Monday, May 24, 2010


The first image is of Dali, the second is of Merce Cunningham and Martha Graham. The photographs are by Phillippe Halsman. They are both from this article in the New York Times. (The slide show won't allow me to reuse the images, so hunted them down on the Internet.)


Space Shuttle: Time Lapse Movie

Thursday, May 20, 2010

Give this man his Nobel

Craig Venter presides over a second Genesis.
Like Shelley’s protagonist, Dr Venter and Dr Smith needed some spare parts from dead bodies to make their creature work. Unlike Victor Frankenstein, though, they needed no extra spark of Promethean lightning to give the creature its living essence. Instead they made that essence, a piece of DNA that carries about 1,000 genes, from off-the-shelf laboratory chemicals. The result is the first creature since the beginning of creatures that has no ancestor.
It seems that the development was long expected, and that synthetic DNA is not new. Craig Venter created the first "functioning" artificial virus as long ago as 2003. That is the heart of this story, and all similar stories: that we now take accelerating change so much for granted. As the image shows, this achievement was possible because productivity in DNA synthesis has been increasing at a pace which looks exactly like Moore's law, but faster.

Most philosophers will not be surprised, but how will most people react to passages like the following? I don't expect any real change in the philosophy of the man in the street: we will live our lives, and these episodes will  never quite sink in:
It demonstrates more forcefully than anything else to date that life’s essence is information. Heretofore that information has been passed from one living thing to another. Now it does not have to be. Non-living matter can be brought to life with no need for lightning, a vital essence or a god. And this new power will allow the large-scale manipulation of living organisms.
As I think back on the developments we have seen in Science and Technology in the recent past, it strikes me that I cannot even begin to imagine what the world, or we humans, will look like in 20 years time. In many ways, we will fall far short of Star Trek (I would be amazed if we managed inter-stellar, or even regular inter-planetary travel) but who knows in how many ways we will exceed that fantasy?

Postscript: More from Sciencedaily.

Thursday, April 15, 2010

Short Story

More O'Henry than Chekov, but still..This French short movie is set in the metro and is called J’Attendrai Le Suivant (I’ll Wait for the Next One). It was nominated for an Academy Award for the Best Short Film in 2002.

More here

Thursday, April 08, 2010

The Libertarian Illusion

Two excellent posts over at Will Wilkinson's blog.

In one, he agrees with David Boaz that there was never any golden age of freedom in the United States.
In the other, he discusses the fact that what we would call "conservative" changes with each generation
Conservative conceptions of American identity are ad hoc, opportunistic, and evolving, but they are conservative conceptions in large part because they deny that they are in fact contingent or historically conditioned. That’s how they go on meeting the needs of Americans who long for rootedness, continuity, and a sense that their political commitments are based on transcendent, fixed moral truths, and the authority of tradition.
Looking at India, or anywhere for that matter, you see exactly the same phenomenon: people idealizing the past, a desire for "rootedness, continuity, and a sense that their political commitments are based on transcendent, fixed moral truths, and the authority of tradition". Its when this desire for faith is threatened that people lash out with desperate rage.

iPad roundup

For a product which was mocked when it was merely a work in progress, lots of people seem to have fallen in love with the iPad.

John Gapper says that the iPod is better for periodicals, the Kindle for books.

Tim Wu says that the iPad is Steve Jobs' final victory over Steve Wozniak.

Nick Carr argues that the move away from the Hobbyists' ethic is not both inevitable and right. The comments are good. One points out that
Citrix has released an iPad app that lets you access a hosted virtal Windows machine. If Amazon did the same for EC2, you could use your iPad to control an entire cloud-bank of wildly inexpensive Linux machines. Sounds like "generativity" to me. I think the Luddites still think that "the computer is the computer". Think of the iPad as a screen, not an entire computer

John Gapper wonders whether publishers will be able to make full use of the potential of the iPad.

Wednesday, March 31, 2010

Markets and Communities

Interesting conversation between Will Wilkinson and Stephen Marglin of Harvard. I listened to this because Stephen Marglin is a distinguished radical/communitarian Economist and because I hoped that listening to a smart man I confidently expected to disagree with would kickstart my brain.

As expected, I disagreed with most of what he said. What was unexpected was that I largely agreed with him about what the costs and benefits of a market economy are. We disagree about the weights to assign to those losses and benefits.

