Category Archives: Current Events

Deirdre McCloskey: market-tested innovation

I cite a citation:

Think of the Bill Gates and Steve Jobs, big wealth accumulators in recent times. It wasn’t the magic of compound interest on capital that made them rich; it was intellectual property. They created billions of dollars of business from virtually nothing at all. If you measure the profits as a return on the small amount of initial capital invested, then it looks huge; but capital was no more important an ingredient of the original Apple or Microsoft than cookies or cucumbers.

Also:

Capitalism’s nature is not, contrary to Piketty’s claim, to forever protect and augment existing capital.  Central to capitalism’s nature is what McCloskey calls “market-tested innovation.”  And this innovation inevitably destroys the value of older, less-productive capital that is in competition with with it – in competition with the new capital, the new goods, the new production and consumption processes, and the new knowledge that innovative entrepreneurs create.

All at Cafe Hayek.

Locution

Feeling lachrymose and wistful, I write today’s post about the forthcoming SAT revisions:

One big change is in the vocabulary questions, which will no longer include obscure words. Instead, the focus will be on what the College Board calls “high utility” words that appear in many contexts, in many disciplines — often with shifting meanings — and they will be tested in context.

the 211-page test specifications and supporting materials being shared publicly include “everything a student needs to know to walk into that test and not be surprised.”

I abhor this noxious abasement of our students’ abilities, bilking them, nay downright abrogating them, of the blithe life to which a broad vocabulary can inure them. This obdurate and pernicious habit of coddling young people’s intellect will make a generation of blunderbusses with the concomitant ignorance of the etymology of all our greatest vocables.

Too wan to continue, I sign off.

 

Income Inequality Institute Irony

Alliterations always win.

It is not often I will post a link back to Gawker, but that is where I first heard this bit of news so it is the correct action.

Let’s be honest: it must be hard to work for the Income Inequality Institute. Justifying any form of remuneration surely requires a creative application of words and thoughts. Bearing that in mind I’d love to hear the conversation which decided the payment of $25,000 per month to one man for playing “a modest role” and “[contributing] to the build-up” of… something.

The official announcement states:

“Professor Krugman’s contributions to economic theory are as foundational as his regular critiques of current affairs are trenchant. The Graduate Center is internationally known for its culture of interdisciplinary and collaborative research and Ph.D. training, and nowhere are the quantitative and cultural markers of inequality more systematically addressed than by our social scientists. We are delighted that he will be joining our economics program and the Luxembourg Income Study Center, where we are assembling a remarkable community of scholars and students. Our students will benefit enormously from his teaching, which will cover diverse topics.”

See here for the offer letter and response.

A Thousand Words (and a topic for your thesis)

This week 50% of Dumbagent is moving to a new continent, so this post will be a combination of some things we’ve already mentioned at various times that seem to tie together nicely.

First of all, many readers probably already know about The Economist’s “Recession Index,” which measures the likelihood of a recession based on the number of times the word is mentioned in mainstream media. In other words, if more and more media outlets use the word “Recession”, it is more likely we are going through a recession.

The New York Times took this concept one step further, with this chart, which analyzes what various political parties say and which words they use. When they first did this, we stated that this concept might be more interesting if it featured some filters. For example, when the Democrats mention “Economy”, is it in a positive or negative light?

It turns out a blog called Bluematter did this, sort of. Here is an excerpt:

Rising house prices: Good
Falling house prices: Bad
Affordable houses: Good
Unaffordable houses: Bad

Free trade: Neutral
Unfettered free trade: Bad
Fair trade: Good
Outsourcing: Evil
Buying local produce: Divine

Link to original post on Bluematter.

However, as on point some of these may seem, it doesn’t look like any statistical analysis was behind these ratings. So we propose that someone actually perform this analysis. In other words, someone should find several keywords used in the media, study their usage over time, and filter the results into “positive”, “negative” and “neutral”.

At that point, some very interesting trends could start to pop up. Do negative comments relating to immigration tend to pop up more often during recessions? When do we see the spikes in gun control discussions? What might we be missing?

Any thesis writers out there in need of an idea?

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Why the Chinese are getting divorced

An interesting phenomenon is occurring in China, according to CNN’s global public square.

Save your money: divorceA new tax law in China states that there will be a 20 percent capital gains tax on the sale of second homes. This law can be argued to have various consequences, which usually vary depending on whether you agree with the tax or not. Some might argue that this is a good way of taxing richer people, since it is only on second homes. Others may argue that a 20 percent tax on a house is too high and will be a disincentive to sell, thereby stagnating real estate markets.

