  (The latter loads faster, too.)

A weekend trip to Cornwall included an efficient stop at Land’s End… where we chose NOT to pay real money to get our picture taken with their signpost. The Brits are pretty impressive at monetization of their assets.

In all the voluminous academic and political debates about optimal taxation, I think one argument should get considerably more attention.  People who have higher earnings derive greater benefits from government.  Social stability, provided in the form of police, defense, and the legal system, preserves property rights and makes productive activity and wealth accumulation possible.  For this, the high-income and high-wealth people who benefit most should pay most.

Before you all go back to talking about incentive effects of taxation, do recall that reference points may matter, and talking about fair benchmarks may help to set them justly.

Statistics on undergraduate admission rates at the University of Oxford ought to be a scandal.  First, examine Table 5.  The racial groups designated White or White&Other represent 84.2+0.4+0.3+2.2 = 87.1% of applicants.  Despite this overwhelming share (comparable to the share in the general population), the combined admissions rate for these groups substantially exceeds the admissions rate for the combined pool of non-white applicants.

Table 6 implies the even more astonishing fact that gender disparities are also exacerbated by the Oxford admissions process.  Even though 2% more men apply than women, the overall acceptance rate for men exceeds the acceptance rate for women by 2.3%.  In the sciences, where the applicant pool is nearly 3/5 male, the acceptance rate gap is even larger, 3.1%.

Likewise, only 5 out of the 30 colleges listed in Table 8a have higher three-year average admission rates than application rates from “maintained” high schools (ie, the equivalent of “public schools” in the US, which are maintained by the state).

I am not claiming that these statistics imply Oxford admissions officers practice discrimination.  Despite the numbers, it could be the case that the marginal racial minority, female, and maintained school applicant is less distinguished than the marginal white, male, prep school applicant.

However, these numbers imply that disparities in applications expand during the Oxford admissions decision process, contrary to diversity’s recognized essentiality for education in a modern, interconnected world.  Oxford should lead the way in extending opportunity to underrepresented groups, and consequently the Oxford admissions statistics should be a scandal.  The central administration may only partially be to blame, since admissions decisions are made by individual colleges.  Non-discrimination rules may be applied in the UK in the way that opponents of affirmative action would interpret the equal protection doctrine in the US.  Nevertheless, I hope to see fast action to raise application rates of qualified members of underrepresented groups, and equally fast rises to statistical parity in acceptance rates.

Usually press reports sound celebratory when increases in stock prices follow cuts in interest rates.  However, there may be no reason for celebration:  interest rate cuts may cause expansions in real output, but they also may increase inflation rates.  Since stock prices and the indices computed from them are nominal, interest rate cuts could increase prices and indices even if the rate cuts have no expansionary effect on real output.

In fact, we shouldn’t be at all surprised if a rate cut increases market indices.

If the opposite happens, and a rate cut spurs a fall in market indices, we should probably be very worried.  That scenario signals likely falls in nominal output, which imply even larger reductions in real output.

With these comments I don’t mean to question Fed policy, but rather to suggest what I perceive to be a misconception common in reporting about Fed policy.

The FDIC insures all our checking and savings accounts, but they apparently don’t understand interest.  The Truth-in-Lending law they administer has been interpreted so that uniformly-reported “annual percentage rates” do not compound within each year.  The key portion of the regulations specifies instead that periodic rates should be multiplied by the number of periods in a year to get the APR.

For most types of consumer credit, including credit cards, this makes little or no difference or other regulations fix the problem.  One realm, however, where it leads to allowance of very misleading advertising, is the case of payday loans.  The typical payday loan carries a finance charge of 18% for a two-week loan.  The FDIC’s guidelines imply that this loan has an APR of 26*18% = 468%.

The more relevant calculation, which yields the true cost of this form of liquidity to consumers and is the right number for comparisons with most alternatives, is (1.18) to the 26th power minus 1, which yields a whopping 7295%.