Are credit card rewards and frequent flier miles a free lunch?

Are these something from nothing? I seem to think so. This is why I found this advice odd. CN Traveler claims that 1 mile is worth about 1.2 cents (although estimates from SmartTraveler are higher). But then it says:

12. Don't squander your miles. Save them for special trips or expensive flights—don't waste them on tickets you can buy for a few hundred dollars.
13. Save your upgrades for flights on which premium class is truly premium. Use them on long-haul routes, say, or to upgrade to first class on a three-class airplane.

My thought was just to use the miles for whatever trip I'd like to take (long or short) before they expire. Irrational?

Making trains run on time

In Thomas McCraw's Prophet of Innovation: Joseph Schumpeter and creative destruction, he brings up the notion that Mussolini was admired because he was able to make trains run on time. This is disputed on Snopes but it was coincidental for me to be reading this at the same time that a debate was raging on Jonah Goldberg's Liberal Fascism. McCraw points out that Mussolini was much admired for what he was able to get done even by FDR while Schumpeter himself was suspicious of FDR, thinking that FDR would turn the US into an authoritarian state and cites several examples where it seems like FDR was trying to do just that.

In any case, I thought it was a timely reminder that perhaps all rulers try to become authoritarian thinking paternalistically that it is best for the nation. Thinking also perhaps that if they had the right tools they too can make the trains run on time. And the descent into authoritarianism is not so difficult to conceive as it was easy in the days of J. Edgar Hoover to use patriotism to defend one's actions (as it is post 9/11).

The Washington Post's "obituary" of Suharto is a reminder of the virtues of authoritarianism but the big question is whether authoritarians can remain virtuous. I think we know the answer to that (save for Lee Kuan Yew whose history has yet to be rewritten).

Arab season

When we were visiting Kuala Lumpur last summer, we were introduced to the phrase "Arab season". The room service folks apologized whenever they were late (well into the evening) because it was "Arab season" and the hotel was fully booked. (We stayed at Lanson Place several miles from KLCC.) We were told by friends that it was one of the more polite terms -- other more derisive one being Ninja season.

Here is one story based on googling "Arab Season":
Tired of post-9/11 hassles, Arab tourists head east
"Fearful of a frosty reception in the West, well-heeled Muslims from the Middle East are heading to Malaysia in droves for their annual vacations. Arrivals from Saudi Arabia rose 53 percent in the first half of 2004, and hoteliers are predicting a bumper "Arab season" through September."

Income volatility: Is it all about the which data we use?

It sounds like it to me. Which data set is more "representative"? Which unit (household or individual) should this be studied?

Unfortunately, this debate also points to several things:
1. Failure of statistics to be able to settle the question of "representative"?
2. Failure of economic reasoning to be able to settle on the unit of analysis?

The CBO and Jacob Hacker seem to part ways and stick with the data that support their conclusions and at the same time pointing to each other's data as being the incorrect one. What a wonderful state of affairs.

How can capitalism be kind?

I was reminded today about my previous post about Bill Gates' call for a kinder capitalism when reading the following:
"The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort ... the capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses."
Joseph Schumpeter, Capitalism, Socialism and Democracy (pp. 67-68)

Why I think Bill Gates' call for a kinder capitalism rings hollow

Despite, Bill Gates call: "We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well" there is one reason I doubt his conviction. There is capitalism the Bill Gates way and there is capitalism of another nature -- software piracy. Software pirates after all are entrepreneurs too and there is no doubt that Microsoft works hard at destroying their livelihoods.

Microsoft sells Microsoft Office for over $300. If Bill Gates were serious about technology helping the poor, he can use Microsoft's clout to do so. If he believes that the poor can be helped by cheaper technology then he can give it away for free or charge $1. Every time a new version of MSOffice is released, I challenge Microsoft to make the earlier release available for free or for $1. This is of course, if he really believes that technology can help the poor. Or if he believes that producing software for the poor can be profitable, then he can charge $1. Or he can recruit all the would be software pirates to be his distributors.