The heart of his argument seems to be:
1. belonging to a community is extremely important to human flourishing
2. a market economy replaces a way of life where we contribute to the community, and depend on it, with one based on impersonal trade
3. this has led to tremendous gains in productivity and in the wealth of nations
4. however it has also alienated people from one another; we are no longer embedded in our local communities but are part of an vast, abstract, extended market system
5. this is nobody's fault; it is the unintended consequence of decisions taken by individuals over several generations
6. this has terrible consequences for many of the people in our communities, especially the weakest and poorest
7. to repair this damage, we must always consciously take into account the effect on our communities of the decisions we take; we need to choose what will bind our communities closer together, even if not a single member of our community is better off as a result of that decision. In a sense, the "community" becomes an interested party to all our decisions and choices.

Stephen Marglin explicitly recognizes the terrible costs of living in an all-enveloping community, but I wonder if he realizes how bad it can get.

I agree with much of what he says, especially about the costs borne by the weakest people in a society, but I am sure he recognizes just how impossible it is for a society to reverse such a move, even if everyone in that society wishes it. Simple Game Theory suggests that this genie can never be returned to its bottle.

More than that, I wonder if he recognizes how many people actually crave freedom from community, and welcome markets specifically for that reason.
Drawing on the experiences of a group of informants who participated in an ethnographic study of house moving in Montréal, Canada, my article shows that people often confront the social expectations and consequences of the gift economy—for example, they try to avoid indebtedness—by shifting back and forth between the gift economy and the market. But more importantly, and contrary to what the work of many consumer researchers would lead one to expect, it shows that people may escape to the market.

This is besides the obvious problem of deciding which community I belong to. If it is human to want to belong to a community, it is equally human to see those who do not belong to that community as not only outsiders, but also enemies, or even sub-human. Brad DeLong quotes Hirshmann and Adam Smith to show that classical economists believed that the growth of trade would be one more stage in the self-domestication of Man; as he notes
Even Smith's self-interested and calculating market agents are sociable ones: they exchange, and perhaps they cheat--they don't kill, rape, burn, and steal. Which is odd, given that fifty years before Smith was born not far from his house there were lots of people who saw others not as potential partners in acts of mutually-beneficial commerce but instead as either (i) clan allies, (ii) clan enemies to be killed, or (iii) strangers to be robbed.
I am glad I listened to the talk. I was not convinced by his arguments, but I do now better understand what I think, and why.

Wednesday, March 10, 2010

Sacred Values

Scientific American on negotiating sacred values
A recent study observed this effect in the case of the Iranian nuclear program
After giving their opinions on Iran’s nuclear program, all participants were asked to consider one of two deals for Iranian disarmament. Half of the participants read about a deal in which the United States would reduce military aid to Israel in exchange for Iran giving up its military program. The other half of the participants read about a deal in which the United States would reduce aid to Israel and would pay Iran $40 billion. After considering the deal, all participants predicted how much the Iranian people would support the deal and how much anger they would feel toward the deal. In line with the Palestinian-Israeli and Indonesian studies, those who considered the nuclear program a sacred value expressed less support, and more anger, when the deal included money.

Tuesday, March 09, 2010


It was great fun to read Steven Landsburg's marvellous suggestions for electoral reform (of the US Senate) on the same day that the Rajya Sabha passed the Women's reservation bill in the midst of a riot by its members.
  • Divide senatorial constituencies according to the alphabet, so that instead of a senator from Alaska and a senator from Wisconsin, we’ll have a senator for everyone whose last name begins with AA through AE. The point being that it’s easy to think up earmarks and pork barrel projects that will benefit the citizens of Alaska at everyone else’s expense, but not so easy to think up pork barrel projects that will benefit everyone whose last name happens to begin with Q.
  • Give each voter two votes to cast in every senatorial election. You get one vote to cast in your own state and one to cast in the state of your choice.
    Again, this forces senators to answer to broader and more diverse constituencies, diluting the power of localized special interests.
  • This one’s not in the book but should have been: Give each senator a personal budget so that once he;s voted for $X billion worth of spending, he’s not allowed to vote for any more spending until he gets re-elected. This pits his various sub-constituencies against each other, so that the New York Senator who lobbies for subsidies to New York City is sure to get a negative earful from upstate.
I am normally against reservations; I think they are a clumsy way to get the results they are meant to achieve. If we are looking to achieve social justice, a combination of land reform and a Citizen's Basic Income would be far preferable. However, I am actually inclined to support reservation for women in Parliament.
These are MPs, for Gods sake: they don't need to know anything, or have any skills. Most of them are ciphers at best and criminals at worst:
They certainly cannot claim that reservations would displace better qualified candidates. In fact, looking at the process which generates such winners, it would probably be a good idea to ensure we let in a large fraction of those who would otherwise never get through. Success in these races is nothing to be proud of.
The one issue with reservation for women is that the women who eventually do stand will be proxies for the violent, stupid men who would otherwise have stood for election.
The electoral model I would really like to see is one the ancient Athenians were familiar with: a system based on lottery. Everyone participates by default, and those who "win" the draw serve as MP for 5 years before returning to civil life.

