Tuesday, January 16, 2018

Embedded Economics

I have discussed in several earlier posts my project for a collection of short literary works that contain interesting economic insights. The current version is up for comments, with several pieces added, several comments added or expanded. 

My guess is that it will end up as a web page rather than a printed book. The reason is the copyright problem. Many of the works are still in copyright and getting permission on all of them would be a good deal of work, whether for me or a commercial publisher. 

All of the in-copyright works I am using, however, are webbed, I presume (but do not know) by or with the permission of the copyright holder (with the partial exception of a  story only part of which is webbed). I can link to the webbed version of a work without negotiating permissions, which makes a webbed version of the project a lot easier to create than a printed version.

And by maintaining it as a web page I can add additional works as people suggest them. 

Suggestions welcome. A description of what I am looking for and why.

Sunday, January 14, 2018

Economics Journals Free to a Good Home

I retired at the end of last year and have been cleaning out my office, which includes dealing with long runs of a variety of journals–AER, JPE, JLS, JEP, JLE, ...  . I hate to throw them out but I don't have much use for them at present or adequate free bookshelf space. Is there anyone out there who would like some or all of them? If you are in the SF Bay Area you could just pick them up, if elsewhere we would have to check on ways of getting them to you.

Friday, December 29, 2017

9-5 Economists

A very long time, I had a colleague and friend who I concluded was only an economist in working hours. Having come across another example more recently, I thought it would be worth explaining the concept.

Suppose there is some issue on which economics implies a straightforward conclusion, but an implication short of a proof. Minimum wage laws provide a simple example. The conclusion that raising the minimum wage will reduce the employment of those currently receiving a minimum wage is a straightforward implication of the assumption that demand curves, in this case for a particular sort of labor, slope down. It is however possible, with sufficient ingenuity, to construct a model of the labor market (every employer of such labor is a monopsonist holding down employment in his tiny niche in order to hold down the wage he must pay) or the market for goods and services produced by low paid labor (customers for those goods and services much prefer to buy if they know the workers are all being paid at least $15/hour and there is no easy way for producers who pay that much to prove it to customers) which yields the opposite conclusion. 

The response of a real economist will either be "raising the minimum wage almost certainly reduces employment for low skilled workers" or (less likely but not impossible–I am thinking of a real example) "one of those odd models might possibly be right, I will look for a natural experiment by which I can test it."

The response of someone who is only an economist in working hours is to believe whatever he would believe if he was not an economist. If that requires him to believe that raising the minimum wage will not reduce employment for low skilled workers and someone points out the inconsistency with economics, he will justify himself on the grounds that the economic argument is not actually a proof, so its conclusion could be false.

For an example on the other side of the political fence, consider a conservative economist who wants to support trade restrictions.

In either of these cases, there may still be a way for a real economist to support the  conclusion he wants. In the case of the minimum wage, his argument  might be that the loss of employment to some is more than balanced by higher wages to others, so that the total earnings of low skilled workers go up instead of down. If that is his argument he will want to look for evidence on the relevant elasticities, may support his point by observing that losing a ten dollar an hour job increases leisure by an hour for every ten dollars lost, and will be bothered by the possibility that losing a ten dollar an hour job removes the first step leading to a fifteen or twenty dollar an hour job.

In the trade case, the argument might be that although free trade produces net benefits for Americans the gains go to richer people than the losses, so a gain in value measured in dollars leads to a loss in value measured in utility. If he is a real economist he will want to make some effort to find out if the claim is true, to estimate the income distribution of gains and losses and their relative size. Alternatively, if he is both a real economist and a cynic, he may agree in private that the economic effects of trade restrictions are negative but support them as a way of getting the rust belt votes needed to elect politicians who will do other things whose effects are positive and larger.

In either case, the simple test is whether an economist's views tend to diverge from those of his ideological allies when the ideology clashes with the economics.  If they do he is a real economist. If they do not, he is only an economist in working hours.

Sunday, December 24, 2017

Stable Cryptocurrencies

There are two problems with using Bitcoin as a substitute for conventional currencies. One is that transaction costs are high; I gather there are some proposals to solve that. The other is that its value is very unstable. So far that has been a plus, since the value has mostly gone up. But in general it is a minus, since it means that if you are holding a substantial amount of currency for transactions you are also speculating in its value, whether or not you want to. 

That raises the interesting question of whether it is possible to construct a cryptocurrency with a stable value. Basecoin is a recent attempt to do so. I have not examined how it works carefully enough to offer any opinion on it, but I think in principle the project is doable.

Suppose you want a currency which exchanges at one for one with the U.S. dollar. There is a real world example of a solution to that problem, although it was for paper currency not cryptocurrency–the Hong Kong dollar issued by the Bank of Hong Kong and Kowloon (I think also by a second bank–all this is from memory, so details may be off). It maintained a constant exchange rate with the dollar (not one for one) by a simple mechanism. Any time the $HK went above the target rate the bank printed more, any time it went below they bought some and took them off the market.

Basecoin works on the same principle. In theory it eventually shifts from pegged to the dollar to pegged to a market basket of goods.

Pre-bitcoin, Chaumian digital cash was supposed to provide a currency that could be exchanged by sending messages, with neither party having to trust or know the identify of the other. The problem was that it required an issuer, a trusted bank. A digital currency makes enforcing money laundering rules hard, an anonymous digital currency, which the Chaumian version would have been, makes it impossible, so governments very much don’t want it to exist, which makes it hard to establish a trusted issuer. 