Excel charts for data visualization and exploration

Along the way from the previous post, I also came across an interesting discussion of charting EU household expenditures. Following the thread, I discovered Excel was able to do this and this. Some tips here and here.

Graphing Stock Market Crashes for Comparison

The Big Picture posted a chart that compared 4 stock market crashes.
My first thoughts were:
1. The vertical axes are not the same so it looks deceptive.
2. The horizontal axes are not the same so again, it may look deceptive.





This tries to replicate the flavor of the original charts (but perhaps not very sucessfully).




But thinking about it a little more I thought perhaps it was all right. After all, a 500 point drop today is a lot different than a 500 point drop 30 years ago. But I'm still not convinced.

What if the index was plotted using a logscale? Would that make the market crashes more comparable?

Last Tycoons by William Cohan

I finally finished The Last Tycoons which promised to be The Secret History of Lazard Freres and Co as well as A Tale of Unrestrained Ambition, Billion Dollar Fortunes, Byzantine Power Struggles, and Hidden Scandal. In general, I found it to be rather dry but spiced up in parts with the usual salacious details about extra marital affairs and descriptions of mansions, penthouses and gargantuan apartments. I also found the internal Lazard memos particularly those by Bill Loomis to be interesting.
1. The book doesn't quite reveal what is so special about the Lazard advice given by Felix Rohatyn, in other words, what made Lazard M&A advice so much different from the other investment bankers.
2. A list of characters with short descriptions as an appendix would have been nice.
3. The narrative was a little choppy because the author chose to relate the history of Lazard according to episodes e.g. ITT-Hartford merger, Felix Rohatyn, etc. rather than chronologically.
4. There is in some sense that books like these should have the obligatory photographic plates of the players in the middle of the book. This was something I missed.
5. No doubt that the author intended this to be the most comprehensive (recent) history of Lazard replete with footnotes and source information. I liked looking at some of these. (For instance, sometimes I'd read something and think: How can he know this? And it would be sourced either as an interview or from a secondary source.)
6. A family tree as well as a chart of the interlinked Lazard companies and all the holdings of various interested parties e.g. Eurazeo, etc. would also have been nice.
7. I was surprised to discover that a lot of working in investment banking sounded like working in a law firm. (Not that I have any experience in either.)

Risk versus uncertainty

Andrew Gelman pointed to this article by Nassim Taleb which I found interesting:
The Irrelevance of "Probability"
I spent a long time believing in the centrality of probability in life and advocating that we should express everything in terms of degrees of credence, with unitary probabilities as a special case for total certainties, and null for total implausibility. Critical thinking, knowledge, beliefs, everything needed to be probabilized. Until I came to realize, twelve years ago, that I was wrong in this notion that the calculus of probability could be a guide to life and help society. Indeed, it is only in very rare circumstances that probability (by itself) is a guide to decision making . It is a clumsy academic construction, extremely artificial, and nonobservable. Probability is backed out of decisions; it is not a construct to be handled in a standalone way in real-life decision-making. It has caused harm in many fields.

Consider the following statement. "I think that this book is going to be a flop. But I would be very happy to publish it." Is the statement incoherent? Of course not: even if the book was very likely to be a flop, it may make economic sense to publish it (for someone with deep pockets and the right appetite) since one cannot ignore the small possibility of a handsome windfall, or the even smaller possibility of a huge windfall. We can easily see that when it comes to small odds, decision making no longer depends on the probability alone. It is the pair probability times payoff (or a series of payoffs), the expectation, that matters. On occasion, the potential payoff can be so vast that it dwarfs the probability — and these are usually real world situations in which probability is not computable.

Consequently, there is a difference between knowledge and action. You cannot naively rely on scientific statistical knowledge (as they define it) or what the epistemologists call "justified true belief" for non-textbook decisions. Statistically oriented modern science is typically based on Right/Wrong with a set confidence level, stripped of consequences. Would you take a headache pill if it was deemed effective at a 95% confidence level? Most certainly. But would you take the pill if it is established that it is "not lethal" at a 95% confidence level? I hope not.

