Post Economics

Search 2005

Thursday, December 23rd, 2004

Many of John “Searchblog” Battelle’s predictions for 2005 seem like near certainties, e.g., a fractious year for the blogosphere and trouble for those who expect major revenues from blogging.

Two trends I hope 2005 proves that Battelle’s predictions missed:

Metadata-enhanced search. Will be ad hoc and pragmatic, pulling useful bits from private sources and people following officious Semantic Web and lowercase semantic web practices.

Proliferation of niche web scale search engines. Anyone can be a small-scale google, crawling the portions of the web cared about and offering search options specific to a niche. The requisite hardware and bandwidth are supercheap and the Nutch open source search engine makes implementation trivial.

The Creative Commons search engine is a harbinger of both trends.

Battelle’s look ahead spans the web, not just web search. Possibly the biggest trend missing from his list is the rise of weblications. Egads, I have to learn DHTML, and it isn’t 1997!

A few of my near certainties: lots of desktop search innovation, very slow progress on making multimedia work with the web and usable security, open source slogs toward world domination, and most things get cheaper and more efficient.

Posted in Creative Commons, Economics, Semantic Web | 2 Comments »

Center for Decentralization

Wednesday, December 15th, 2004

This evening I had the pleasure of attending an open house for the CommerceNet Labs center for decentralization or Zlab. I’ve been meaning to write about Zlab for awhile, and I’m taking advantage of tonight’s event to write without having anything to say.

If I may boil down Zlab’s aim to one paraphrase: Make software that works the way a fully decentralized society would work.

Check out their The Now Economy for a flurry of deep items concerning decentralized commerce and net infrastructure, lab projects that abet the above aim and publications. Of personal interest, see Nutch: A Flexible and Scalable Open-Source Web Search Engine, which uses the Creative Commons search engine to demonstrate how a Nutch plugin is implemented.

Posted in Creative Commons, Economics, Open Source, P2P | 1 Comment »

Calorie Restriction vs. Accelerating Change

Tuesday, December 14th, 2004

Over a month ago I attended Accelerating Change 2004. I agree with Peter McCluskey’s take: an unexpected but mostly well done and welcome focus on current developments and lots of excitement about virtual worlds, Second Life in particular. Virtual words offer a low cost platform for economic, social and even physical object experimentation, prototyping and more. Virtual worlds are the future! Pity I never was much of an enthusiast for MUDs or video games, so I have a couple decades’ worth of catching up to do.

Had it not been held across the continent (South Carolina) I would’ve preferred to attend the conflicting 3rd Annual Calorie Restriction Society Conference. The first two CR conferences were lots of fun, with a good mix of learning from CRONies (CRON is Calorie Restriction with Optimal Nutrition) far more serious than me and talks by academics studying CR and aging mechanisms.

Dean Pomerleau, whose site is well worth visiting, took notes on approximately every CR 2004 talk: day 1, day 2, and day 3.

Posted in Economics, Health | 2 Comments »

North Korea Time Warp

Tuesday, December 14th, 2004

My impression is that North Korea as the ultimate Stalinist freakshow really only entered western consciousness in the last few years as the Kim Jong-Il regime acquired nuclear weapons and long range missiles. Well known emblems of the freakish regime range from mass tragedy (famine), brutality (escapees strung together with a wire through their noses), to monumental failures and the amazing (a human video billboard). My personal favorite is a full page color ad placed in the New York Review of Books a few years ago for a book exalting Kim Jong-Il as the greatest human to walk the earth and then some (perhaps the book was Kim Jong-Il, A Brief History, brief indeed compared to the 2,161 page Complete biography of the Great Leader Kim Il Sung). The layout of the ad was sub-amateur and the hyperbolic language clearly written for a captive audience. I don’t believe I’ve ever seen a more hopeless advertisement in my life.

However, if two recent columns by Andrei Lankov are accurate, western perception may be trailing reality. December 7th’s Cracks in North Korean ‘Stalinism’ and December 14th’s Welcome to capitalism, North Korean comrades paint a picture of a regime that has lost control of the people’s minds and no longer runs the economy. Cheap used VCRs and transistor radios smuggled from China and soap operas broadcast from South Korea have helped, but the largest factor seems to be a total collapse of the state run economy over the last decade, leaving even the ultimate Stalinists bereft of carrots for party members and sticks for everyone else.

