I’ve been having to go further and further in the world to get anyone to listen to me. But in any event, I enjoyed this breakfast radio interview in Regina Saskatchewan.

EVEN as the contrast between left and right fades in mainstream politics, politicians continue ideological warfare like lions eat red meat. But somehow left-leaning politicians have become vegetarians. And they’re being eaten alive by the carnivores of the species.

Deep in the psyche of the electorate, the right is dad and the left is mum. Seriously! The electorate instinctively feels that the right is better with money while the left is better at ”caring” things such as health and education. The left’s desperation to avoid the right’s stereotype of them as feckless spendthrifts sees them continually hamstrung in articulating their case. Seeking to appease our economic anxieties they buy into the right’s way of framing the issues. In the name of managing the news cycle they give up more and more political and ideological ground.

Thus, for instance, to allay electoral fears about rising debt, US President Barack Obama suggested that, since American families and businesses were tightening their belts, the government should do the same. This is nonsense on stilts. By the very logic of his stimulus (and Bush’s cash handouts before him), the whole point of deficit spending was to reverse or counterbalance a temporary lack of private spending. As Paul Krugman argues, one can forgive Obama for compromising on the policy, but not on the truth; not, that is, for casually adopting his opponents’ framing of the issues that gainsaid the whole point of the stimulus in the first place.

Australia’s economic circumstances are different. Partly because our stimulus worked so well and also because of the surging resource sector, our central bank hasn’t needed to cut its cash rate to near zero. So it hasn’t run out of conventional monetary ammunition like the US Fed. So unwinding our fiscal stimulus makes sense.

Yet our left-leaning politicians can’t take credit for their greatest achievement because they’re forever thrusting their little vegetarian heads into the lion’s jaws of their opponents’ framing of the issues.

Recall how initially the government couldn’t even bring itself to mention the word ”deficit”? The real damage wasn’t how silly this made it look but how in being so defensive it hamstrung its explanation of what it was doing and why.

And when the opposition and the Murdoch press mounted a campaign against the wastefulness of the inevitable snafus in stimulus projects, it needed to stand and fight: not just because it had to defend its greatest achievement, but also because this was its issue. It should have said, ”Yes, the necessary haste meant there’d be some mistakes in more than 20,000 projects, but they were minimal, especially compared with keeping more than 100,000 people employed. That’s not just good for them. It’s good for the budget. They’re off the dole and paying tax so we got thousands of school halls for a song. Come to one near you to see what we’ve built together and hear us debate the opposition who criticised us for building it.”

And as some opposition politicians continue to laugh to themselves and journalists, the government was so consumed by its economic inferiority complex that it was suckered into foolish bravado. On her first day in office, Prime Minister Julia Gillard turned a budget forecast into an ironclad promise to return to surplus by 2012-13, immediately rendering her government a hostage to fortune.

The less you stand and fight, the more ground you lose. And the mindset in which one makes progressively riskier and more desperate assertions of one’s own economic bona fides by promising a surplus come what may is one in which the deficits funding the fiscal stimulus become something shameful, rather than the government’s crowning achievement.

ALP state governments followed a similar path of populist fiscal rectitude – to their doom. Clutching their AAA ratings, ALP governments mortgaged their economic future and their cities’ amenity by starving them of infrastructure investment. Ask former premiers Keneally, Brumby, and Bligh how those AAA ratings turned out.

And so to the budget. It really brought home the bacon. ”The deficit years of the global recession are behind us. The surplus years are here.” Makes you wonder why we ever ran deficits. And what happens if there’s another GFC?

In fact, the very night before the budget, Australians were being polled on just that. Just 25 per cent said they’d trust the ALP if there were another GFC, down from 31 per cent just in August. For the government that could reasonably lay claim to being the world champion at steering its people through the last GFC, how extraordinary, how sad that it’s come to this.

Postscript: the podcast of the column - on James McLoghlin last Sunday night.

Other than the car – I don’t know what’s wrong with taxis – this seems OK to me. Indeed if the story is to be believed, it’s only for six months after he resigns – to handle correspondence etc (one needs a driver to handle correspondence for obvious reasons).

Anyway, though the reporting was neutral enough there’s a poll on whether this is OK or not. And of course they don’t just want you to vote ‘yes’ or ‘no’. They want you to run your own little story on A Current Affair. With a yawning and very dreary excluded middle, one gets this choice:

Is Mike Rann entitled to the extra perks?

• Yes, he served the state well
• No, this is outrageous

And of 2815 votes, 86.47% said it was outrageous. I’m generally down on perks – like outrageously generous superannuation or free business class travel for life, but these seem to me to be some of the least outrageous perks I’ve come across.

First it was David Brooks’ Harold and Erica. Now it’s the Obama campaign’s Julia. Harold, Erica and Julia are all fictitious characters born into a perpetual present. They live and grow old in a world that doesn’t change. As Michael Shear at the New York Times writes:

At age 3, Julia is enrolled in Head Start programs, thanks to Mr. Obama. By 22, she’s covered by her parents’ health care because of Mr. Obama’s health reforms. At 42, she’s getting a small-business loan from the government. When she reaches 67, she’s retired and drawing Social Security benefits.

In Julia’s world, demographic, technological and environmental change are on pause. She doesn’t need to worry about waiting for the new Intel chip to come out before she buys a new laptop. The new chip never comes. And in the same way, the government doesn’t need to worry about the effect of unforeseen new medical technologies on the cost of health care. The policies that work today will work equally well tomorrow.

There’s no ageing population problem. There’s no demographic bulge threatening Social Security or Medicare. The labour market goes on as it does now with undisrupted by technological or trade induced change. And while climate change is a constant source of anxiety, it remains lodged in a future that never comes.

Are Americans in denial about history? And if they are, how would that warp their decision making?

There has been at least on fictional treatment of a corporation taking over a country in John Brunner’s wonderful 1968 novel Stand on Zanzibar. It is based in 2010 and the corporation is transparently based on General Electric, and the country based on what would become Benin. Like much science fiction, it tends to tell us a great deal from what change it didn’t anticipate. In particular it didn’t anticipate how corporations (at least in the US) would change, and why the idea of a corporation taking over a country is less plausible than it once was.

It made sense in the 1960s to think of Corporations as great sprawling organisations that could possibly marshall the array of skills involved in running a country. Companies did have wide ranges of businesses and were more relaxed. But attitudes changed in the 1980s – maximizing return on capital meant that companies would shrink down to core products with the greatest returns, and jettisoning or spinning off other projects. In many ways I suspect this had alot to do with the movement from internally fostered management to a floating class of specialists in exploiting the principal agent problem in corporate governance. Shuffling projects between companies and identities meant an apparent increase in return on capital became the basis for bonuses – even though in aggregate there was no improvement.

Nowadays only a few companies still dominated by the shareholdings of a few (like Microsoft, News Ltd or Google) are prepared to fritter away money on unprofitable side projects. Even zaibatsu are less keen to expand the range of what they do now, and the chaebol were forcibly shrunk in the late 90s.

So we end up with a company like Apple, with a handful of very successful products that make a great deal of money it can’t do anything with. It has no other divisions to cross subsidize subsidize, or research to undertake (the company’s success has always been in packaging end products and not developing technology. They either cop the tax when they repatriate the money and pay larger dividends, or they let it sit in a bank account. They certainly wouldn’t pursue something outside their core – unless there was a tax dodge in it.