Monday, March 08, 2010


Daniel Drezner was hoping it would win, but surely it should have been at least nominated for Best Picture?

Saturday, March 06, 2010

The end of the Western World

Wonderful, thought-provoking talk at George Mason University by Stephen Davies on the death of Western Civilization. While listening to it, I had to take breaks almost every 15 minutes to think things through.

By the "death of western civilization", he means something very different from what Spengler and others like him have in mind. He believes that there was a meaningful sense in which there used to be a civilization we could call "Western", which was a bridge between one civilization you could call "Christendom", and another we can call "Modern" (a curiously archaic term).
Whether you agree with his thesis depends to some extent on whether you agree with his definition of "civilization": a collection of people who share a certain collection of concepts and possess a shared understanding of a set of symbols. Whether you agree with all that he says, he is well worth listening to.

Thursday, February 18, 2010

Beyond Little Albert

An article by carl Zimmer on fear in mice and men.
Oddly, just reading this description got my heart going faster
Turns out that fear in humans is very similar to fear in mice.

It came from Newcastle

An article by Robert Allen on why the Industrial Revolution was British. He argues that Britain boostrapped its way into the Industrial era. I have excerpted heavily below, while trying to point out the main points.

First, success in trading Woollen textiles with Europe, and later Asia and America
As London grew, the price of wood soared and houses began to burn coal; thanks to this coal, Britain had the cheapest energy in the world
The growth of trade and maufacturing led to increased demand for labour, and soon the British had the highest wages and living standards in the world
Thus it made sense to look for technology which could substitute capital (cheap energy) for labour; the demand for innovation led to supply.

These technologies made sense only because energy was so cheap in Britain
With time, energy efficiency improved to the point where others could adopt these technologies
Marvellous stuff: read the whole thing.

Friday, February 12, 2010

Lords of Finance


Wednesday, February 10, 2010

Good move

What is Martin Wolf doing reporting this from Delhi?
The Indian government has offered to suspend contracts with mining companies in central and eastern parts of the country in a bid to persuade leftwing Maoist rebels to lay down their weapons.
Palaniappan Chidambaram, the home minister, said that the Indian government was seeking to bring Maoists militants to the negotiating table by insisting that mining contracts be reviewed to provide royalty payments for local communities
Anyway, I was glad to see this on the home page of the FT yesterday, and I wish our papers gave it more prominence.
The main motivation is the Naxal threat
India began what is expected to be up to a three-year offensive against guerrillas active in at least 11 of the nation’s 28 states in October. At least 818 people died in Maoist violence in the first 11 months of 2009 in a campaign that has targeted infrastructure and officials. Maoists are estimated to hold 33 of India’s 600 districts.
Large parts of India do not have title deeds, notaries, and other elements of what we consider property rights. When a company opens a mine, many parties benefit: the company's employees, shareholders, customers, the overall economy. It seems only wrong that these benefits are at the expense of those living on that land, epecially when they are often the poorest of the poor. I think Ninan depicts it beautifully here.

Monday, February 08, 2010

The Sociology of Facebook

Truly excellent article in the New York Review of Books. I loved this opening description of "social networking"
What is "social networking"? For all the vagueness of the term, which now seems to encompass everything we do with other people online, it is usually associated with three basic activities: the creation of a personal Web page, or "profile," that will serve as a surrogate home for the self; a trip to a kind of virtual agora, where, along with amusedly studying passersby, you can take a stroll through the ghost town of acquaintanceships past, looking up every person who's crossed your path and whose name you can remember; and finally, a chance to remove the digital barrier and reveal yourself to the unsuspecting subjects of your gaze by, as we have learned to put it with the Internet's peculiar eagerness for deforming our language, "friending" them, i.e., requesting that you be connected online in some way.
Very, very good discussion of how Facebook has changed as it began to move away from its origins as a site for students of elite universities.

Magnetic attraction

I had never really understood that magnetism is a consequence of special relativity, as this post by Steven Landsburg explains so clearly.

Thursday, February 04, 2010

Self destruct

Article, in the New York Times about how Microsoft has been sabotaging itself, by a former vice president at Microsoft.
Classic stories of how corporate bureacracies eat their children, even if "top management" tries to protect them.


Morituri te salutant

An article on the strange past-times of our ancestors.

Gladiator matches were not free for alls. Each gladiator had a certain attack and defence weapon combination, and these were matched between pairs of fighters so none had an unfair advantage. Men of equal, speed, strength and skill were also matched together to ensure a fair fight.