I would add another interpretation as well: Knowing the probabilities for success or failure is a known risk. Even though I know the risks I may not act to follow up on the actions associated with the risk (using some expected utility maximization framework with risk aversion) even though it may be beneficial. This is what I would think of as individual uncertainty - I don't know how well or badly I can handle the consequences of the action. Perhaps this is just heterogeneity in risk aversion and I am just more risk averse than average. But regardless -- economists consider risk as something that is quantifiable whereas uncertainty is not -- at the individual level all risk is unquantifiable so at this level, all risk is uncertainty.

Can our love for ethnic food bring peace?

I had lunch at Pho75 along Rockville Pike several weeks ago. In a Vietnamese noodle house, there were Hispanics, Caucasians, African Americans, Asians, and I even detected some Eastern European accents. I wondered, can our love of pho bring about peace among different races?

Idealistic as it is, this of course, would not happen. Even as we eat at the same places, we're not eating together. In Malaysia, the word that is used is muhibbah. I find it to be an elusive word - one that evokes visions of everyone living together in peace and harmony. When we were in Kuala Lumpur this past summer, we were at a restaurant with that very name. Yet the scene was deceptive. It was a Chinese restaurant (with a Chinese owner and possibly, cook) that had all Malay waiters as a way to attract different races. Yes, we were all sitting in the same restaurant eating but not really eating together. We sat separately at different tables, not really intermingling.

Of course, strangers would not do that and at that restaurant in KL there was nothing to indicate that there were socializing among races. So in a way, the scene at Pho 75 was a little bit more optimistic in that there was some mixing of races -- Asian customers with their Caucasian or African American friends and so forth. So perhaps, there is still hope?

So thinks Andy Shallal whose venture, Busboys and Poets in Adams Morgan, Washington DC is an attempt to bring races together.

With his new restaurant, Andy Shallal is taking on the problems of race and class on U Street. But for some, the solution itself is a problem. ... It cuts both ways, this social engineering. Later that night, Shallal watched with dismay as a loud, thumping club atmosphere overtook the space, the result of an overzealous DJ he'd hired. The music was "more hip-hoppy" than he'd expected. In streamed the black clubgoers with "their leopard-skin prints and little purses." Out streamed his white customers. Shallal was sympathetic to their discomfort. "As hard as it is for black folks to walk into a room of white people," he said, "it's harder for white folks to walk into a room of black people."

As we plowed into our food--chicken wings and crab cakes for him, catfish and collard greens for me--he talked about the coming months like a campaign manager looking to cobble together a constituency of disparate parts: Howard University students attracted to the notion of a coffeehouse/lounge/restaurant that embraced social action; older, churchgoing black folks stirred by his invocations of the U Street past; and condo-dwelling whites longing to belong to "something larger than themselves." Getting all these different people in the door was half the battle. The other half was knitting them together after they got there. "I think you have to help people to visualize it," he said. "I think they aspire to it. They want to live among their neighbors. But they don't always know what it looks like. They need to be shown." And he was the one to show them.

Perhaps there's hope?

Free Trade and Globalization's defenders

Winners from free trade should not compensate losers according to Steve Landsburg.
One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.
I think that some of these analogies are misplaced. There may always be someone else who will buy from this pharmacy or rent from a landlord with higher prices. Free trade (and technological change) destroys jobs. They are gone.

However, Deepal Lal in Reviving the Invisible Hand would probably agree:
A prescription for winners to always compensate the losers in a competitive economy is one to preserve the status quo and to prevent the economic changes which lead to economic progress. It is the policy of the Luddite. (pg. 86)
He argues that losers from trade are not unlike those who lose their jobs due to creative destruction. For instance, should computer makers compensate typewriter manufacturers?

Here is Dani Rodrik's response. My take - with defenders like these, globalization and free trade doesn't need enemies.

I would argue for an expanded safety net for retraining and education but I would not limit it to just those who have lost jobs due to free trade or technological change. My arguments for this - none yet. However, Tyler Cowen as usual, elaborates on this better than I can.