To be sure, owning a country would free the company from tax obligations were they to incorporate there and pay dividends there. But do they pay them in Apple dollars, get another country to let them use their currency or make sure the country they buy already has an easily currency? Think about what would be needed to support a new currency. They’d either start taxing, issuing debt, or make Apple dollars backable by Apple products – all of which seem foolish and still unlikely to make it a tradable currency (assuming shareholders want to buy things other than consumer electronics). But whom would let them use their currency, and countries that already have hard currencies are likely to be too large.

And of course, if shareholders remain in other countries, they’d be reliant on their resident states continuing to recognise Appledonia as a sovereign state in a way that prevents them taxing those same dividends. Maybe they’d also pay to join the WTO?

Previously I wrote this.

What depresses me is that this is not hard. All it takes is to try seriously to be useful, rather than to follow a procedure. If governments can’t do this kind of thing – or rather bugger this kind of thing up – it is depressing to think of how much more limited their usefulness is than it might otherwise be.

This one reads as a kind of send up of usefulness. Virtually everything it says is a kind of joke. Some of my favourite passages.

Do not take NAPROSYN if you have
an allergy to:
• NAPROSYN or any ingredients
listed at the end of this leaflet . . .

Ask your doctor if you have any
questions why NAPROSYN has
been prescribed for you. [Now there's an idea!]

If you take this medicine after the
expiry date has passed, it may not
work as well.

If you are not sure if you should
start taking NAPROSYN, talk to
your doctor.

Follow all directions given to you by
your doctor or pharmacist carefully.

A donation of 20K seemed in order, but was not forthcoming. And for whatever reason my candidature didn’t proceed any further. (I also opined on a tour of the campus that I thought it would be a pity if they ripped out the only remaining grass covered oval and replaced it with synthetic grass, no matter how much truer it made they hockey balls travel.)

Today I got an invitation to give money to Ormond College where I spent a year. It was cleverly crafted – written to me by someone in my year with a personal note to me. This was my chance to make a difference for the next generation. I could contribute to allowing someone hard of means to attend the College. Well that’s better than contributing to someone easy of means I guess. Anyway it transpired that to qualify, this person who was hard of means had to be someone whose parents had attended Ormond. And yes, they might have been hard of means, but then they might just have been good at minimising their income. I decided to pass.

“[A tax induced increase of 6 percent in alcohol prices] resulted in a reduction of 4.7 percent in injury deaths nationwide.”

ecause consumers reduce alcohol consumption in response to price increases, rising excise taxes on alcohol are associated with reduced levels of alcohol abuse and the related consequences for public health and safety. In The Virtuous Tax: Lifesaving and Crime-Prevention Effects of the 1991 Federal Alcohol-Tax Increase (NBER Working Paper No. 17709), authors Philip Cook and Christine Piette Durrance estimate the effects of a change in the federal tax on alcohol that took place on January 1, 1991. The federal government doubled the tax on beer and raised tax rates on wine and spirits as well, and alcohol prices jumped an average of 6 percent (adjusting for overall inflation) nationwide.

The authors find that this price increase resulted in a reduction of 4.7 percent in injury deaths nationwide during the first year. Both violent and property crime also declined after this increase in the federal tax on alcohol. Violent crime — especially robbery, aggravated assault, and rape — was apparently more sensitive to the level of alcohol consumption within a state than property crime. Among the category of property crimes, burglary and motor vehicle theft rates were most sensitive to a state’s per capita alcohol consumption after the tax increase. The authors’ results demonstrate that the alcohol-price elasticity for several health and safety outcomes is closely related to average alcohol consumption.

This doesn’t make any sense and the government should lean against this wind, putting more effort into such investment during downturns and recouping its equity or tax revenue with less assistance during the upswing.

I don’t know if the OECD suggests this somewhere in its report, but, though it finds it’s a major problem it doesn’t suggest any solutions in the press release to its new report which corroborates the phenomenon over the current downturn in a wide cross-section of countries.

Abstract:

We identify the major public debt overhang episodes in the advanced economies since the early 1800s, characterized by public debt to GDP levels exceeding 90% for at least five years. Consistent with Reinhart and Rogoff (2010) and other more recent research, we find that public debt overhang episodes are associated with growth over one percent lower than during other periods. Perhaps the most striking new finding here is the duration of the average debt overhang episode. Among the 26 episodes we identify, 20 lasted more than a decade. Five of the six shorter episodes were immediately after World Wars I and II. Across all 26 cases, the average duration in years is about 23 years. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions. The long duration also implies that cumulative shortfall in output from debt overhang is potentially massive. We find that growth effects are significant even in the many episodes where debtor countries were able to secure continual access to capital markets at relatively low real interest rates. That is, growth-reducing effects of high public debt are apparently not transmitted exclusively through high real interest rates.

Today I’m talking about path dependence that leaves us with second rate technology.

The hypothesis is very simple, but very interesting. A society has a problem, and a number of technologies become possible solutions. One of these technologies makes a little more progress than the others – it could be because this technology makes the first step a little easier or just through complete randomness – but this progress meas that it becomes the focus of attention. Funding, the efforts of innovators and entrepreneurs and other resources start flowing towards it because it looks like the best bet. This leads to even more progress which attracts even more. The competitors are neglected and forgotten.

But unbeknown to all, one of these technologies had a brighter future or another has come along too late. If only there had been a little bit of early success it would have been developed into a much better technology than its more favoured rival. By the time this is realised, its far too late to swap over because we’re already locked into the other. The individual incentives to change are far weaker than the collective benefit would be. Because of an effectively random event in the past, we end up in a poorer future.

A very interesting idea and very intuitive (path dependence in general is clearly true) and with large ramifications. But is it useful?

The overwhelming problem is that counterfactuals are  hard to find. We can’t (yet) look at alternate universes to see whether the technologies we pursued are inferior to those we didn’t. That makes it hard to confirm the hypothesis on the vast majority of candidates. This also makes it hard to avoid making similar mistakes. There may be innumerable better paths we could have taken, but without some way to recognise what they were, the idea is fairly pointless.

What do we do with the hypothesis then?

There have been efforts to identify cases based on real analysis. Unfortunately most treatments of the idea are content to stop at just two, both of which are far from convincing.

Dvorak.  The keyboard layout we use today, QWERTY, was designed to combat the specific problems of early manual typewriters where the type had a potential to get stuck together. Although the problem was solved and now the manual typewriter is long dead, we still use the QWERTY system. Retraining typists was too hard. This is a good example of path dependence. DVORAK is another layout and it claims to be faster than QWERTY. Because of the vagaries of early typewriters, we might be stuck using a  less efficient layout. Luckily DVORAK is fully developed, so it’s not hard to compare the two systems in a controlled study, but none except those run by the owners of DVORAK have shown any efficiency gains worth noting. The hypothesis is not supported.

Betamax. Betamax and VHS were early rivals to become the standard for consumer video tape. VHS was successful because of a larger library of content and longer play times, but lore has it that Betamax had better quality. This seems to be a confusion between the consumer Betamax and the professional Beta Cam. The latter had clear advantages and did indeed become the industrial standard. But even if we accept every claim in favour of Betamax, the ramifications are “In the last two decades of the 20th century, consumers had slightly lower picture quality for home movies than they would have otherwise”. This is not very shocking.