Total control of the economy is a rather impossible goal, though mere dictatorial political control should be no problem. However, Lankov argues that the regime’s myths are dissolving …

Perhaps few North Koreans believe that every South Korean family has its own car (even if it really is the case). But there is no doubt that it is dawning on them that the South is not exactly a land of hunger and desperation. This is certain to have political consequences in the not too distant future, since the myth of South Korean poverty has been fundamental to the survival of the North Korean state. Pyongyang has always based its claims for legitimacy on being a better type of Korean government, supposedly delivering the quality of life that would be unavailable in the “exploited” and “impoverished” South. If the North Korean populace learn about South Korean prosperity, then the Pyongyang government is in deep trouble – as the fate of the much more successful East German government demonstrated: the economic gap between North and South Korea is much greater than was once the case in Germany. According to current estimates, the per capita gross national product (GNP) in the South is 10 to 20 times higher than in the North.

… perhaps leading to a collapse not unlike that seen in Lankov’s native Soviet empire, and just as unexpected by most.

There are far more interesting observations in Lankov’s above columns and his Korea Times series on “Another Korea.”

While I have little stomach or interest in the most brutal atrocities of oppressive regimes, I find attempted total economic control perversely interesting. Here’s one illustrative quote from Lankov:

Unlike governments of other communist countries, until the late 1980s the North Korean government did not even allow its farmers to cultivate kitchen gardens – the individual plot was limited to merely 20-30 square meters, hardly enough to grow enough chili pepper. This was done on purpose. In many other communist countries, farmers had bigger plots and made their living from them, ignoring their work obligations to the state-run cooperative farms. Without their own plots, farmers would work more for the state – or so believed the North Korean government. In the utopia constructed by Kim Il-sung, every single man or woman was supposed to work for the state, and was rewarded for his and her efforts with officially approved rations and salaries.

This reminds me of a claim I once heard that tiny personal gardens made a substantial contribution, far out of proportion to space used, to the Soviet table, as gardeners had de facto property interest in production from such gardens, and no other production. If I ever recall and confirm details I may post them here.

[Welcome to capitalism, North Korean comrades link via the Mises Economics Blog.]

Posted in Economics, Politics | 1 Comment »

Becker-Posner for Perpetual War

Monday, December 6th, 2004

The esteemed Gary Becker and Richard Posner begin their new publishing venture with poor rationalizations of perpetual war for perpetual peace.

Becker‘s very first sentence sounds suspect:

Combating crime mainly relies on deterrence through punishment of criminals who recognize that there is a chance of being apprehended and convicted-the chances are greater for more serious crimes.

Mainly? What of prevention (locks, alarms, guards and the like), social pressure and economic growth? I’m skeptical, but that’s another argument.

Fundamentally Becker argues that because weapons are more powerful and more available, the putative good guys must be less cautious about attacking suspected bad buys. In other words, 9/11 changed everything, a view which I’ve always thought doubly naive. First, proliferation of massive destructive power is inevitable, and anyone who didn’t think of that before 9/11 just wasn’t thinking. Secondly, and more apropos to this argument, it is not at all clear that lashing out at suspected enemies is a cost minimizing strategy in such an environment.

I just love this gem from Posner, which attempts to dismiss cost-benefit analysis of war:

But the appropriateness of thus discounting future costs is less clear when the issue is averting future costs that are largely nonpecuniary and have national or global impact.

Please! Perhaps the discount rate would be different, but it would exist. Time preference is fundamental to economic analysis, which is certainly not limited to financial concerns. Incredibly disingenuous coming from someone who certainly knows better.

But Posner can’t resist cost-benefit analysis anyway and sets up a scenario in which a preventive attack would, supposedly, be cost-justified:

Suppose there is a probability of .5 that the adversary will attack at some future time, when he has completed a military build up, that the attack will, if resisted with only the victim’s current strength, inflict a cost on the victim of 100, so that the expected cost of the attack is 50 (100 x .5), but that the expected cost can be reduced to 20 if the victim incurs additional defense costs of 15. Suppose further that at an additional cost of only 5, the victim can by a preventive strike today eliminate all possibility of the future attack. Since 5 is less than 35 (the sum of injury and defensive costs if the future enemy attack is not prevented), the preventive war is cost-justified.

This strikes me as a highly unrealistic scenario. Governments invariably overestimate the benefits of their actions and understimate the financial cost of war by a factor of ten. Did the overthrow of Saddam Hussein eliminate the threat of terrorists based in or sponsored by Iraq? Hardly. Given the rose-colored glasses worn by government planners, in Posner’s scenario above I’d expect a preventive attack to cost 50 and not change the expected damage from a terrorist attack. 70 is greater than 35, war is not cost-justified.