Is the Fed ever up to the biggest challenges?

Mankiw links to Anna Schwartz's comments that the current Fed is not equal to its challenges:

As rebukes go in the close-knit world of central banking, few hurt as much as the scathing indictment of US Federal Reserve policy by Professor Anna Schwartz.
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.

Is any Fed ever up to its challenges? How would we determine if a Fed Chairman was more successful than another. Ray Fair has taken on this task in A Comparison of Five Federal Reserve Chairmen: Was Greenspan the Best?. He concludes that Greenspan was just lucky. His measure of success:

The first way is comparing the actual performance of the economy under his term relative to what the performance would have been had he behaved optimally. Comparing chairmen only on the basis of the actual performance of the economy is not appropriate because it does not control for different exogenous-variable values and shocks that the Fed has no control over. This comparison is done for a wide range of loss functions. It does not assume that the chairman necessarily behaved by minimizing a loss function; it just compares his actual behavior to what he could have done had he minimized a particular loss function. The second way, on the other hand, assumes that each chairman minimized a loss function, and it backs out an estimate of what this loss function was.

My only quibble with the paper is that he focuses only on one specific model (called the MC model which is part of his macro model). Surprisingly, Blinder and Reis conclude (without much analysis) that Greenspan was both good and lucky. I say surprising only because of Blinder's treatment by Greenspan as documented in Bob Woodward's Maestro.

Mosquito nets: Easterly vs. Sachs

Mark Thoma points to an entry in Dani Rodrik's blog that in the mosquito net battle, Sachs seems to have beaten Easterly. Virginia Postrel in the Washington Post review of "A White Man's Burden" explains:
It's not that simple, William Easterly argues in "The White Man's Burden." Take those mosquito nets. When aid agencies hand them out in poor countries, he writes, "nets are often diverted to the black market . . . or wind up being used as fishing nets or wedding veils." Free nets don't get to the people who need them.

This is the text of the blog entry:
On insecticide-treated bed nets (ITNs), at least. There has been an ongoing battle between Sachs and segments of the global public health community on ... whether ITNs should be distributed free (the Sachs position) or at a positive, albeit subsidized price. Those who favor the latter argue, in part, that charging a fee makes the program more sustainable and that it reduces wastage from giving away the nets to those who do not need or will not use it. See the arguments here (gated, unfortunately). ... A new randomized experiment carried out by Jessica Cohen and Pascaline Dupas reaches striking and unambiguous results:

Taken together, our results suggest that cost-sharing ITN programs may have difficulty reaching a large fraction of the populations most vulnerable to malaria. ...[W]e find that ... free distribution is more cost-effective than partial-but-still-highly subsidized distribution... We also find that ... the number of infant lives saved is highest when ITNs are distributed free. Finally, we do not find that free distribution generates higher leakage of ITNs to non-intended beneficiaries. To the contrary, we observed more leakage and theft (by clinic staff) when ITNs were sold at a higher price. We also did not observe any second-hand market develop in areas with free distribution.

This is randomized experiments at its best: it addresses an important policy question and significantly changes (or should change) our priors on it.

If the results are so unambiguous then why was there a debate in the first place? Perhaps it was an over reliance on anecdotal evidence such as that presented in Easterly's book illustrated in the passage above. If aid agencies had flooded countries with mosquito nets (thereby driving the price close to zero) would we have observed the behaviors documented in the book? The challenge now in advancing the results of the randomized study is to see how well it scales up. My take on the problem is one of access -- there may be a large proportion of the population that lives in hard to access areas. If this is the case, will it pass the cost-benefit test?