So I went looking. Here are some others that are suggested, either explicitly in favour of the hypothesis or implicitly.

The Intenal Combustion Engine. Electric cars were not a baby of the oil shocks, but go back right to the beginning of automobiles. Internal combustion engines became dominant because they had greater range and were cheaper to manufacture and run. When the oil shocks negated the running costs, there arose an idea that we were stuck with a suboptimal technology. But for a few successes by petrol cars in the early 20th centuries, we could be driving cheap, clean and efficient electric cars [fn1]!

There’s a number of problems with this idea. Electric cars, and not petrol cars, were the cars with the early success. The limits on electric cars were mainly related to the capacity of the battery, the cost of the battery and the time the battery took to recharge. These problems remain despite the fact that battery technology continued to be used and developed elsewhere . We don’t even need to think about the lack of a charging stations. Petrol cars may well be suboptimal, but this is because of the failure to price resources and pollution correctly, not path dependence.

Hanzi.  In the Western Mediterranean  phonetic writing systems arose thousands of years ago and these became the ancestors of the Roman and Greek alphabets. In China a pictographic writing system  arose and became Hanzi (汉子); Chinese characters. As Jared Diamond sees it, the early adoption of a pictographic system and unawareness of phonetic systems in the East limited literacy and more importantly meant Chinese were unable to fully adopt printing after they invented it.

Yet China’s neighbours had been using Hanzi phonetically for hundreds of years before Gutenburg. They had also invented kanas (in Japan) and hangul (in Korea) to replace it. Even in China itself Kublai Kahn had commissioned a phonetic script, based on Uighur but designed for all the languages of his empire. The failure of his script and the slow adoption of hangul was path dependence, but not in the sense of the hypothesis. It was a product of special interests (officials who didn’t want to make it easier people that weren’t their children to train for bureaucratic exams) rather than the individual switching costs implied by the hypothesis. Swapping systems has not proved costly otherwise in Korea or Vietnam. Nor has it prevented the effective dominance of pinyin, the romanised Chinese that is used to input text into computers. Because of the quantity of electronic text we are rapidly approaching the point where the majority of Chinese ever written will have been written (although not read) in a phonetic script – that’s if we haven’t already got there.

Electricity – I read  - I can’t remember where – a discussion of the hypothesis that gave “AC power” as a throwaway example of an inferior technology we’re stuck with. As far as I know the reasons for the success of Alternating Current in the Current Wars – its lower transmission losses compared to Direct Current and the relative ease of transformation – are as advantageous as they ever were. We could make a claim for inferiority of the lower voltage that is standard in the US and Japan, but effects seem limited to a preference for stove top kettles over electric kettles.

Nuclear Power [I Forgot this section the first time] – Nuclear power never delivered on its promise for electricity “too cheap to meter”. It wasn’t hyperbolic PR either, but the genuine belief of anyone who had learned about Mass-Energy equivalence (E=MC^2). It seems implausible that the promise isn’t still there, so path dependence is a natural hypothesis to look at.

One such claim is that uranium and plutonium were pursued because of their potential to produce weapons, neglecting the potential for thorium – although India’s experience hasn’t been exciting. The current thorium projects give a rare opportunity so see if the neglected technology goes anywhere so I’ll reserve judgement.

A similar hypothesis is that the development of light water reactors in nuclear submarines made them the obvious model for commercial reactors where they became entrenched at the expense of alternatives. Unfortunately we once again run into the problem of unobserved alternate universes. We can’t tell if the untried alternatives really were better.

The least plausible hypothesis, which is by far the most popular amongst current advocates, is that nuclear power is the victim of irrational fears, of environmentalists and of Jane Fonda. If only there was the will to pursue it! The invocation of The China Syndrome and of Three Mile Island are interesting because they highlight the fact that in 1979 – after 30 years of heavy funding and massive support from governments and during an oil shock that shot up the price of rival fuels – nuclear power was nowhere near financially viable. One does not need environmentalists to explain why nuclear power managed to thrive only where weapons were desired or where corporatism was rife.

Rail gauges - The adoption of different standard gauges is a good example of an inefficient outcome due to path dependence, but its not due to the inferiority of one gauge over another, merely the fact they don’t work together.

Esperanto – Unfortunately Esperanto is almost a punchline by itself, so I can’t give it a proper examination.

 Maybe there’s some others I can think of..

Models - John Quiggin explains his use of neoclassical economics this way.

Mainstream economics provides a set of tools (the theory of public goods, externality and market failure, taxation and income distribution) to do the analysis and a widely-understood language in which to express the results. No existing alternative body of thought in economics comes close to this.

…

If I understand the heterodox side of the famous Cambridge controversy correctly, the terms in which I express my case (relative rates of return to equity and bonds) are logically incoherent. But I have no idea how I would make my case if I were to use, say, the theoretical framework promoted by the late Piero Sraffa. It may be that, if the existing body of economic analysis were replaced by an entirely new theory developed on different premises, we could derive a better analysis. But I only have one life, and I’d rather devote it to promoting better policy outcomes than to relaying foundations.

In short, his incentives to swap are tiny, even if there was demonstrably a better universe out there. This fits the hypothesis well. He could have added that even if he had the body of analysis to produce answers it wouldn’t get published or understood or read by policymakers unless they’d all been trained. General Equilibrium is perhaps the best example. I don’t think I’ve met an (Australian) economist who likes it, but there’s nothing else. Even bad answers are preferred to no answers, so people are still willing to pay for it.

Maybe if the Marshalls or Paul Samuelson had written shittier books a better system would have got a head start, but we’ll never know.

I titled this section “models” because it may not be confined to economics alone. 

Automobiles - Distinct from how the vehicles are powered, maybe the whole idea of individual vehicles designed to transport people who are tiny fractions of their own volume and driven by amateurs was a wrong turn. Even if we fixed the issue of fuel, we’d still have congestion, parking issues and the fact that we’re not very good at piloting high speed metal – a fact that is tragically manifested in the road toll. But the decision to take up automobiles (instead of, say, mass transit or high density) resulted in a path dependence that extends to land laws and the shapes of entire cities, especially the ones we like least. Switching now would be very costly.

Again we can only know by looking at other universes.

The idea of path dependence is invaluable in many fields and the idea of it leading to suboptimal technology is very interesting and may well be true. But “true” doesn’t mean “useful”. On the existing evidence, it may not matter.

P.S About 3/4 of the way through this post I came across this review article that ended up treading very similar ground despite being about technological path dependence in a broader sense than just suboptimal outcomes. I think it leads one to the same conclusions but also deals in far greater depth with the DVORAK and Betamax cases.

[fn1] That’s when the hypothesis wasn’t an oil company conspiracy

In the second volume of Law, Legislation and Liberty Friedrich Hayek explained that he saw little point in engaging with Rawls’ Theory of Justice since "the differences between us seemed more verbal than substantial…" Many of his supporters find this surprising.

I’ve often wondered what Hayek would have said if you asked him directly about Rawls. Now I know.