Posner makes many more assumptions in an alternative history example:

A historical example that illustrates this analysis is the Nazi reoccupation of the Rhineland area of Germany in 1936, an area that had been demilitarized by the Treaty of Versailles. Had France and Great Britain responded to this treaty violation by invading Germany, in all likelihood Hitler would have been overthrown and World War II averted. (It is unlikely that Japan would have attacked the United States and Great Britain in 1941 had it not thought that Germany would be victorious.) The benefits of preventive war would in that instance have greatly exceeded the costs.

Why would Hitler have been overthrown in all likelihood had France and Great Britain invaded? Unless they were dead set on regime change is isn’t hard to imagine Hitler surviving. We don’t have to look back far to see a dictator surviving an invasion and military defeat — Saddam Hussein in 1991.

Would destroying Hitler have averted World War II, and not only the one we know? Who knows what set of events an invasion of the Rhineland may have set off? It could be now seen as a the beginning of a tragedy that led to a communist revolution in Germany, the ascendancy of still-credible fascism and anti-semitism in France and Great Britain, the inevitable Fascist-Communist worldwide conflict, and the U.S. pulled mightly to adopt one or the other, leading to mass slaughter and the extinction of freedom worldwide. Strange things happen. See World War I.

Hindsight is wonderful, eh? Unfortunately there’s no reason to expect it to be 20-20 unless we hold nearly everything constant. Foresight is even harder. We desperately need tools that provide better estimates of the impact of policy than bogus intellectual handwaving and self-serving bureaucratic guesstimation. Conditional futures, which I’ve mentioned here and here may be one such tool. I don’t think conditional futures is quite the term of art, but see Robin Hanson’s page on policy markets for a good explanation and his pages on the Policy Analysis Market and idea futures for far more in depth treatment.

Posted in Economics, Iraq, Peeves, Politics, Prediction Markets | 4 Comments »

Logic of Collective Action

Saturday, November 20th, 2004

Notes on Mancur Olson‘s Logic of Collective Action, an apparent classic first published in 1965, which I read in September:

The basic argument is set forth on page 2 (emphasis in orginal):

Unless the number of individuals in a group is quite small, or unless there is coercion or some other special device to make individuals act in their common interest, rational self-interested individuals will not act to achieve their common or group interests.

Olson writes on page 64 that self interest is not a requirement for this outcome. Even rational altruistic individuals will not act to further group interests if they realize that their efforts, as one of many, will have no perceptible effect on the outcome.

Olson says several times that groups by definition act in the interests of members, though he admits to potential in-fighting and capture by leaders in footnotes. However, if coercion must be involved (the success of other special devices such as exclusive contributor services is downplayed), what is to prevent a rather permanent state of affairs in which members are forced to act against their own interests? I use the word state in the preceding sentence advisedly.

A very long and curious note on page 48 (note 68 of chapter I “A Theory of Groups and Organizations”) begins and ends with (middle elided):

There is one logically conceivable, but surely empirically trivial, case in which a large group could be provided with a very small amount of a collective good without coercion or outside incentives.
[…]
total costs of the collective good wanted by large groups are large enough to exceed the value of the small fraction of tht total benefit that an individual in a large group would get, so that he will not provide the good. There may be exceptions to this, as to any other empirical statement, and thus there may be instances in which large groups could provide themselves with (at most minute amounts of) collective goods through the voluntary and rational action of one of their members.

This quote is typical of Olson’s insistence that public goods just don’t get produced without coercion or individually excludable inducements, which he notes shift the individual’s indifference curve to the left or right respectively.

In 2004 the above quote cries out for a response of “professor, what about open source?” However, I suspect that Olson thoroughly underestimates in general the extent to which private efforts motivated by private returns produce positive externalities, thus reducing the need for coercion. As I previously mentioned in an aside, the extent of private and public good co-production(?) is a crucial if unstated aspect of nearly any policy debate.

When applied more narrowly to private associations Olson’s argument is fairly compelling, though not novel, as perhaps it seemed in 1965.

Olson seems somewhat congruent with public choice economics. While I like to summarize a key insight of the latter as “concentrated interests trump diffuse interests”, Olson emphasizes the great difficulties groups face when pursuing a common goal, e.g., attempting to trump diffuse interests via “special interest” lobbying. Perhaps it isn’t such a bad thing that groups have a difficult time acting to achieve group interests, that is when group interests may be furthered by stealing rather than production.