The future of user interface

I read that Microsoft's Bill Gates had said that improvements in user interface would be the major future changes in computer technology. See here for instance. I wonder what these would be. Certainly the keyboard and the mouse are hardly natural extensions of the body as noted in the above link. But I don't really care for voice recognition either. Imagine working in a cubicle type environment with everyone all talking at once.
1. I think that touch will be one promising direction - using the hands and fingers instead of the mouse. It may even ameliorate some repetitive strain injuries. I'd be happy to have touch replace the mouse.
2. Many computer programs have adapted to mouse technology using drag and drop interfaces even in programming (i.e. object oriented programming IDEs) so that this is still easily adaptable to touch.
3. Unfortunately, the advent of the computer has displaced writing so much so that I wonder if I've forgotten how to write. Certainly, I tire a lot easier now when writing than when typing so the natural extension to this would be voice although I have my doubts about how far this technology can go.
4. How would writing code be amenable to voice technology for instance.

Incidentally, Vernor Vinge describes one possible interface: a wearable interface he called Epiphany in his book Rainbows End. Unfortunately, most of the description of how the user managed to get it to work was over my head.

Ethnic food in strip malls

Tyler Cowen recommends going to strip malls where rents are lower for good ethnic foods. That's probably true in large metro areas such as Washington, DC and New York/New Jersey metro. But one of the best Vietnamese food we had in Reading,PA was not in a strip mall but in a small converted house. Sadly, it does not seem to be there anymore 10 years later.

My thought is this: If I were going to open a restaurant in a small town, does it make sense to start up in a strip mall some distance away from the town center? Does it make a difference what kind of small town it is -- for instance, one that does not attract as many tourists such as Dillsburg, PA or Leesburg, VA? We haven't been to Leesburg, but there is a Thai restaurant in Dillsburg on Rt. 15 that we've always wondered about.

Alan Ehrenhalt's United States of Ambition

I recently read The United States of Ambition: Politicians, Power, and the Pursuit of Office which I found interesting. I thought that it was an interesting book -- he asks the question how did we get where we are today or more narrowly why do we elect the kinds of politicians that we do? The answer is to look at the supply of politicians rather than from voter behavior. There are some good arguments as to why politicians are a certain type - due to self selection -- for instance, for a long time politics was a part time job and in some localities did not pay well (if at all) and so attracted a certain kind of politician. These may be women who stayed home, businesses people who felt it was their duty to keep things well run, or religious leaders who intervened to protect their interests. He looks at elections at local, state and federal level and concentrates on how the incumbents were unseated as politics became professionalized and a full-time job.

The book provided several interesting case studies but I found it difficult to find a message to take away. I can't decide if professionalism is a good thing because it becomes dominated by big money and more and more my feeling is that politics today has shifted back to the days where successors were "annointed" by party leaders (or because of money, e.g. Bush/Bayh/Edwards/Kerry/Kennedy) and the barriers to entry are much higher now that when the book was written. I don't follow politics as much as I probably should so I don't know if there has been a successor to this book.

Can coaches really coach?

Or are they successful because they already have a good team? I think of this as Joe Gibbs leaves after almost 3 years. What makes a good coach or do we overestimate their abilities? I think also of 2 former Washington coaches - Marty Schottenheimer and Norv Turner both with stints at Sand Diego. Who wouldn't like to coach Indianapolis with Peyton Manning? Marty was relatively successful at San Diego but I think that he got lucky with Drew Brees. I also think that Bill Belichek got lucky with Tom Brady (due to injury to Drew Bledsoe - would Brady have been 'discovered' otherwise?).

I think that good coaches don't necessarily have to have a overwhelming winning record -- good coaches serve as good mentors and are able to guide the players to play their best. They are the ones who can put together the "right" players to become a team, rather than the best players. Unfortunately, I don't know enough about football or sports for the matter to know who good coaches really are.

In many ways, head coaches are analogous to fund managers and CEOs. If any of them have a good year how do we know they are really good or that they are just riding a trend or the coat tails of some confluence of luck, good management and a sprinkle of decent coaching assistants?

Traffic jam mystery?