Since no point system existed, fighting was always pursued until a decisive outcome, which could be any of the following alternatives: defeat through death, defeat due to injury preventing further combat, defeat due to exhaustion, a win, with the bestowal of a palm branch or a laurel crown, or a draw, with both opponents being allowed to depart the Arena alive. This was the most unlikely case, since the superiority of one fighter had to be proved to enable the public to reach a verdict.

The final decision of the loser's fate resided within the hands of the games’ organizer. To this end he appealed to the mood of the plebs. Upon the cry of iugula (lance him through), it was expected of the vanquished that he would set an example of the greatness of manhood (exemplum virtutis) and would motionlessly receive the death thrust. The turning down of the thumb signified to the spectators, not that the gladiator should be put to death, but rather that the gladiator was dead.

After the final blow, arena servants carried the combatant on a stretcher into the carcass chamber and gave the twitching body a deathblow. It is not known exactly how this execution was performed. The executor, a costumed arena servant, associated with the Roman god of death “Dis Pater” or the Etruscan counterpart “Charun” carried a deadly hammer accompanying the gladiator on his last journey.

Monday, February 01, 2010

Upholstery and Personality Types

Robert Sapolsky on how the link between personality types and heart disease was discovered.

Saturday, January 30, 2010

Hacking your senses

A nice article in Wired Magazine on how people are hacking their own senses; had shared this on Facebook, but I just spent 30 minutes searching for it. Clearly, should have been on my blog.
She turned it on. Nothing happened.

Friday, January 29, 2010

On Socialism

An article in the Times of London on Tony Blair's appearance before the committee investigating the Iraq war.
Last night declassified documents released by Downing Street revealed that Mr Blair had already indicated Britain’s support for regime change in Iraq six months before the 9/11 attacks.
Earlier the former Prime Minister said that many of the arguments used to justify overthrowing Saddam’s regime now applied to Iran. He said that Iran was now a greater risk to Britain than Iraq was at the time that he ordered the invasion in March 2003
A blog post by Chris Dillow on arguments against government intervention in financial markets.
In its early days, one feature of the research into cognitive biases was the emphasis it placed upon the fact that “experts” were as prone to error as laymen. In Kahneman and Tversky’s classic Judgment Under Uncertainty, for example, David M. Eddy showed that doctors commonly misinterpreted diagnostic probabilities, whilst Stuart Oskamp wrote that “professional psychologists are no better interpersonal judges, and sometimes are worse ones, than are untrained individuals"
Governments are large bureaucracies, just like any large corporation. Individuals within Governments face exactly the same pressures to conform and comply which people in companies face. Government ministers are as prone to be delusional as CEOs. However, when governments get things wrong, they do so on a scale which no individual firm can manage. The Iraq war was just one such error of judgement. Another was the US government's role in feeding the housing bubble in the US.
The "right" argument against government ownership of the means of production is not that private property is a natural right, but that government ownership results in an unacceptable concentration of power. The market is a means to displine and punish poor management. Markets (especially financial markets) will fail regularly, and will experience cycles of boom and bust, and there is a role for government in mitigating this, but markets are still the least bad means of organizing our economy.

Accidental Laws

One of the challenges for Physics is to explain where the laws of Physics come from. Why these laws and no others? Where do the constants of Physics come from? Feynman wrote in his lectures about the ratio of the repulsion of two electrons due to electricity, and the attraction of the two electrons due to their masses:
where does such a large number come from? It is not accidental, like the ratio of the volume of the Earth to the volume of a flea. We have considered two aspects if the same thing, an electron....Some say that we shall one day find the "universal equation", and in it, one of the roots will be this number.
In the same passage, he considers the possibility that this constant could vary with the age of the Universe.
In this Edge interview, Leonard Susskind suggests an alternative, based on a combination of String Theory and the Anthropic Principle: that there is no deep reason for these constants and the laws of nature. These values and laws vary from one part of the Multi-verse/Mega-verse to another, and we happen to be in a part where these values are such that they can support living creatures like us.
Gradually physicists and cosmologists are coming to see our ten billion light years as an infinitesimal pocket of a stupendous megaverse. At the same time theoretical physicists are proposing theories which demote our ordinary laws of nature to a tiny corner of a gigantic landscape of mathematical possibilities.
Interesting throughout.

Monday, January 25, 2010

Computers and Humans

More on computers, as the greatest Chess master of all writes a wonderful, wonderful book review.

Kasparov on what the computer game has done to how people play.
Given how Maths has long been plagued by philosophical arguments of "but what does it mean?", "are numbers real?" and so on, I wonder if something similar will result in Maths as well. Young Mathematicians who have grown up with computers may take a similarly pragmatic view of what their predecessors considered essential matters of style and good practice.