Here’s a longer quote from Hayek’s The Mirage of Social Justice (Law Legislation and Liberty v2):

I have come to the conclusion that what I might have to say about John Rawls’ A theory of Justice (1972) would not assist in the pursuit of my immediate object because the differences between us seemed more verbal than substantial. Though the first impression of readers may be different, Rawls’ statement which I quote later in this volume (p. 100) seems to me to show that we agree on what is to me the essential point. Indeed, as I indicate in a note to that passage, it appears to me that Rawls has been widely misunderstood on this central issue (p xiii).

]]> http://clubtroppo.com.au/2012/04/18/hayek-on-rawls/feed/ 14 http://clubtroppo.com.au/2012/04/18/herding-part-two-superstars/ http://clubtroppo.com.au/2012/04/18/herding-part-two-superstars/#comments Wed, 18 Apr 2012 06:37:03 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=18961 Continue reading →]]> This wasn’t supposed to be the theme of part two (Part One is here) but Jessica Irvine’s recent and timely column on superstardom and One Direction prompted me to add my two cents’ worth – well someone else’s two cents’ worth but at least inserted by me.

First; highlights from Jessica’s column:

US labour market economist Sherwin Rosen in his 1981 paper ”The Economics of Superstars” identified two preconditions that lead to superstardom. First, every customer in the market must want to buy the good supplied by the best producer. The second condition for the birth of a superstar is that the good provided must be able to be distributed cheaply to all customers in the market. You don’t see superstar plumbers, because their services are only available to one geographic area.

Rosen’s theory of superstardom as an efficient outcome of the market was challenged by another US economist, Moshe Adler, who pointed out that whether people preferred one singer over the other was not necessarily determined by how talented they were. There is, after all, no standard unit to measure increments of talent. The key thing about groups like One Direction, according to Adler, is not that they are the most talented – for such a thing can never be measured – but that they are simply the most popular.

According to Adler, consumer desires are not innate preferences – as standard economics assumes – but are influenced strongly by society. We desire the same art, culture and music that is desired by other people.

To which I would only add the graph below which features in Paul Ormerod’s forthcoming book. In a controlled experiment with people listening to music if they were not ‘networked’ which is to say they didn’t know what other people thought was good, there was a fairly big inherent difference between songs. If they were networked, they ‘herded’ strongly.

Typical outcome of the music download experiments; number of each of the 48 songs downloaded over the course of an experiment, participants only know the names of the song and band and can listen to songs before deciding whether or not to download. The average number of downloads is set equal to 100 for comparative purposes

Same experiment as before except the participants know the number of previous downloads of each of the songs before they decide themselves

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Of course the upshot of this is that we’re all madly herding from one place to another, but the extent to which there’s signal in the noise of our herding is greatly attenuated.  Further; large amounts of rent are being expended trying to get people’s attention with marketing to get into people’s headspace and win the battle for the next hit.

]]> http://clubtroppo.com.au/2012/04/18/herding-part-two-superstars/feed/ 12 http://clubtroppo.com.au/2012/04/15/if-our-models-are-correct-then-people-are-smarter-than-we-realised/ http://clubtroppo.com.au/2012/04/15/if-our-models-are-correct-then-people-are-smarter-than-we-realised/#comments Sun, 15 Apr 2012 06:35:41 +0000 Richard Tsukamasa Green http://clubtroppo.ozblogistan.com.au/?p=19338 Continue reading →]]> Whilst making pies yesterday I happened to recall a sentence I read 7 or so years ago, which suddenly struck me as very silly. So I just looked it up to make sure I hadn’t imagined it.

I didn’t.

Here’s the whole paragraph.

A final point worth noting on gang wars is that their strategic
aspects are not lost on the participants. Gangs use violence on
their competition’s turf as an explicit strategy for shifting demand
to their own territory. As one former member of the rival gang put
it during a gang war:
See the thing is they [the gang for which we have data] got all these
places to sell, they got the numbers [of sellers], you know. It’s not like we can
really do what they doing. So we gotta try get some kinda advantage, a
business advantage. If we start shooting around there [the other gang's
territory], nobody, and I mean it you dig, nobody gonna step on their turf. But
we gotta be careful, ’cause they can shoot around here too and then we all
f——. But, it’s like we ain’t got a lotta moves we can make, so I see shooting in
their ‘hood as one way to help us.
In fact, in some cases, a gang engages in drive-by shootings on a
rival’s turf, firing into the air. The intention is not to hurt anyone,
but rather to scare potential buyers. It is interesting to note that 
the gang member understands the game-theoretic consequences
of such actions corresponding to retaliation by the rival, in which
case both parties are worse off than if no violence had occurred.  (my emphasis)

Some of you might recognise the paper, given it was popularised in Freakonomics. It’s “An Economic Analysis of a Drug-Selling Gang’s Finances” by Levitt and Venkatesh.

On reflection I might be unfair in calling it silly, but it reflect a strange pathology I think I often see in economics. Economists attempt to understand the consequences of human behaviour, so they build models. Models are necessarily simplified, so we include things like the assumption of rationality, which is then described in terms of optimal behaviour from an individual standpoint. We then use these to try and understand the world.

Except somewhere along the road economists take a detour, and rationality stops being a simplifying assumption, and starts being a way of thinking clever and properly educated people (i.e economists) do. Subsequently when economists observe real life behaviour like the drug gangs, the conclusion isn’t;

Looks like our game theory models are useful for understanding strategic behaviour in drug gangs. Cool.

Rather it is;

Drug dealers understand Game Theory?! Amazing!

Which is a very silly way to go about trying to understand human societies and economies.

I also recall a post on the Freakonomics blog [fn1] in which Levitt remembers fondly a conversation with Milton Friedman early in his career. Levitt had said he was careful to save money on his early salary, and Friedman chided him for being irrational and neglecting to take into account that Levitt’s higher salary in the future would allow him to smooth out his consumption. Here Friedman was clearly drawing on the Permanent Income Hypothesis, his “best scientific work” and one of the cited reasons for his Riksbank prize.

So we have Friedman chiding people for not acting the way his models said they would. A very smart man and a positivist no less!

It is a very strange discipline that is surprised when its models are useful, and cranky at reality when they are not.

 

[fn1] Which I can’t find. I guess they wanted to make sure all memory of the blog prior to the past few years of hissy fits is damned.

 

 

 

]]> http://clubtroppo.com.au/2012/04/15/if-our-models-are-correct-then-people-are-smarter-than-we-realised/feed/ 7 http://clubtroppo.com.au/2012/04/11/making-credentialling-like-a-sport/ http://clubtroppo.com.au/2012/04/11/making-credentialling-like-a-sport/#comments Wed, 11 Apr 2012 09:56:55 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19275 Continue reading →]]> Some of you may know that Kaggle’s motto is “We’re making data science a sport.™”. Now we’re publishing a leaderboard of our top ten performers. And it’s quite an eye opener.  There’s not a professor there. Indeed there’s not a  person from a top university there. Just ten of the best data scientists in the world. Their names and bios below the fold. Of course there are only a few disciplines that can be reduced to the sporting formula to determine the best, but if there were more, then we could be on the cusp of a revolution. 

1. Alexander D’yakonov

An academic in the Faculty of Computational Mathematics and Cybernetics department at Moscow State University, Alexander modestly describes his favorite problem-solving technique as “luck.” Despite this, the 33-year-old Russian has earned a reputation for using methods known for their theoretical rigor and elegant simplicity. This helped him to win the dunnhumby Shopper Challenge, which asked competitors to predict the amount and timing of supermarket shoppers’ next spends.