Economist's View pointed to this from EurekAlert:
Mathematicians ... have solved the mystery of traffic jams by developing a model to show how major delays occur on our roads, with no apparent cause. Many traffic jams leave drivers baffled as they finally reach the end of a tail-back to find no visible cause for their delay. Now, a team of mathematicians from the Universities of Exeter, Bristol and Budapest, have found the answer and published their findings...
Their model revealed that slowing down below a critical speed when reacting to such an event, a driver would force the car behind to slow down further and the next car back to reduce its speed further still. The result of this is that several miles back, cars would finally grind to a halt, with drivers oblivious to the reason for their delay. ... The jam moves backwards through the traffic creating a so-called ‘backward travelling wave’, which drivers may encounter many miles upstream, several minutes after it was triggered....
The research team now plans to develop a model for cars equipped with new electronic devices, which could cut down on over-braking as a result of slow reactions.

My feeling was that this was no great mystery and has been shown before. This point of view seems to be validated by some comments on EV. My attention was on the proposal for a remedy: Does the proposal pass some cost benefit analysis?
1. How frequently do these random slow downs occur? On any given stretch of 1000 miles how often does this happen?
2. Like others I tend to think that the problem occurs mainly on some exits and entrance ramps and feel that money would be better spent making merge on exit or entrance a little safer and easier.
3. I also think that the traffic simulation models which are used for highway construction have failed in the following sense: Highway construction that was based on the time when the speed limit was 55 mph is no longer optimal now that speeds are 65 mph. It's a lot harder to merge into and out of short merge lanes in when cars are traveling a lot faster.

Rant on new CapitalWeather blog

This is a rant about the weather blog www.CapitalWeather.com which is now part of WaPo. I liked the old format better with the five day forecast running across the top. It's now gone so now I may be less inclined to look at it. I can always depend on the Washington Post to mess up a good thing. Apart from that it's nice to have pictures of the bloggers.

Is it only teenagers that take on too much risk?

In a previous post, it was assumed as though only teenagers take on too much risk. What about older adults e.g. 20 year olds or 30 year olds? Aren't we only as old as we feel? We could feel like we're teenagers till we're 40 - does this mean we would tend toward risky behavior as well?
1. Drinking and driving - is this an example of risky behavior? This behavior tends to persist well beyond teen age years.
2. Unprotected sex - again, this tends to persist beyound teen age years.
Or perhaps it's not so much about risk preferences but an overestimation of our abilities -- to drive while drunk, to overcome disease.

Or would someone like Marla Ruzicka be considered to have taken on too much risk? (Note that this entry's neutrality is disputed.)

Do we really want change when we say we want change?

Scenario: Things get from good to bad. We need change, we say. We select/elect a change agent - some one who will shake things up and make the needed changes. But when the changes start coming we undercut these changes. It's happening too fast, we say. It needs to happen fast, the change agent says. It's way too much change, we say. You need to feel that changes/improvements are being made, the change agent says. We then proceed to undercut the change agent. We second guess, block, delay. The change agent leaves in frustration (or we fire the agent citing lack of progress). Nothing changes.

This situation occurs fairly frequently I would think in bureaucracies, companies, and politics. Why? The D.C. public school system recently hired a new chancellor, Can Michelle Rhee save DC Schools. I found this passage a little forboding:
Fenty [D.C. mayor] then asked Rhee to meet with him one on one. This time he asked her to take the job. According to Fenty and Rhee, the conversation went like this:“You don’t want me to take this job,” she said.“Yes, I do,” he said.“Your job as a politician is to keep the noise down,” she said. “I am a change agent. There is no change without pushback.”

The Washington Post has a good series on DC Public Schools. I suspect but do not know for sure that a lot of large urban school systems have almost all the same problems in one way or another.
1. What is the optimal size of a school system? (or bureaucracy)
2. What is a bureaucracy - budget, staff or something else? I suspect it is something else plus budget and staff.
3. Is it easier to change a smaller bureaucracy than a larger bureaucracy? If we want to change the company/overall organization should it be top down or bottom up?
4. Can this be approached from an IO perspective of centralization versus decentralization trade off?
5. Or is some kind of principal agent framework requiring agents to perform multiple tasks with monitoring a better framework?
Since the work of Niskanen's Bureaucracy and Representative Government, very little progress seem to have been made. And according to MR, Niskanen has moved away from the model of budget maximization.