Posted in Books, Economics, Open Source, Politics, Public Goods | 7 Comments »

Speculate on Creators

Wednesday, November 17th, 2004

Alex Tabarrok writes about An Auction Market for Journal Articles (PDF). Publishers bid for the right to publish a paper. The amount of the winning bid is divided by the authors and publishers of papers cited by the paper just auctioned. Unless I’m missing something all participating journals taken together lose money unless the share of cited authors is zero and transaction costs are nil. Still, the system could increase incentives to publish quality papers, where “subsequent authors will want to cite this” is a proxy for quality.

I’m reminded a tiny bit of BlogShares (“Blogs are valued by their incoming links and add value to other blogs by linking to them”), but especially of Ian Clarke‘s FairShare, which is a proposal for speculative donations:

Anybody can “invest” in an artist, and if that artist goes on to be a success, then the person is reward in proportion to their investment and how early they made it. But where does this return on investment come from? The answer is that it comes from subsequent investors. For example, lets say that you invest $10. $4.50 might go straight to the band, $1 might go to the operator of the system, and the remaining $4.50 would be distributed among previous investors in the band, those who invested more early would get a bigger proportion than those who invested less, later-on. Of course, most people will not make a profit, but they are rewarded by knowing that they contributed towards an artist that they liked, and helped reward others who believed in that artist, and who may have brought the artist to their attention.

Under FairShare participating creators taken together and individually would make money, as payments are from without the system, driven by the generosity and greed of fans and speculators.

A system in the spirit of one or both of these proposals could perhaps help fund a voluntary collective licensing scheme of the sort contemplated for digital music, but conceivably applicable to other types of work.

If the journal market idea really could foster a self-sustaining business model it could be a boon to the open access movement. Restricting access is rather pointless when your main business concern is to get your articles cited.

I’ve rambled about open access models elsewhere.

Posted in Blogs, Creative Commons, Economics, Intellectual Protectionism, Open Access, Public Domain, Public Goods | 3 Comments »

dx/dt Healthspan/Lifespan > 0

Wednesday, November 17th, 2004

This afternoon I attended a lecture in Berkeley by Nobel prize winning economist Robert Fogel titled “Changes in the Disparities in Chronic Diseases During the Course of the Twentieth Century.” After writing most of this post I discovered a paper (PDF) of the same name that contains all of the slides presented during the lecture. Some interesting points:

Male life expectancy at age 50 from ~1900 to ~1990 increased 6.6 years (life expectancy at birth increased by decades over the same time period), while onset of disabling conditions occur roughly 10 years later in life, meaning that we not only live longer, we spend less total time in a state of ill health. To put it another way, healthspan (not a word used by Fogel) is increasing faster than lifespan, contrary to the popular fear that longer life only means more time spent bedridden. I believe the way that Fogel did put it is that decline in morbidity has paralleled and actually exceeded decline in mortality. When questioned Fogel confirmed that this is the idea he intended to convey, and added somewhat jokingly that we should not dismiss the possibility that younger people today would be healthy until they finally all drop dead together.

Drawing on the Early Indicators Project and other data Fogel stated that chronic disease in mid and late life is heavily influenced by infection and other “insults” to health in early life. He indicated data from Dutch Famine survivors may indicate that the effect may be multi-generational — the children of mothers who were themselves fetuses during the famine may be less healthy than expected. This claim seemed tentative.

Before the twentieth century human lives really fit the description of nasty, brutish, and short. Fogel cited much data from Union army recruits and pensioners. One item: in 1861, one sixth of recruits aged 16-19 were rejected for a litany of medical conditions almost unknown to today’s youth. Over half of those aged 35-39 were rejected.

Concerning the lecture’s title, Fogel said that the health of the poorest has improved far more markedly than the health of the most wealthy.

Life expectancy at birth
1875 1993
British elite 58 78
British average 41 74

Over a similar time period the gap in average height between British elites and the average Briton shrunk from four inches to less than one.

Perhaps the most stunning figure cited concerned homelessness. In the past (I’m not certain I heard the year correctly, perhaps circa 1750) 10-20% of Europe’s population was classified as vagrant or pauper. Now, less than 0.4% of the population in wealthy countries is homeless. The stunning bit however, is Fogel’s contention as to why vagrancy was so widespread in centuries past: severe malnutrition. Large segments of the population simply didn’t get enough calories to do useful work.

Regarding increasing healthcare expenditures, Fogel made several pithy comments:

Poor people live through pain, wealthy people go to the doctor.

In poorer times people spent most of their incomes on necessities. Now we spend an increasing amount on entertainment and healthcare. Why not spend our wealth on healthcare?