2. Sergey Yurgenson

With a Ph.D. in physics from Leningrad (now St. Petersburg) State University and his current position as a research associate in neurobiology at Harvard Medical School, Sergey Yurgenson has combined both of his areas of expertise to develop computational algorithms inspired by biology. Favoring neural networks, a type of learning algorithm modeled on how brain cells work, the 50-year-old’s best finish came in NASA’s Mapping Dark Matter competition. To tackle the task of analyzing images of galaxies, Yurgenson combined several different kinds of neural networks.

3. Vivek Sharma

With a master’s degree in computer science from the University of Virginia, 32-year-old Vivek Sharma is now based in Delhi, where he has become one of Kaggle’s most consistent performers. His recent best results were in the credit scoring competition Give Me Some Credit and in the Algorithmic Trading Challenge.

4. Jose H. Solorzano

Jose H. Solorzano is a 42-year-old software engineer based in Quito, Ecuador. He has previously worked on open source projects, including the robotics software behind Lego Mindstorms. Solorzano’s software has been used to design a space junk collection system constructed entirely out of Lego pieces and put to test in orbit. His most notable Kaggle success was when he won Don’t Overfit!, a competition aimed at improving predictive algorithm strategies that attracted the attention of many of Kaggle’s most enthusiastic users.

5. Xavier Conort

Xavier Conort is a French actuary whose adventures have taken him to Brazil, China, and Singapore, where he is currently based. He is the founder of Gear Analytics, a consulting firm that helps insurance firms and other companies use predictive modeling. The 39-year-old’s affinity for American car culture helped him win the hotly contested Don’t Get Kicked! competition, which asked Kaggle contestants to develop a mathematical model that can work out which used cars are most likely to be bad buys, or “kicks.”

6. Tim Salimans

Tim Salimans is a 26-year-old Ph.D. candidate in econometrics at Erasmus University Rotterdam in the Netherlands. He triumphed in the World Chess Federation (FIDE)-sponsored Deloitte/FIDE Chess Rating Challenge on Kaggle. The task was to predict the outcomes of chess games, thus developing a better ratings system. Saliman’s trick was to create a modified version of the method used by Microsoft to rate Xbox players, a variant that ended up being better than standard ranking algorithm.

7. Vladimir Nikulin

Vladimir Nikulin has a Ph.D. in mathematical statistics from Moscow State University and has worked as an academic in Russia and Australia. A veteran of data mining competitions, the 52-year-old sees them as an essential part of the research process since they help researchers identify real from illusory progress in their methods. His best Kaggle finish was third place in the used car defect prediction challenge ‘Don’t Get Kicked!’.

8. David J. Slate

David J. Slate holds more than half a century’s experience in programming. He was building operating systems and cracking chess programs decades ago, winning the World Computer Chess Championship in 1977. A former academic at Northwestern University in Evanston, Ill., today he spends his retirement entering Kaggle competitions under the moniker “Old Dogs with New Tricks.” His best performance on Kaggle came when he won the R Package Recommendation Engine competition for recommending software packages to users in the programming language R.

9. Yannis Sismanis

Yannis Sismanis is a researcher at IBM’s Almaden Research Center in San Jose, Calif., where he works on data intensive analytics. Originally from Greece, his background is in electrical engineering and computer science. Sismanis won the first of two Kaggle competitions aimed at improving chess ratings systems, called Chess ratings – Elo versus the Rest of the World.

10. Jason Tigg

Jason Tigg grew up on the Isle of Thanet in southeast England and goes by the alias “PlanetThanet” on Kaggle. At age 14, he used assembly language to build a program that could play Othello. The 43-year-old now holds a Ph.D. in elementary particle physics from Oxford and is based in London, where he works in the finance sector. Tigg’s performances on Kaggle have been outstanding, notably in the Photo Quality Prediction competition and the Claim Prediction Challenge.

]]> http://clubtroppo.com.au/2012/04/11/making-credentialling-like-a-sport/feed/ 2 http://clubtroppo.com.au/2012/04/10/fair-trade-and-inefficient-do-gooding-whats-good-about-it/ http://clubtroppo.com.au/2012/04/10/fair-trade-and-inefficient-do-gooding-whats-good-about-it/#comments Tue, 10 Apr 2012 07:48:54 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19248 Continue reading →]]>

Here’s an extract from a book on fair trade that I had occasion to look up. In what circumstances is fair trade a good thing? If we dig into our pockets to buy something at a higher price than necessary in order to engage in ‘fair trade’, then we know a few things.

• The sacrifice we made paying a higher price could have purchased more good for the beneficiaries if we’d given them our money – usually a whole lot more. In other words in terms of helping it’s inefficient – often hugely so. Often the exchange rate back to the people one is putatively helping is less than 25 cents to the intended beneficiaries for every $1 we invest.
• Even without this diluting, if people are producing a product for a price that’s inflated against world prices, they’re entering a new kind of dependency – on us. Perhaps they’d be better off adjusting to the unfair price and (hopefully) producing something else which has a less ‘unfair’ price. Presumably in many cases the there’s nothing much else the producers can produce, but this is a hard thing to know.

In any event, I’ve always been hugely ambivalent about fair trade, but it’s a subset of what might be called ‘inefficient do-gooding’.  The same issue turns up in a different guise in environmental policy where we reduce waste to landfill and increase kerbside recycling. Usually this reduces greenhouse gas emissions (though sometimes even that isn’t true), but we could do a lot more environmental good, if that’s what we want to do, by just spending the money on the environment directly – say with a stand of carbon sequestering trees, rather than spending the money on kerbside recycling.

On the other hand there is an argument that a lot of human do-gooding is not focused on utilitarian efficiency. Kristina Keneally supports the still-birth foundation because she has been touched by still birth. It’s arguably not the most ‘efficient’ use of her time in terms of alleviating human suffering, but it’s something she wants to do. By the same token maybe people don’t want to make an ‘efficient’ contribution to the environment, they want instead, (maddeningly as far as I’m concerned) to reduce their carbon footprint. So what – O Troppodillians – can we say about this?

]]> http://clubtroppo.com.au/2012/04/10/fair-trade-and-inefficient-do-gooding-whats-good-about-it/feed/ 22 http://clubtroppo.com.au/2012/04/09/universities-generate-growth-and-always-have/ http://clubtroppo.com.au/2012/04/09/universities-generate-growth-and-always-have/#comments Mon, 09 Apr 2012 14:13:58 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19256 Continue reading →]]> Medieval Universities, Legal Institutions, and the Commercial Revolution
by Davide Cantoni, Noam Yuchtman – NBER #17979

We present new data documenting medieval Europe’s “Commercial Revolution” using information on the establishment of markets in Germany. We use these data to test whether medieval universities played a causal role in expanding economic activity, examining the foundation of Germany’s first universities after 1386 following the Papal Schism. We find that the trend rate of market establishment breaks upward in 1386 and that this break is greatest where the distance to a university shrank most. There is no differential pre-1386 trend associated with the reduction in distance to a university, and there is no break in trend in 1386 where university proximity did not change. These results are not affected by excluding cities close to universities or cities belonging to territories that included universities. Universities provided training in newly-rediscovered Roman and Canon law; students with legal training served in positions that reduced the uncertainty of trade in medieval Europe. We argue that training in the law, and the consequent development of legal and administrative institutions, was an important channel linking universities and greater economic activity.

