Tuesday, June 25, 2013

Sunday, June 23, 2013

Economists vs. everybody else: jobs and trade

What can and should be done to create and protect jobs? This is one of many questions for which economists and the general public do not see eye-to-eye. The public is often misinformed, but economists can be cavalier in their dismissal of the public's concerns and priorities.

Saturday, June 22, 2013

Circumspection and other virtues

In a previous post, I lamented the problems arising from the "well-intentioned propagation of misinformation." We would all be better off if everyone could just be less confident.

Tuesday, June 18, 2013

Libertarianism and transformation

I'm not a libertarian, but I think there is a lot to be said for libertarianism, mainly from the standpoint that there are lots of activities that the government just shouldn't be involved in. (Also, as political ideologies go, it's one of the more straightforward and consistent ones.) For any kind of market-based activity, I think that it is reasonable to view non-intervention as the default, and only to intervene if there is a compelling reason to do so. I find that some libertarians are dogmatic (although I couldn't claim there is a greater propensity to dogmatism than that of conservatives or liberals), with a stubborn adherence to the idea of personal liberty and insufficient regard for the practical consequences. Robert Frank describes a "rational libertarian" as someone who places a very high priority on personal liberty, and wants to be as well off as possible given that preference.  I.e. for these folks it is more a practical than a philosophical issue. There was a long exchange on the Cato Institute's blog about libertarianism, and I didn't find the focus on fine philosophical distinctions very useful or interesting.

Thursday, June 13, 2013

Campaign finance reform and its implications

This is an issue that I was interested in, then excited about, and then less so. My preoccupation with it peaked when I read Larry Lessig's book Republic, Lost. In it, Lessig details the extent to which money influences policy and presents an alternative system of campaign financing. I highly recommend the book, although if you would prefer to watch a video, this YouTube clip (48 minutes) covers much of what is in the book. Lessig more recently published an e-book, Lesterland, which presents the same basic point more briefly, and he gave a TED talk on it in a few months ago.

Lessig seems to be focused on spreading information and generating enthusiasm for changing the system. I'm still totally on board with the kinds of reforms he is suggesting. I have to wonder, though, how much of an improvement it would really be. Even if we create a system that forces politicians to cater to large numbers of voters, we can't expect that all the best policy decisions will be made. Voters don't generally have incentive to become informed, and they tend not to very good at processing what information they do receive. To take just one example, consider how difficult it is to convince the general public of the dangers of global warming. Uncertainties and biases can be exploited, especially by those with abundant resources at their disposal. It may not be as easy to influence voters through informational campaigns as it is to influence politicians through campaign donations; but surely it would happen to some extent. Even if no one actively tries to manipulate voters, how will they arrive at their voting decisions? I would feel fairly confident that our system of governance would improve if we dramatically reformed campaign financing, but I would still be looking out for some nutty policies to emerge.

Friday, June 7, 2013

Oh, fudge

I was recently vacationing with my family on Mackinac Island. It is a 3.8-square-mile island in Lake Huron, depicted in this map. Its attractions include the Grand Hotel, where much of the 1980 film Somewhere in Time was filmed; Fort Mackinac, which my son (below) particularly enjoyed; and an abundance of fudge. The map inset depicts a stretch of Main Street that is less than 1500 feet long and includes 10 fudge shops. There are 6 firms that own all of the shops on the island, and 3 of them had at least two outlets on Main Street. I did not sample extensively, but I had the impression that all the shops had similar selections of fudge, salt water taffy, and peanut brittle, as well as similar prices. There is a classic economic explanation for this kind of phenomenon: that, in some contexts, firms compete most effectively with each other by minimally differentiating themselves from other firms. Firms might differentiate by locating at a distance from other firms or by varying their products in any number of ways. This page illustrates the pressure for firms to locate close to their competitors, and this same reasoning applies metaphorically to product characteristics.  (There are lots of complications to this model, some of which result in greater degrees of differentiation.)

I think that one reason this effect is so strong in this case is that the market is relatively uninformed: most of the market is tourists, and most of them don't have good information about what they can buy on Main Street. Tourists do know that they will be able to buy fudge at lots of different locations; but this raises the question of how this came to be. Did all of these fudge sellers enter the market because of the enormous demand for fudge on Mackinac Island? Or perhaps it is a supply issue: a local abundance of materials or expertise necessary for fudge production. That fudge shops are common in many highly touristed areas favors the demand-side explanation. Maybe people associate fudge consumption with vacation, and maybe this is one means of restricting one's indulgence in certain items. I wonder how sensitive this situation is to its initial conditions, whatever they were: is the prevalence of fudge, peanut brittle, and salt water taffy in American resort towns a historical accident, or is there something about these products that inevitably leads to their provision in these markets? In either case, we live in an era in which consumers can expect a certain array of amenities at many vacation spots, and firms cater to these expectations. (I find it amusing that salt water taffy is popular at freshwater locales like Mackinac Island, although its production doesn't involve salt water per se.)

This minimal differentiation story applies in lots of other tourist-dominated markets. In Venice, for example, you can hardly walk a hundred feet without running into a gift shop selling cheap blown glass figurines and Mardi Gras masks.