On how easy access to vast databases of games gives young players unprecedented advantages
Whereas the article by Kenneth Rogoff was on how humans are using computers to cheat in tournaments, and others are responding by using computers to detect those cheats, and the implications of all this for our understanding of what we mean by "intelligence", Kasparov is more interested in how differences between humans and computer can result in gains from trade.
And this passage is purest Economics:
Italics added.


Again, italics added
Even though he has been intrumental in encouraging the use of computers in Chess, I was struck by how he is interested more in using Chess and Chess-playing software as a laboratory to explore human intelligence, rather than as an end in itself. He ends with a plea for programmers to try and mimic the the human, creative, elements of intelligence.


Saturday, January 23, 2010

Friday, January 22, 2010

Dreaming children

Wonderful little post at mindhacks on the dream life of children.
What an absolutely marvellous line.
Preschoolers’ dreams are often static and plain, such as seeing an animal or thinking about eating.

Thursday, January 21, 2010

Deaton on Statistics

William Easterley summarizes Angus Deaton's AEA Presidential Address on comparing economic statistics across countries.
What struck me was this passage about India.

Two horrifying stories



Wednesday, January 20, 2010

A work of art

The Economist's Free Exchange Blog

A Tool to Deceive and Slaughter is an artwork by Caleb Larsen, currently for sale on eBay. If it hasn’t sold in the next couple of days — the minimum bid is $2,500 — it will go back on eBay. On the other hand, if it does sell, it will still go back on eBay. That’s what it does, as clearly explained in the legal contract accompanying the work:

Artist has created a work of art titled “A Tool to Deceive and Slaughter (2009)” (“the Artwork”) which consists of a black box that places itself for sale on the auction website “eBay” (the “Auction Venue”) every seven (7) days. The Artwork consists of the combination of the black box or cube, the electronics contained therein, and the concept that such a physical object “sells itself” every week.

...Many artists have tried to remove their art from the commercial aspects of the art world — by making it free, for instance, or by putting on performances, or creating public installations. This one does it by making an artwork which is so commercial that it can’t be collected. You could buy the piece today, and it might be worth $100,000 in a few years’ time. But you wouldn’t own it in a few years time, and you would have personally gained only a tiny fraction of the increase in the piece’s value, if anything at all.

I know this is very different, but it somehow reminded me of this other self-referential toy

Tuesday, January 19, 2010

Computers and Art

Two articles about what computers have been getting up to. What struck me about both is that they describe how computers are moving beyond raw computational problems and are now helping with problems which require "taste". Computers are now better at distinguishing fake paintings from genuine ones, and can mimic the style of chess grandmasters so that humans can no longer tell whether they are playing a human or a computer pretending to be that particular human.

The first is about the use of computers to distinguish fake paintings from authentic ones. The approach is based on the idea of a visual vocabulary which is distinctive to each artist. This vocabulary consists of "words" termed "filters" which can be used to very compactly describe any work by that artist but would be much less efficient at describing a work by another person.
To carry this out computationally, the team obtained very high quality scans of all the Bruegel drawings, both authenticated ones and fakes. They broke the digital images of the authentic ones up into tiny patches, each just a few pixels wide, and then used a machine learning algorithm to identify a small set of those patches that could be used as filters, in imitation of the visual system. The algorithm picks the filters so that the smallest number possible is needed to generate every patch in the Bruegel. These formed the “words” of Bruegel’s own unique visual language.
The team was inspired by how the human visual system has evolved to very efficiently encode the world we find ourselves in; presumably, if we had evolved on another planet, or underwater, our visual system would have use a very different set of filters.
Graham, Rockmore and Hughes applied these ideas to art authentication by imagining an organism that had somehow managed to evolve a visual system while only ever viewing Bruegel drawings. The organism would be able to see Bruegel drawings using very few filters, but when it looked at anything else — including fake Bruegel drawings — it would have to use many more.
The second is an article by Kenneth Rogoff in which he describes what he thinks the impact of Artificial Intelligence on the Economy will be.
Many commercially available computer programs can be set to mimic the styles of top grandmasters to an extent that is almost uncanny. Indeed, chess programs now come very close to passing the late British mathematician Alan Turing’s ultimate test of artificial intelligence: can a human conversing with the machine tell it is not human?
Ironically, as computer-aided cheating increasingly pervades chess tournaments (with accusations reaching the highest levels), the main detection device requires using another computer. Only a machine can consistently tell what another computer would do in a given position. Perhaps if Turing were alive today, he would define artificial intelligence as the inability of a computer to tell whether another machine is human!