]]> http://clubtroppo.com.au/2012/04/09/universities-generate-growth-and-always-have/feed/ 0 http://clubtroppo.com.au/2012/04/07/if-you-pay-peanuts-part-two-self-fulfilling-prophecy-edition-if-you-treat-people-badly-you-get-the-worst-out-of-them/ http://clubtroppo.com.au/2012/04/07/if-you-pay-peanuts-part-two-self-fulfilling-prophecy-edition-if-you-treat-people-badly-you-get-the-worst-out-of-them/#comments Sat, 07 Apr 2012 07:00:41 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19239 Continue reading →]]> Social Identity and Inequality: The Impact of China’s Hukou System
Date: 2012-03
By: Afridi, Farzana (Indian Statistical Institute)
Li, Sherry Xin (University of Texas at Dallas)
Ren, Yufei (Union College)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6417&r=exp
We conduct an experimental study to investigate the causal impact of social identity on individuals’ response to economic incentives. We focus on China’s household registration (hukou) system which favors urban residents and discriminates against rural residents in resource allocation. Our results indicate that making individuals’ hukou status salient and public significantly reduces the performance of rural migrant students on an incentivized cognitive task by 10 percent, which leads to a significant leftward shift of their earnings distribution. The results demonstrate the impact of institutionally imposed social identity on individuals’ intrinsic response to incentives, and consequently on widening income inequality.

]]> http://clubtroppo.com.au/2012/04/07/if-you-pay-peanuts-part-two-self-fulfilling-prophecy-edition-if-you-treat-people-badly-you-get-the-worst-out-of-them/feed/ 1 http://clubtroppo.com.au/2012/04/06/you-pay-peanuts/ http://clubtroppo.com.au/2012/04/06/you-pay-peanuts/#comments Fri, 06 Apr 2012 06:13:46 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19237 Continue reading →]]> Troppo’s patron saint Adam Smith put it thus (note the generous assumption about human nature):

The liberal reward of labor, as it encourages the propagation, so it increases the industry of the common people . . .. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious, than where they are low.

Here’s a more modern restatement.

The Multi-Dimensional Effects of Reciprocity on Worker Effort: Evidence from a Hybrid Field-Laboratory Labor Market Experiment
Date: 2012-03
By: Kim, Min-Taec (University of Sydney)
Slonim, Robert (University of Sydney)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6410&r=exp
We examine the gift exchange hypothesis on both the quantity and quality of output using a hybrid field-laboratory labor market experiment. We recruited participants to enter survey data for a well-known charitable organization. Workers were paid either a high or low wage. We find that although the total number of surveys entered did not vary with the wage, high wage workers made fewer errors and entered more surveys after controlling for errors. We further find that for low costs associated with errors, offering the low wage maximizes profits, but for higher costs paying the higher “gift exchange” wage maximizes profits.

 

]]> http://clubtroppo.com.au/2012/04/06/you-pay-peanuts/feed/ 0 http://clubtroppo.com.au/2012/04/04/andrew-leigh-kicking-goals-requires-promotion/ http://clubtroppo.com.au/2012/04/04/andrew-leigh-kicking-goals-requires-promotion/#comments Wed, 04 Apr 2012 03:49:37 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19231 Continue reading →]]> I just came across this MPI speech by Andrew Leigh. Damn fine job. Straightforward, informed, powerful. In a world in which people somehow get divided into subject wonks and sliver-tongues, it’s amazing how much actually knowing stuff and having a perspective on things gives you a platform on which to communicate.

Can we please have a promotion for this man. I can think of one or two people who might make way for him, but here at Club Pony, we don’t name names like that.

(Note Leigh’s outrage at the fact that we will go to the next election, as we did to the last, and as we did in the last NSW and Victorian elections with an opposition that gets its accountants signed off by its accounting friends, without the slightest regard for the basic laws of arithmetic. Of course the media will cover it all with ‘he said – she said’ blather and the farce will continue. )

Andrew Leigh (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

If I were sitting on the opposition’s tactics committee, choosing an MPI for today, it certainly would not be the topic of economics. I would be thinking about dog whistles, about some sort of safe ground to talk about, but surely not the topic of economics, because those opposite have lost all credibility when it comes to economic reform. On economics, ours is the party of Hawke and Keating, theirs the party of McMahon and Fraser.

In its fundamentals, the Australian economy today is the product of economic reforms that were put in place by Labor governments and opposed by those opposite. Under the Rudd and Gillard governments, we have seen very clear contrasts. When the global financial crisis hit, it was our side of politics that put in place timely, targeted and temporary fiscal stimulus that 200,000 saved jobs. Their side of politics would have let tens of thousands of small businesses go to the wall.

When we had to deal with climate change, we listened to economists and we put in place a carbon price, a price on the negative externality that is carbon pollution. They went for command and control, a scheme which they could not find a single economist to back. With minerals prices at 140-year highs—BHP posting a record $23 billion profit and Fortescue telling the House economics committee they have never paid a cent of company tax—we on this side of the House think it might be fair to ask the mining companies to pay a bit more tax. Those on that side of the House think that mining companies are paying too much tax.

At the last election we on this side of the House went to the Australian people with costings that added up. Those on the other side of the House went with costings that were $11 billion short, done by a private accounting firm. When Treasury had the temerity to say, ‘You’re out by $11 billion or so’, they immediately came into this place and started attacking Treasury officials. They even walked into this place and started attacking Ken Henry, the man that Peter Costello appointed in 2001 to head the Department of Treasury. As soon as they did not like what Treasury had to say, they were out there shooting the messenger.

When the member for Lyne proposed a Parliamentary Budget Office, we accepted it. We put in place a parliamentary inquiry, which reported back unanimously—including the member for Higgins—with a model for a Parliamentary Budget Office. But as soon as those opposite realised that that would mean the Australian people could actually see their costings, they moved to gut it. They walked away from the report that the member for Higgins had signed on to. At the next election those opposite will again be going to the Australian people with numbers produced by a private accounting firm.

When it came to the fuel tax reforms that Peter Costello introduced into this parliament as Treasurer in 2003, after an eight-year lead time—an implementation period unprecedented in modern policy making—those opposite said they would not support them. They were willing to back away from these reforms at the last minute. We on this side of the House believe in economic reform. In this case we believed in a Peter Costello economic reform, while those on that side of the House decided that cheap political opportunism beats consistency any day.

Recently, we have been moving to close a tax loophole on the petroleum resource rent tax, a tax loophole that the Howard government had fought against in the courts, as did we when we came to power. But those opposite have decided that they want to keep the loophole open—to the benefit of Esso and the detriment of the Australian taxpayer.

In the world of international trade, we are pursuing free trade. It is good to see the Minister for Trade here in the chamber—a passionate advocate of boosting free trade—because he knows, as do we on this side, that it is free trade that benefits Australian families. Those on that side of the House would start a trade war with New Zealand. They would support anti-dumping rules that are not World Trade Organisationcompliant, anti-dumping rules that would see retaliatory tariffs hurting Australian companies.

The old party of Hewson and Costello is dead, buried and cremated. What we have instead is the Tea Party of Australian politics. You do not have to believe me on this; let us hear from some prominent Liberals about the economic policy nous of the Leader of the Opposition.