I doubt many pundits would except it to lead to a rise in divorce rates, however.

But apparently this is exactly what is occurring. If a married couple owns property they want to sell (that is not their first home), they can get a divorce. Then one of the divorcees can claim they only own one of the properties, sell it, and then the couple can get remarried, presumably without paying the tax.

This extreme form of pragmatism may seem odd to many, but is it wrong? In a manner, these couples are finding a way around a system they obviously feel is unjust. They are confident enough in their relationships that a dissolving government confirmation of their marriage will not jeopardize whether they want to stay together or not. And in the process they get to keep quite a bit of hard earned cash. The main opposition points to this would be:

A) It destroys the sanctity of marriage.

B) It subverts what the government is trying to achieve.

These are obviously valid points, with the first being personal, and the second merely stating the government left a loophole people are willing to take advantage of.

In a way, however, it is reminiscent of an extreme form of pragmatism not seen in the United States since the frontier days of P.T. Barnum through to the roaring 20′s. Of course, that all ended with the stock market crash of 1929, so who is to say what will happen in China’s future? In the meantime, however, the Chinese seem to be nothing if not resourceful and pragmatic.
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We Should Jail all Doctors

We have to admit we were perplexed when we read about the arrest, and subsequent conviction, of the Italian seismologists, because they failed to adequately foresee the 2009 Aquila earthquake and to predict the extent of its damage. Since then, however, we have gotten used to the idea, and we think it should be taken to other realms.

For example, it has been decades, and we still don’t have a cure for cancer or AIDS, so we believe it’s time for all scientists (oncologists and non) to be thrown in jail for giving us false hope. Speaking of false hope, millions of people die each year in hospitals, despite each one being staffed by so-called “doctors”. We think these doctors should be thrown in jail for being responsible for so many deaths. Let’s include pharmacists and massage therapists in this category too.

But since when is jail only for life or death situations? I, for one, think we should arrest all economists, for not foreseeing and/or getting us out of this recession. Also, many people are living subpar lives, so all politicians should be thrown in jail.

Also I remember reading about mentally ill people, so all psychiatrists and psychologists are obviously deceiving us – those criminals – and should be locked up. And obesity is still a major issue, so nutritionists are obviously all scam artists.

Then again, why even limit ourselves to health and well-being? Despite all our progress, and all our tax dollars, there are so many awful movies and terrible songs out there. Let’s arrest these movie stars, singers, directors and everyone else in the entertainment industry, since they’re just stealing our money. And don’t even get me started on sports! With all the TV channels dedicated to them, every game has at least one team losing, and this is an outrage. Everyone in the sports industry ought to be locked up.

Or, we could recognize that every job endeavors to correct some wrong or to make life a little bit better. Not always being successful at this is no reason to get thrown in jail. The italian seismologists were no more or less accurate than was humanly possible. People looking for others to blame should not be allowed to have them thrown into jail for 6 years for doing their job.






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Sick and Tired of Gun Laws

The article from CNN starts:

“On Friday morning, a man walked through the entrance of an elementary school and, without warning, began ruthlessly cutting down children at the school. Before he was subdued, nearly two dozen were hit.
While it sounds like the horrific massacre in Connecticut, this attack took place about 8,000 miles away in central China. “

There were two huge differences between this attack in China, and the recent one in Connecticut. First, in China’s, although 22 children were hit, none died. Second, the one in China involved a knife, not a gun. In fact, China has extremely strict gun laws.

This recent gun rampage, along with the ones in Oregon, the Aurora movie theater, the Sikh temple, and others, will spark more gun control debates. They will also spark more gun rampage copycats. The second amendement advocates will dig their heels in, saying things like “I wish the principal and teachers had been armed”, while gun control activists will say this is proof that guns need to be taken off the market.

We, despite tending to be very libertarian, are not when it comes to guns (which makes us quite unpopular in some circles). We could go on the usual tirades about how countries with stricter gun laws have fewer gun deaths, or how “a well-regulated militia” is probably a somewhat important part of the 2nd amendment. But we would just be counteracted with examples of the people who used guns in self-defense, or would be told that we are not worthy of interpreting the constitution. So why bother?