Somewhat jokingly: Going to the doctor and chatting in the waiting room is a favorite activity of many elderly. It’s difficult to factor out what is entertainment and what is healthcare.

A woman once told Fogel that she had a Mercedes in her mouth — that’s how much her dental work had cost. A young person may prefer a fancy car, and older person, if they must choose, may prefer teeth, or a knee.

Improvements in health outcomes from say 1970 to 2000 are not due only to improvements in medical technology during that time, but also due to improved “pysiological capital” built up over decades (recall that health in early life heavily impacts health in later life). Future cost estimates typically completely ignore this factor.

Unfortunately, the same factor may make the problem of an aging population worse than expected in countries like China, whose current middle aged population suffered “terrible insult” in early life.

Today’s lecture was the first of a two-part series titled “Changes in the Process of Aging During the Twethieth Century.” A paper ($5 — unless you’re a subscriber or in a poor country — much like what the Creative Commons developing nations license allows) of the same name is cited here with some data. Tomorrow’s lecture on “Common Analytical Errors in Explanations for Improvements in Health and Longevity.” Supposedly both will be available online at some point.

Posted in Creative Commons, Economics, Health | 8 Comments »

Sri Lankan restaurant

Saturday, November 13th, 2004

One of my favorite things about living in Silicon Valley is the availability of food from the Indian subcontinent, the southern portion in particular. Saravana Bhavan is my favorite restaurant. I jump at the opportunity to try something new in this vein, e.g., the short-lived Charulata (Bengali), the excellent Green Lettuce (Indian-style Chinese in Vancouver, BC — the local Passage to India has a Desi Chinese menu), and perhaps the best restaurant meal of my life at the departed Surat Sweets (Gujarati, also in Vancouver, BC).

Recently I saw Curry Leaf advertised as the only Sri Lankan restaurant in the San Francisco Bay Area and tried it out this afternoon. I vaguely expected something like South Indian cuisine plus fish. I was wrong. Sri Lankan cuisine heavily uses spices associated with India but is otherwise distinct. I don’t have vocabulary to describe it well, so see A Taste of Serendib. I had vegetarian Kottu Roti, with Jackfruit chunks standing in as meat. Pleasantly spicy. I recommend the place. It is of course in a low rent strip mall.

Posted in Economics, Health | 4 Comments »

Bush good for terrorist stocks

Tuesday, November 2nd, 2004

Here’s an election day update of my post on conditional futures. What do the markets say about stock returns, nuclear weapons use and terrorist attacks in the U.S., contingent upon the winner of the temporary dictator election?

Unfortunately not much of anything. The market cited below doesn’t use real money and trading is very thin. Consider the answers below meaningless, just for fun (as is this post’s title).

The Economists’ Voice published Experimental Political Betting Markets and the 2004 Election a few weeks ago, which describes a real money contingent betting experiment. Unfortunately the claims aren’t very interesting — they aim to capture the potential effect of events on the election outcome (e.g., one expects that the capture of bin Laden would give Bush a tremendous boost). I’m interested in how people expect the election outcome to effect future events.

Noise follows:

bid ask last
/  /   /
46 57 47 http://www.ideosphere.com/fx-bin/Claim?claim=Bush04

Bush may not win.

41 47 43 http://www.ideosphere.com/fx-bin/Claim?claim=Stocks
25 28 50 http://www.ideosphere.com/fx-bin/Claim?claim=GBStok

50/.47 = 106 < 43 Bush win means much higher stock returns? However, bid and ask are much lower than last, so this must be the anomalous result of a very thin market. Taking the average of bid and ask: 26.5/.47 = 56 < 43 Bush win still means higher stock returns. 40 49 41 http://www.ideosphere.com/fx-bin/Claim?claim=GBNuke
40 51 44 http://www.ideosphere.com/fx-bin/Claim?claim=JKNuke

41/.47 = 87 < 44/.53 = 83 Bush win means slightly higher chance of US getting nuked? 70 72 71 http://www.ideosphere.com/fx-bin/Claim?claim=Terr10
30 69 30 http://www.ideosphere.com/fx-bin/Claim?claim=GBTerr

30/.47 = 64 > 71

Bush win means very slightly lower chance of terrorist attack in US?

Taking the average of bid and ask:

49.5/.47 = 105 > 71

Bush win means greater chance of terrorist attack in US?

Addendum 2004-12-07: I just noticed that David Schneider-Jones posted a deeper analysis of the Nuke-related contracts above on November 1.

Posted in Economics, Politics, Prediction Markets | 8 Comments »

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