I wonder about Italy

From the BBC:
The government is to hold an emergency meeting to find a solution to the rubbish crisis. Naples dustmen stopped collecting rubbish two weeks ago. ... Finding a solution to this problem means tackling the mob. ... The Camorra, the Neapolitan version of the Mafia, has turned this into a hugely profitable business. ... They have sabotaged every effort to build hi-tech incinerators, so that Naples must rely on landfill sites, where they can hide the domestic and industrial waste, which they chuck in from all around the country. ... Millions of tonnes of it have been dumped illegally in the sea or in the countryside, untreated and highly toxic. ... Doctors say cancer rates in Naples are much higher than the national average.
1. Political system: Is it too fragmented i.e. is power too diffused for the central government to impose its will.
2. Democracy: Are elections and the high turnover in leadership a part of the problem?
3. Corruption: Is the mix between politics and business (e.g. Berlusconi and perhaps current elected representatives) too closely related (in comparison to say U.K or France or U.S.)?
4. Crime: Does the mix between politics and business invite criminal influence?
5. Industrialized country: Does Italy rank closer to EU average countries in terms of governance, corruption and GDP than it does to say Thailand/Kenya/India?

Here is one opinion by Alberto Alesina. I don't know if economic reforms can be undertaken first without considering the politics in Italy.

In the wake of the Iowa primaries, some political entries

1. The Myth of the Rational Voter:
Bryan Caplan's article today in the Washington Post 5 Myths About How Americans Vote. Andrew Gelman's comments are here and here. The implication of voter irrationality is that the country should be ruled by elites "who know better than the masses". This sounds like the type of system that was in place pre-Andrew Jackson (at least from my reading of HW Brands' biography of Andrew Jackson). John Adams' and the New England ruling elite were in favor of keeping the status quo rather than extending democracy to the masses.

2. Is voting irrational? Yes according to economists, but no according to Andrew Gelman here. My reading of his post is that there are large expected gains if the candidate you favor wins (a little bit like why people buy lotteries?)

3. How well did prediction markets predict the Iowa primary?
From Justin Wolfers' article in WSJ or here (pdf):
On the Democratic side, Iowa is expected to be a virtual three-way tie. On New Year's Eve, markets ranked each of Barack Obama, Hillary Clinton and John Edwards at least a 30% chance of winning.
The results from New York Times:
Barack Obama 37.6% John Edwards 29.7% Hillary Clinton 29.5%

Here is Marginal Revolution's take on the primaries based on the effect of the primary on the Winner Take All Market on the Iowa Electronic Markets - no effect at all, hence the title of the post, The Candidate Doesn't Matter. (I think it remains to be seen.) Here is Andrew Gelman's opinion on prediction markets.

Update: Justin Wolfers, Andrew Gelman and Bob Erikson debtate prediction markets versus polls on Gelman's blog entry. My question: How well would prediction markets have performed in the absence of polls? Of course, this is hypothetical, but I think they would not function as well. So the next item ...

4. So based on prediction markets for election results, what about those terrorism futures? I'm a little skeptical how well these would work. Studies indicate that market "thickness" and liquidity is important for a market to be an unbiased predictor. The markets for these terrorism futures are likely to be thin. Economists have to be able to answer the questions:
a) What determines market liquidity and thickness? As in Andrew Gelman's post, I think that news (a lot of news) is important.
b) Models/forecasts function as polls and hence as generators of news. How many producers of such models are there and are there enough consumers of these models?

In light of the response to Bob Shiller's macro markets as blogged by Mankiw:
Other products also continue to experience trading issues, like the MacroShares oil shares that encountered trouble last year. The products were developed by Yale economist Robert Shiller to track crude-oil futures prices but have continued to trade at a wide "spread," or difference, from their underlying shares. The firm conducted a 3-for-1 stock split to try to reduce the products' share price and encourage buying.

MacroShares has also split from its partnership with Claymore Securities, dropping the Claymore name. In November, the MacroShares Oil Down product was trading at as much as an 80% premium to its net asset value, which ETF prices generally closely match, while the MacroShares Oil Up product traded at a 20% discount.