The beauty of Bitcoin is that there is no issuer, so the problem goes away.

How do you maintain a stable digital currency without an issuer, a private central bank? I do not know the details of how Basecoin proposes to do it, but here is my version:

You start with ten issuers, each a respected private firm, probably in different countries, each with a private key/public key pair that it can use to prove its identity. You have some way that the software can measure the exchange rate between your currency and the dollar–the Ethereum people I have talked with refer to a mechanism for reporting real world facts to the software as an oracle and have some ingenious ideas for making one work. The software then establishes the following rules:

1. Any time the exchange rate is above the target, one of the issuers can create one more coin. Which issuer gets to do it depends on which ones created the last nine coins–they go in sequence. 

2. Any time the exchange rate is below the target, one of the issuers, again in sequence, is supposed to buy a coin and take it out of circulation.

3. An issuer that fails to obey rule 2 is no longer in the sequence for rule 1. Each time it fails to obey it, its debt to the system goes up by one. Only when it has repaid that debt by taking the corresponding number of coins out of circulation does it rejoin the sequence of issuers.

4. If the exchange rate is above the target and the issuer whose turn it is to issue a dollar doesn’t, after an hour it loses its turn to the next issuer in sequence.

Assume an expanding demand for the currency, first from its initial spread, in the long term from economic growth. Issuers profit because they are getting an interest free loan in the form of the the coins they print to hold the value down to a dollar. That gives each issuer an incentive to obey rule 2, so as to maintain its ability to issue.

Rule 4 exists mostly to cover the possibility of an issuer going out of business or being shut down by its government. There should be a mechanism making it possible, if that happens, to transfer its status to a new issuer. In the simplest case, that is done by selling the private key that proves its identity to another firm that wants to replace it. 

What is wrong with this proposal?

I was pointed at this problem, and at Basecoin, by my son Patri. I gather it has been discussed at some length recently, so I may well be reinventing the wheel, but I find it more interesting to think such things out for myself than to start by reading what other people have written.

That reminds me of an anecdote about my friend and ex-colleague the late Gordon Tullock. Someone prominent wrote an article. Tullock wrote a rebuttal. The original author wrote a response, claiming that Tullock had entirely misunderstood the original article. It included the line (by memory so not verbatim):
We have all been long impressed by how much Professor Tullock has written. It is even more impressive to realize that he has written so much without being able to read.

Saturday, December 09, 2017

Did the Death of Copyright Hurt Anyone?

Intellectual property in digital form is easy to copy and easy to share, which makes enforcing copyright law against it difficult, often in practice impossible. Thus the shift of Intellectual Property—music, books, movies—to digital makes it much more difficult for copyright law to serve its traditional purpose of providing an incentive to create by rewarding the creators. The obvious conclusion is that creators of intellectual property should now be much worse off than before and much less, or lower quality, work should be being created.

The question, to which I do not know the answer, is whether it actually happened. My casual impression is that books are as good as they were ten or twenty years ago. I consume almost no music and almost no video, so cannot judge their quality–do others think it has declined? 

The other half of the question is the effect on producers. Have musicians gotten poorer? Do movie companies make less money than they used to? Are there fewer professional authors supporting themselves by their writing? 

If the answer to all of these questions is "no," that casts serious doubt on the conventional interpretation of the function and importance of copyright law.

For any graduate student in economics who is looking for a thesis topic, I suggest that trying to find an answer to that question and then an explanation for that answer would be a project worth pursuing.

How to Make Cherry Coke Zero

I consume a lot of soda, mostly Coke Zero or Diet Coke–enough so that I buy it in two liter bottles. I enjoy sometimes switching to the cherry version of the drink for variety. Unfortunately, Cherry Coke Zero is not available in two liter bottles in this part of the country. 

I have found a solution to this problem and am posting it here for the benefit of anyone else in a similar situation. 

Iranian restaurants offer a sour cherry drink as one of the options on the menu. I like it and my daughter likes it, so on a recent visit to our local Iranian grocery store I bought a bottle of the syrup that it is made with. 

Add a dash of that to a glass of Coke Zero and you have a do-it-yourself Cherry Coke Zero.

Friday, November 24, 2017

Friending on Facebook

I get quite a lot of friend requests on Facebook, most of which I decline. I thought it would be worth explaining why here, in the hope that some of the people who want to friend me also read my blog.

All of my FB posts are public, open to everyone. So the only effect of friending someone is that I get to see his posts--some at random, if I correctly understand how FB works, some because they mention me or have some other content that makes FB flag them for my attention.

When I get a friend request, I look at the requester's page to see if there is a particular reason why I would want to see his posts and the comments on them. If they are in a language other than English I almost always decline, since I am not fluent in any other language and so would rarely make the effort to read them. Google translate is getting better, but still not good enough for routine use. If the posts and comments are in English, I look at them to see if there is anything that makes them more interesting than the average of what I am already seeing on FB. If not I usually decline. 

I'm not entirely comfortable with this policy since I worry that people will interpret my declining their request as an unfriendly response, but I don't see much point to accumulating hundreds or thousands of "friends" whose posts I don't actually read.