The sad truth is that neither side is correct. Obviously, if there were stricter gun laws there would be fewer gun deaths. As much as second amendment lovers try to overanalyze every aspect in order to claim the opposite, this is still an utterly obvious truth. Guns don’t kill people. People kill people. But if people don’t have guns people kill far fewer people. On the other hand, the United States is much too far along to get rid of guns. Gun advocates are correct in saying that this will not help (and might harm) people’s safety. As a recent study by the Cato institute states:

But guns are long-lived capital assets.The stock of privately owned firearms in the United States is large relative to annual sales (Kleck 1991, chap. 2). Firearms are passed down through generations of family members. They are bought and sold, traded, parted out, and given away among friends, acquaintances, and strangers. It would be difficult, if not impossible, to constrain and regulate the transfer of firearms between non-dealer private parties.[...]
Government extensive and intrusive enough to regulate all private transfers of firearms would raise significant civil liberties issues.

This is absolutely correct. Guns are long-lived capital assets, and outlawing them tomorrow will do very little to decrease their use (and likely spark a new underground black market in guns).

So what is the solution? The solution is one of the worst kinds. It is a long-term solution, in that it would take longer than any one person’s political term to carry out.

If the ultimate goal is fewer deaths (I think we can all agree on that), then the ultimate goal should be fewer firearms, starting with firearms in the hands of wackos who shoot up schools, malls and temples. This makes sense, in that, if you need a prescription for sinus and allergy medicine, it stands to reason that a background check or two when purchasing a semi-automatic weapon would be of some benefit. Steps like this could be carried out right away, but they would have to become more and more strict as time went on, with the ultimate goal of fewer guns being in 10 or 20 years’ time. The problem is, any politician who becomes unpopular by proposing such a plan, will likely not be in office to reap its rewards.

In other words, we need people to want a huge change, and we need them to want it for a long time.

Waffle House Index

A disaster (let’s say a hurricane) is occurring in your country (let’s say the United States) and our federal emergency agency (let’s say FEMA) needs to know quickly where to allocate which resources. How do you do that? You don’t have your people in every single town, especially once you are outside of big cities. In fact, the small towns are the hardest to figure out, and their problems often aren’t heard until news agencies discover them or some youtube video goes viral.

Well, there appears to be another way. A staple of small towns (in most of the United States) is Waffle house, and it turns out there is a way of monitoring how the natural disaster has affected these towns. For example, as occurred with hurricane Sandy “when an official phones a Waffle House and the restaurant is open and serving the full menu, the index is Green. When the restaurant is open but serving a limited menu, it’s yellow. When it’s closed, it’s red.”

This is reminiscent of The Economist’s Big Mac Index, or Iowa Electronic’s market Influenza prediction market, and is obviously an interesting feature of the dumb agent theory at work, and of markets in everything.

Can you think of an index for your country? Or a better one for the United States? For example, I am currently living in Taiwan, and a 7-11 index would certainly be the most helpful form of index here.

Wikipedia page of the Waffle House Index here.

Who will be the next President?

Since millions of Americans are voting for their president, we thought we would venture to predict who might win. We will do so using something called the “recognition heuristic“. We discussed this briefly in the past, and even mentioned that it might be useful in predicting the next president, so here we go.

According to our theory, you want to see if people who are slightly less familiar with the election overall are more familiar with one candidate or the other. The best way to do this to test recognition outside the United States. Well: recognition outside the United States will generally favor the incumbent, since they have been hearing that person’s name for 4 years, while the challenger is comparably new.

Interestingly, however, Romney’s religion, as well as his gaffes (especially those occurring abroad and dealing with Sesame street) would work in his favor when following this theory. Remember that we don’t care whether people outside the US would vote for this candidate or another: only how familiar they are with each one.

So how can we quantify this recognition? Well, it is difficult, but it seems overall that Romney has not made enough of an impression abroad to counteract Obama. In fact, the Voice of America called Romney “mostly unknown” in Europe. Also, a search for “Obama” in Chinese (simplified) turns up 73 million hits, while Romney has less than 16 million.

So our conclusion: Barack Obama will be re-elected.

But as a side note, would this mean the incumbent is always favored to win? That is certainly possible, and even Americans, even if completely ambivalent about other matters, are more likely to stick to the person they know than choose a new person they don’t. But let us remember that George Bush Sr. only had one term. Interestingly, many people abroad had only seen him as Reagan’s second in command who then took power, but was never a Ronald Reagan. Figures on Clinton’s familiarity abroad before he was elected are even harder to come by, but the lack of interest in Bush senior certainly may have helped here.

Regardless, obviously this isn’t a fool-proof method, and it is very experimental, since none of the respondents are actual voters in the US. Still, it will be interesting to see how it turns out.