An owl in flight

Beautiful streamlining. From here

Monday, January 18, 2010

Carrots disguised as sticks

John List has been conducting experiments to see if the Endowment Effect can be used as a motivator.
Lets see what happens when our HR managers get to learn of these results.

Does propaganda work?

It seems yes. At least during the Rwanda genocide.

Markets and Game theory

Two posts from Jeff Ely.

First: Why do we sit through movie previews in theaters? Because we will always arrive early because we want the best seats in the house (or at least, we don't want to be stuck in the worst seats).
In fact, even if the theater publicized the true start time we would still come early. The reason is that we are playing an all-pay auction bidding with our time for the best seats in the theater. Each of us decides at home how early to arrive trading off the cost of our time versus the probability of getting stuck in the front row. The “winner” of the auction is the person who arrives earliest, the prize is the best seat in the theater, and your bid is how early to arrive. It is “all pay” because even the loser pays his bid
Since we are going to get there early anyway, the theaters auction off our attention to advertisers and even if we dislike the previews, we are not willing to enough to make it worthwhile for the theatres to stop them
Is this actually true? I thought we could now (at least in Mumbai) specify the seats we want when we buy movie tickets?

Second: why Google "handicaps" the most popular links when they auction off keywords.
Sponsored links are paid advertisements. They are sold using an auction that determines which advertisers will have their links displayed and in what order. While the broad rules behind this auction are public, google handicaps the auction by adjusting bids submitted by advertisers according to what google calls Quality Score. (Yahoo does something similar.)
Google does not really want the weaker, less popular advertisers to win, but by giving them an advantage, they force the stronger, more popular advertisers to bid more for their keywords.
The idea is based on the well-known principle of handicaps for weak bidders in auctions. Let’s say google is auctioning links for the keyword “books” and the bidders are plus a bunch of fringe sites. If Amazon is willing to bid a lot for the ad but the others are willing to bid just a little, an auction with a level playing-field would allow Amazon to win at a low price. In these cases google can raise its auction revenues by giving a handicap to the little guys. Effectively google subsidizes their bids making them stronger competitors and thereby forcing Amazon to bid higher

The strays of Moscow

A Financial Times article.


Two articles which discuss incentives.
First, an article by Tim Harford in the Financial Times.
Just over two years ago, British soldiers in a remote region of Afghanistan came across a solitary man sowing seed – wheat rather than poppies. This was risky and unusual: a planting at the turn of the year was very late, and the area had been made dangerous by incessant fighting. But the farmer had his reasons. Benazir Bhutto, the former prime minister of Pakistan, had been assassinated a couple of days earlier. The man reckoned that wheat prices would soar as a result and wanted to cash in...
There has been a tendency among commentators and politicians to treat the “hearts and minds” aspect of counter-insurgency as a popularity contest. But the “voters” are not casual spectators, trying to choose between the Taliban or the coalition forces; they are individuals weighing up complex choices in difficult circumstances.
He concludes
I have been as guilty as anyone of being fascinated by behavioural economics. But the financial system did not fail because of some psychological trait, but because it was riddled with damaging incentives that were hard to spot because the system was complex and changing quickly. So, too, with counter-insurgency: Mackay started by thinking about economic psychology but ended up focusing on complexity, and what it takes to create an organisation capable of adapting to complexity. It has taken me too long to come to the same conclusion myself.
Next, an interview in the New Yorker magazine with Nobel Laureate Hames Heckman on what remains of the Chicago School.
I want to distinguish between two different ideas. The Chicago School incorporates many different ideas. I think the part of the Chicago School that has been justified is the claim that people react to incentives, and that incentives are important. Nothing in what has happened invalidates that idea. People did react to incentives—clearly they did. It turned out that the incentives they were reacting to weren’t socially beneficial, but they definitely reacted to them. The other part of the Chicago School, which Stiglitz and Krugman have criticized, is the efficient-market hypothesis. That is something completely different.
I think it is important to put it into historical perspective. In the late nineteen-forties and nineteen-fifties, when Keynesianism was really dominant, that sort of Keynesianism—so-called hydraulic Keynesianism—completely ignored incentives and the way people reacted to them. What Chicago did—Milton Friedman, George Stigler, and others—was to redress that balance. They did a whole lot of empirical studies that showed how people did react to incentives, such as changes in taxes or prices. That was incredibly influential, and it is still is.