In the Costello Memoirs, the former Treasurer wrote about the Leader of the Opposition:

Never one to be held back by the financial consequences of decisions, he had grandiose plans for public expenditure. At one point when we were in government he asked for funding to pay for telephone and electricity wires to be put underground throughout the whole of his Northern Sydney electorate to improve the amenity of the area. He also wanted the Commonwealth to take over the building of local roads and bridges in his electorate.

That is the economic policymaking giant who is leading the current opposition. We can also hear from John Hewson, a former Leader of the Opposition, writing in the AustralianFinancial Review on 24 May 2010:

Tony is genuinely innumerate. He has no interest in economics and he has no feeling for it.

We on this side of the House commissioned the Henry tax review, the biggest tax review in a generation. We have set about implementing recommendations flowing out of that review, as you would expect. We are cutting the company tax rate. We are abolishing the inefficient dependent spouse tax offset with its old-fashioned notion that the bloke works and the woman stays at home. We are scrapping the environmentally disastrous fringe benefits tax rules for cars. We are getting rid of the inefficient entrepreneurs tax offset and replacing it with a more appropriate instant asset write-off for small businesses. We are introducing a minerals resource rent tax that is both efficient and fair.

This country’s economic position is strong. You do not have to take just the Gillard government’s word for this; let me quote a few overseas sources. One source said:

Australia’s economy is one of the strongest in the developed world.

That was the Financial Times on 1 November 2011. Another source said:

Australia’s economy is booming … Even during the GFC, Australia, unlike many Western economies, registered modest growth.

That was the International Herald Tribune on 31 May 2011. Another overseas source said:

On the face of this comparative performance, Australia has serious bragging rights. Compared to most developed countries, our economic circumstances are enviable.

That was a London source—here we go: the Leader of the Opposition was in London on 11 November 2011. That goes to show that you have to take the Leader of the Opposition to London before you get some economic sense out of him.

The Leader of the Opposition now promises repeal. He wants to repeal the carbon price; that means cutting pensions and raising taxes. He wants to repeal the mining tax; that will involve reversing the instant asset write-off. He wants to stop superfast broadband in its tracks. After a bit of flip-flopping, he has decided that he will not repeal this government’s superannuation increase in the event he were to come into office. That superannuation increase, as members are aware, is from nine to 12 per cent, but gradually, from 2013-14 to 2019-20. At the time of the next election, superannuation will have gone up from nine to 9.25 per cent.

The Leader of the Opposition will repeal a carbon price for which future permits have been purchased and a mining tax that will have far-reaching consequences on investments, but he will let go the superannuation increase that will have only gone one-twelfth of its way. He will let it run until 2020. I think it is a good decision by the Leader of the Opposition, but it is frankly bizarre given his position on other policies. He said he is doing that because that is what the Howard government did in 1996, but it is not. They actually froze the Keating government’s superannuation increases; they did not increase them as planned. Is it because the Leader of the Opposition believes in superannuation? Probably not, given that he told this place on 25 September 1995:

Compulsory superannuation is one of the biggest con jobs ever foisted by government on the Australian people.

The fact is that those opposite are against taxes and they are in favour of revenue measures. What they do not realise is that the budget has to balance. If they are repealing a law, that law should be the law of mathematics—that is the law they really need to abolish. If you are a polluter, a tobacco company, a big miner or someone who thinks they have found a loophole, the coalition will give you a hearing. Their policy is no special interest left behind.

]]> http://clubtroppo.com.au/2012/04/04/andrew-leigh-kicking-goals-requires-promotion/feed/ 36 http://clubtroppo.com.au/2012/04/02/how-transactions-costs-matter-getting-the-worst-of-both-worlds-when-it-comes-to-ip/ http://clubtroppo.com.au/2012/04/02/how-transactions-costs-matter-getting-the-worst-of-both-worlds-when-it-comes-to-ip/#comments Mon, 02 Apr 2012 00:17:00 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19218 Continue reading →]]>

Click on the image to go to the article from which it comes

This diagram (HT Rebecca Giblin) shows the  distribution of 2500 newly printed fiction books selected at random from Amazon’s warehouses.

The reason that you can’t get many books back to the 1920s and then suddenly can? Copyright.  Someone owns the copyright in the US if the book came out after 1923.

Economics 101 teaches that the existence of the property right should enhance the availability of books. After all, there’s some money to be made – if not very much – so the IP owners would be out there circulating the material and picking up some pennies here and there. But it doesn’t happen. The books disappear into the valley of death – or more precisely, the valley of slumber.

It shows how dramatically dysfunctional long copyright terms are, how increasingly dysfunctional they are in the age of the internet – the age of the long tail, and how much we could benefit from improving our arrangements here. The move from regarding copyright and patents as ‘monopoly privilege’ to considering them ‘intellectual property’ was a disastrous one rhetorically speaking. We need the institution of private property in physical things owing to their rivalrous nature. One can argue that giving someone a monopoly interest in their creation has net benefits in certain circumstances, but the arguments are much more context specific.

Alas, once we started calling it ‘intellectual property’ there was a kind of gravitational pull of the idea that stronger is better. We’re slowly having to unlearn that idea. In a lot of areas – software and business methods patents, term length, particularly retroactively imposed, DCMA and SOPA type regulation – stronger is a lot worse.

Intriguingly however, we have got the worst of both worlds.

Because the world of real property is much older and much more concrete than the world of ‘intellectual’ property, it has sorted out a lot of commonsensical things that remain to be sorted in IP. Thus for instance, the institutions of real property have understood that land has multiple uses and that the law must facilitate this. Thus we have easements, mineral rights below the ground, airspace rights above and native title rights coexisting with the title and right to quiet possession being owned by someone else. And we have the law of adverse possession. If we had something like that in IP we could make serious inroads into the valley of slumber at absolutely minimal costs to anyone.

If you don’t assert your rights to real property for 21 years you lose the property under the rule of ‘adverse possession’. Not so IP.  I once attended a copyright conference where about two hours was devoted to problems like the ‘orphan works’ problem. Orphan works are works where the IP rights holder cannot be found. You’d think that wouldn’t be a problem. Especially given today’s IT possibilities, the ease with which one can make oneself findable on Google it’s ridiculous that we don’t have a policy that if you haven’t made yourself reasonably discoverable as the copyright owner, you forfeit any rights you have against someone wishing to use your material.

]]> http://clubtroppo.com.au/2012/04/02/how-transactions-costs-matter-getting-the-worst-of-both-worlds-when-it-comes-to-ip/feed/ 36 http://clubtroppo.com.au/2012/03/27/kantian-optimisation/ http://clubtroppo.com.au/2012/03/27/kantian-optimisation/#comments Tue, 27 Mar 2012 07:55:50 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19201 Continue reading →]]> No time to read the paper right now, but it looks great.