"Kill These ETFs, now" wrote Greg Newton on markets Web site Naked Shorts at the time.

"The MacroShares are irretrievably broken" and "a disgrace to the ETF market."

"I think there's been some misconception about the pricing of the securities," says Mr. Shiller. He has been talking to government officials in Dubai and Norway about how the MacroShares could be appealing for hedging oil bets in their investment funds. "I've tried to get the message across, but it's been hard."

I am skeptical. I equate Shiller's securities as the same kind of securities that would trade in a prediction market.

Judith Blume, Fudge and teasing

K1 likes the Fudge books by Judith Blume. I can't say that I really cared for them. There is an article about Blume in the Washington Post and she based the characters on her own kids and her life. There was far too much teasing in the books for my taste and we have tried to raise them from doing this. It seems like teasing by kids is almost instinctive and I'm wondering if it's genetic and I'm partial to some kind of Darwinian/evolutionary argument which is outmoded in modern societies (sort of like fight or flight). It would go like this: Teasing forces the weak out of a group keeping only the strong. Unfortunately, in these times, the weak can go out an buy themselves thousands of rounds of ammunition and an AK47 and equalize the differences. I wonder how the tendency to tease would survive this type of backlash. Most likely it would survive since there aren't enough disasters to threaten the survival of the strong. So, can the tendency to tease and bully be weeded out of our genes (if it is indeed a genetic/survival trait)?

Among behaviors that have been found to have possible genetic links:
1. Risk taking: That Wild Streak? Maybe It Runs in the Family
2. Girls like pink: Sex, shopping and thinking pink. See my old post Why Do Little Girls Like Pink although the test referred to in the Economist article doesn't actually say there is a genetically based preference. Just a preference which could have been formed by being brought up on pink hues. See also this Bad Science entry: Pink, pink, pink, pink. Pink moan.

Note: An old Washington Post article on bullying Teaching Bullies a Lesson is also available here.

Babel and Oryx and Crake

The movie Babel and the book Oryx and Crake for me were somewhat spoiled by:
1. In the movie, the title was Babel. I think I get that the whole movie was about communication between peoples in different worlds/settings but calling it Babel is sort of like shouting what it's about. It's the sort of thing I probably would have enjoyed talking about back in my college days in some coffee shop somewhere (if it were more obtusely titled) and then saying Aha! It's about communication.
2. The book back jacket said Snowman here is humanity. Okay. Again, this is something that I would probably have liked to reflect and reach the conclusion on my own.

Perhaps its a reflection of the current culture of instant gratification. We really don't have time to think or reflect any more.

Update on reading Claire Messud

I finished The Last Life a few days ago and enjoyed it. I wondered how an American could write about French Algerians but I gather that she does have a French/Algerian background. Could it have worked in some other setting, e.g. British born in India for instance? Mostly it was a coming of age book about 15 year old Sagesse LeBasse and I'm a sucker for these: Holden Caulfied, etc.

In any case, I'll stop here with Messud until her next ones. I don't know if I'd want to read any others. Unlike AM Homes, whom I was really sucked into book after book. I stopped reading only because I couldn't find any more on the library shelf. It may be time to get back to them.

Elephants in Thailand

There was an article on stree elephants in the October 2005 issue of National Geographic on elephants in Thailand. I was appalled to read about how they were trained. Hopefully, next time we're in Thailand we'll be able to visit one of the elephant conservation farms:
1. Elephant Nature Park in Chiangmai run by Sanduen Chailert seems to be the most likely one
2. Pattaya Elephant Village
3. Thai Elephant Conservation Center near Lampang in the north but south east of Chiangmai
4, Chiang Dao Elephant Training Camp near the Myanmar border

The article also talks about the long lives of the elephants and it reminded me of an Indian movie from my younger days: Haathi Mere Saathi.

Blogger's block

Had been having one for a few days. Usually it's because
1. I'm too wrapped up reading a boo
2. I'm not reading enough so there really isn't all that much to say
3. I'm watching too much TV
4. I'm just too tired