Friday, January 15, 2010

Information and Markets

From the Economist's Economics focus for last week. One of Hayek's insights was that markets are essentially an information processing device: converting desires and resources into consumption. More and better information is good for both buyers and sellers
By examining historical data for the price of fish as mobile-phone coverage was extended down the coast of Kerala in southern India between 1997 and 2001, for example, Robert Jensen of Harvard University showed that access to mobile phones made markets much more efficient, eliminating wasted catches and thereby bringing down consumer prices by 4% and increasing fishermen’s profits by 8%.
Similarly, Jenny Aker of the University of California at Berkeley analysed grain markets in Niger to see how the phasing-in of mobile-phone coverage between 2001 and 2006 affected prices. She found that it reduced price variations between one market and another by at least 6.4%, and more in remote and hard-to-reach markets. With transaction costs cut, prices for consumers were lower and profits for traders higher.
The article also describes how ITC introduced internet kiosks (e-choupal) in Madhya Pradesh in an effort to improve transparency in the market for Soybeans.
Farmers in the region sell their soyabeans to intermediaries in open auctions at government-regulated wholesale markets called mandis, a system that was set up in order to protect farmers from unscrupulous buyers. The intermediaries then sell on the produce to food-processing companies. The problem with this approach for the farmers is that the traders have a far better idea about the prices prevailing in different markets and being offered by processing companies. With only a few traders at each mandi, they can easily collude to ensure that they pay less than the fair market price; they can then boost their profits by selling on the beans at a higher price.
However, in a long supply chain, different parties have different interests. ITC had an interest in cutting the middlemen out, and stimulating the farmers to produce more.
By the end of 2004 a total of 1,704 kiosks had been set up, each of which served its host village and four others within a five-kilometre (three-mile) radius. The kiosks displayed the minimum and maximum price paid for soyabeans at 60 mandis, updated once a day, along with agricultural information and weather forecasts. ITC also posted the price it was prepared to pay for soyabeans of a particular quality bought direct from farmers at 45 “hubs” (mostly in the same towns as mandis). By setting up the kiosks, ITC enabled farmers to check that the prices being offered at their local mandi were in line with prices elsewhere. It also gave them the option to sell direct.
The result was that the farmers produced more, and earned more. The middlemen lost out, and ITC got to purchase more at lower prices.
She found that the presence of kiosks in a district was associated with an instant and persistent increase of 1.7% in the average price paid at mandis in that district. As expected, the availability of price information increased the level of competition between the traders, raising prices and reducing the variation in prices between nearby mandis. Farmers’ profits increased by 33%, and the cultivation of soyabeans increased by an average of 19% in districts with kiosks. And by buying some produce direct, ITC reduced its costs, which paid for the kiosks.

Wednesday, January 13, 2010

How has the Internet changed the way you think?

Edge asks.
Daniel Hillis' answers
Today, most people only recognize that they are using the Internet when they are interacting with a computer screen. They are less likely to appreciate when they are using the Internet while talking on the telephone, watching television, or flying on an airplane. Some travelers may have recently gotten a glimpse of the truth, for example, upon learning that their flights were grounded due to an Internet router failure in Salt Lake City, but for most this was just another inscrutable annoyance. Most people have long ago given up on trying to understand how technical systems work. This is a part of how the Internet is changing the way we think.
Clay Shirky's answer is well worth reading.
The same thing is happening with publishing; in the 20th century, the mere fact of owning the apparatus to make something public, whether a printing press or a TV tower, made you a person of considerable importance. Today, though, publishing, in its sense of making things public, is becoming similarly de-professionalized; YouTube is now in the position of having to stop 8 year olds from becoming global publishers of video. The mere fact of being able to publish to a global audience is the new literacy, formerly valuable, now so widely available that you can't make any money with the basic capability any more.

Raghuram Rajan

Superb interview with Raghuram Rajan. As advisor to the Indian Prime Minister, he has some comments on the country, but I found the earlier parts of the interview much more interesting. Thought I would summarize the interview so I understand it better.

On why banks fund long-term, projects using short-term deposits
His answer is that there are three benefits to this structure: a) obviously, it is always going to be cheaper to get people to lend you money short-term rather than long-term b) Since depositors keep taking money out and putting it into a bank, there is always someone checking that the bank has funds to pay the depositors. This is a credible check on the management of the bank and lowers the cost of borrowing and c) long-term loans lead to constant strategic debt renegotiation, with the borrower trying to convince the lender to change the terms of the loan. Demand deposits allow the bank to credibly commit to not attempt this, and so allow them to get funds more cheaply.

On why the "narrow banking" proposed by Marin Wolf and Mervyn King would not be a good idea
I am not convinced by this, because the liquid bond markets we have now mean that a finance company can raise large sums of money for long periods of time, without any of the lenders having to lock themselves in for long periods of time; though this will mean they are exposed to interest rate risk on their capital. The cost of borrowing would go up: I just wonder by how much, and whether it may not be worth it.