Kantian Optimization, Social Ethos, and Pareto Efficiency
Date: 2012-03
By: John E. Roemer (Dept. of Political Science, Yale University)
Although evidence accrues in biology, anthropology and experimental economics that homo sapiens is a cooperative species, the reigning assumption in economic theory is that individuals optimize in an autarkic manner (as in Nash and Walrasian equilibrium). I here postulate an interdependent kind of optimizing behavior, called Kantian. It is shown that in simple economic models, when there are negative externalities (such as congestion effects from use of a commonly owned resource) or positive externalities (such as a social ethos reflected in individuals’ preferences), Kantian equilibria dominate Nash-Walras equilibria in terms of efficiency. While economists schooled in Nash equilibrium may view the Kantian behavior as utopian, there is some — perhaps much — evidence that it exists. If cultures evolve through group selection, the hypothesis that Kantian behavior is more prevalent than we may think is supported by the efficiency results here demonstrated.

]]> http://clubtroppo.com.au/2012/03/27/kantian-optimisation/feed/ 37 http://clubtroppo.com.au/2012/03/27/gov-2-presentation-at-sydney-uni-this-thursday-at-3-00-pm/ http://clubtroppo.com.au/2012/03/27/gov-2-presentation-at-sydney-uni-this-thursday-at-3-00-pm/#comments Tue, 27 Mar 2012 02:28:49 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=19196 Continue reading →]]> Last year I did a presentation on Government 2.0 to Masters Government Students at Sydney Uni and it was lots of fun. So they invited me back. I suggested that this time we do it using the web properly, so I’ll do a presentation but it will be filmed so that it can be hoisted onto the net and they can use it in subsequent years and I can take questions on Skype – thus saving us all time and money.

So I’ll be trying to do my best to make it a good show. I’ll also talk about why Democracy 2.o is a very different kettle of fish from Government 2.0 – a paper on that by me is being released in a book shortly.

The flyer is here if you want the details and reproduced below the fold:

 ‘Realising Jefferson’s Dream, Avoiding Schumpeter’s Nightmare: Democracy, Deliberation and Government in the Age of Web 2.0’

By Dr Nicholas Gruen, Founder of economic policy consultancy, Lateral Economics

Time/Venue: 3pm to 4.30pm, Thursday 29 March, Foyer, Level 2, Law School Building, The University of Sydney, Map reference: here.

At the start of the nineteenth century Thomas Jefferson wrote:

He who receives an idea from me, receives instruction himself without lessening mine;as he wholights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, likefire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and haveour physical being, incapable of confinement or exclusive appropriation.

Thomas Jefferson’s words resonate in today’s world. The internet is revolutionising many areas of our lives – from our habits catching up with the news, finance and travel to the way we interact socially. Yet many areas that might be revolutionised are making slow progress. One such area is Government.

The presentation will explore the many extraordinary opportunities that the internet and social media provide to improve the way we ‘do’ government. It explores opportunities to grasp the radical openness of the web, while founding our aspirations in the “time honoured and hard won traditions of modern democratic government”.

In this regard the lecture will argue that aspirations to use the internet to build direct democracy are chimerical. Where Wikipedia unleashes the power of the crowd to help us answer questions about what is the case, politics is our necessarily imperfect way of solving a vastly more difficult question. The task of politics is to build some unified will about what ought to be, from the vast diversity of interests and perspectives within the community.

Here there are no miracles in sight. Juvenal’s question Quis custodiet ipsos custodes? – Who will guard the guardians? – remains as ever a reminder of our fallen state and a spur to continue our efforts to build a better world.

The speaker

Dr Nicholas Gruen has advised two Cabinet Ministers, directed the Business Council’s New Directions program and sat on the Productivity Commission. He is founder of economic policy consultancy Lateral Economics and Peach Financial. He is a frequentnewspaper columnist and media commentator and a prolific blogger at Club Troppo.

He is Chairman of the Australian Centre for Social Innovation, Online Opinion –an internet forum for opinion on political and cultural matters –and medical ICT startup Specialist Link. He was the founding chairman of Kaggle, a Melbourne ‘big data’ start up now based in San Francisco. He is also a board member of Sustainability Victoria and the Federal Government’s Innovation Australia.

In 2009 Nicholas chaired the Federal Government’s Government 2.0 Taskforce.

Postscript: If anyone’s interested, you can download the slides (until I wipe them from my public dropbox folder) from here.  

 

]]> http://clubtroppo.com.au/2012/03/27/gov-2-presentation-at-sydney-uni-this-thursday-at-3-00-pm/feed/ 5 http://clubtroppo.com.au/2012/03/23/lawyers-guns-money-chess-and-evidence-but-with-no-guns-and-not-much-money/ http://clubtroppo.com.au/2012/03/23/lawyers-guns-money-chess-and-evidence-but-with-no-guns-and-not-much-money/#comments Fri, 23 Mar 2012 02:44:34 +0000 Nicholas Gruen http://clubtroppo.ozblogistan.com.au/?p=18966 Continue reading →]]> Lawyers like their evidence to be nice and straightforward. Not to statistical. This is a real problem in some negligence cases. A surgeon might be a good surgeon, might have well below average adverse events, but if something screws up, doctrines like res ipsa loquitur – “the thing speaks for itself” – can find the doctor in hot water.  If some fault can be found in their conduct in a particular case (are there doctors or any practitioners for which this isn’t sometimes true?) then they can be found guilty of negligence even if the broader evidence suggests they are the best, least negligent doctor in the country.*

Anyway at the same time as being too quick on the trigger if the thing ‘speaks for itself’ they’re amazingly deaf to statistical evidence, which, one might have thought speaks for itself. Here’s an intriguing story of a chess cheat who used Fritz – a chess engine to go from being a 55 year old who played at a rating strength of 1900 odd to someone who was beating Grandmasters and playing at rating strengths of 2600+. Not only that, but he played a comically engine driven game. A basic rule of good (human) play is to simplify the position when you’ve got it won to minimise the scope for mistakes. A chess engine will rank such moves as bad ones – because there are moves which are better all things considered. But for us poor souls relying on our primary cognitive apparatus and not the secondary cognitive apparatus available to computers – they’re actually the best moves if you want to win the game – they maximise your chance of winning the game.

In a won position the cheat proceeded to play incredibly sharp moves again and again – including approaching a time control.

You can read the story here.  You can also play the game on that page! It’s fun.

Some months after the event the District Attorney’s office began investigating Allwermann for embezzlement of the prize sum of DM 1,660 – (about $850). GM Rainer Knaak was consulted, and the Fritz expert (Knaak works for ChessBase) confirmed that all the games were almost completely reproducible, move for move, with Fritz5.32 and the Fritz Powerbook ’99. Even a small transposition error in the PowerBooks was faithfully reproduced in one of the games. In the meantime Hartmut Metz had located an electronics supplier who had sold Allwermann the equipment he probably used to transmit the computer moves. According to the store owner Allwermann had insisted on a modification that would allow him to enter four-digit codes in the hand-held radio transmitter. He had also purchased the very smallest receiver possible, one that could be completely concealed in his ear and hidden behind his long hair.

However, after many months the DA’s office dismissed the case due to “lack of sufficient proof”. A speaker expressed the view that “moves by good chess players often coincide with those of a computer”, and apart from that there was no direct evidence – nobody had seen or documented the use of electronic devices during the tournament. The Bavarian Chess Federation, on the other hand, took drastic action and barred Allwermann from participation in further tournaments.

Before this was enforced Allwermann had played in one more tournament, closely watched by large numbers of spectators and journalists. He scored exactly what is to be expected of a player who is below the 2000 Elo mark.

* Note: this is based on my LLB which I began over three decades ago. Perhaps we’re in legal nirvana by now.

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