He explains why he decided that financial innovations such as CDS and other derivatives had not reduced risk in the overall system: a) Banks cannot make money without taking risk; if they get some kinds of risk of their books, they must be accepting other kinds of risk which may be harder to spot, b) Employees were being penalized for taking on obvious risks, but this meant that they were taking on hidden risks. The Insurance companies were taking on "tail risk" by writing Credit Default Swaps and acting as though they would never have to pay up.

His model for why this crisis was so severe seems to be that banks were competing ferociously, and they took on just the risks which they felt were implicitly backed up by the government. The example he gives is liquidity risk, where banks assumed there would never be any shortage of liquidity because the Fed would drop interests rates as much as required. In fact, when the crisis came, the Fed dropped rates as much as they could, but the liquidity dried up because the banks were themselves in trouble and would not lend, nor pass the rate reductions on.

One thing I just don't understand is that he describes how the actions of the Fed caused moral hazard, and also says this
and this
but at the same time seems to believe that the cause of the crisis was excessive faith in the free market. Just don't get that.

Tuesday, January 12, 2010

Roll over, Turing

Pythagoras, Archimedes, Euclid and now this? What were those ancient Greeks smoking? The Antikthera mechanism is old news of course, but the images in the article are mind-boggling.

Investing in BRICS and mortar

Powerful article in the Financial Times.

The writer is not saying that the BRICs will not become really rich and powerful (though obviously nothing is guaranteed), just that there is no reason to believe that those who invest in companies in these countries are going to make any money.
Academic studies have shown there is no positive correlation between GDP growth and stock market returns – if anything the correlation is slightly negative...The reason for this counter-intuitive finding is that you do not buy shares in the statistical construct known as GDP. You buy the shares of real world companies. In immature fast-growing economies, the companies that end up winning the struggle for survival may not even exist yet. That was certainly so in the case of Japan’s economic miracle. In the 1950s there were more than one hundred motorbike companies. The market leader, Tohatsu, was driven out of business by the cut-throat pricing of a flaky upstart called Honda.

Companies in emerging markets are unlikely to generate the kind of cash needed for investment: they will repeatedly raise money on the markets. How does this help those who already hold shares in the company, unless the overall return on investment improves, and is there a real incentive for the companies to do that?

Then comes a ferocious warning about China: the stock market is overvalued, real estate even more so (apartment prices are at 50 times average household income while Japan at the peak of its real estate bubble saw ratios of 12 to 15 time average household income), and investment in fixed assets is 50% of Chinese GDP.
Just as there has never been a bubble that hasn’t burst in the end, so there has never been an investment boom that hasn’t been followed by a bust. If China’s investment-to-GDP ratio were to drop to the levels of 1960s Japan – not an absurd idea, since that is also where it was in China ten years ago – the impact would be catastrophic. China itself would face slump and the mother of all banking crises. A domino reaction would hit the commodity exporters and other emerging economies. The deflationary impact of Chinese overcapacity would be felt everywhere, potentially putting the world trading system at risk. And investors would come to view the “Bric” acronym much as they do “TMT” today.

America versus Europe

Another interminable debate.
Here is the Economist's Free Exchange blog. Here is Tyler Cowen two and one.
I think Tyler Cowen two makes the most interesting points.

Women in the workplace

Good article in the Economist.

Huge improvements all round, but economics is all about trade-offs.
This is in line with what Chris Dillow reported sometime back.
Controlling for obvious things like education and occupation, lesbians earn 11% more than heterosexual women. Most of the male-female pay gap, then, is a penalty for heterosexual women only, not for women in general.
I was just happy to see that there is some data throwing light on this controversy, but there are consequences
Many professional women reject motherhood entirely; in Switzerland 40% of them are childless. Others delay child-bearing for so long that they are forced into the arms of the booming fertility industry. Some choose not to work at all, representing a loss to collective investment in talent.
The article also seems to be suggesting that children might be suffering because their parents are not spending time with them, but offers little evidence for this.
A survey for the Children’s Society, a British charity, found that 60% of parents agreed that “nowadays parents aren’t able to spend enough time with their children”. In a similar survey in America 74% of parents said that they did not have enough time for their children.
This could just be a case of parent's feeling guilty.
British children brought up in two-parent families where only one parent works are almost three times more likely to be poor than children with two parents at work.
This statement, of course, does not tell us which is cause and which effect, or even if something else is causing both.

There is some good news
Many talented women are already hopping off the corporate treadmill to form companies that better meet their needs. In the past decade the number of privately owned companies started by women in America has increased twice as fast as the number owned by men. Women-owned companies employ more people than the largest 500 companies combined. Eden McCallum and Axiom Legal have applied a network model to their respective fields of management consultancy and legal services: network members work when it suits them and the companies use their scale to make sure that clients have their problems dealt with immediately.