Posts Tagged ‘Freakonomics’

Superfreakonomics by Steven D. Levitt and Stephen J. Dubner

September 10, 2010

After having it on my shelf for quite a while, I finally sat down and read Superfreakonomics; Levitt and Dubner’s follow-up to their bestselling book Freakonomics. Superfreakonomics is laid out much the same way as Freakonomics was, although less time is spent on declearing Levitt to be a genius.  However, with chapter titles as How is a street prostitute like a department-store santa?, Why should suicide bombers buy life insurance?, and What do Al Gore and Mount Pinatubo have in common?, the similarity to Freakonomics is unmistakeable. The similarity also makes Superfreakonomics feel like an act of duty more than a work of inspiration.

Just like John Whitehead, I enjoyed Freakonomics more than I did Superfreakonomics. I also agree with Whitehead that the highlight is the epilog on monkeys learning to use money. Levitt and Dubner do a great job, however, coming up with surprising conclusions:

This is a strange twist. Many of the best and brightest womenin the United States get an MBA so they can earn high wages, but they end up marrying the best and brightest men, who also earn high wages which affords these women the luxury of not having to work so much (p. 46).*

So, perhaps there’s more to getting an MBA than high wages? Bright men, for example. Next, do what you want to do:

Deliberate practice has three key components: setting specific goals; obtaining immediate feedback; and concentrating as much on technique as on outcome. The people who become excellent at a given thing aren’t necessarily the same ones who seemed to be “gifted” at a young age. This suggest that when it comes to choosing a life path, people should do what they love […] because if you don’t love what you’re doing, you are unlikely to work hard enough to get very good at it (p. 61).

Partly beg to differ. I think many of those really good at something (like, world-class-good), at least has to begin practicing at an early age.

Other amusing and at times unsettling conclusions are that death rates in Los Angeles drop when doctors go on strike (p. 81), in Singapore they have the the Manitenance of Parents Act (p. 106), economists believe more in theory than in the real world (“Sure, it works in practice, but does it work in theory?”, p. 115), the Endangered Species Act endanger rather than protect species (p. 139), buying locally produced food increases greenhouse-gas emissions (p. 167), and the movement to stop global warming has taken on the feel of a religion (p. 169).

Perhaps the most controversial part of the book is the chapter on global warming, where Levitt and Dubner embrace geoengineering as the short-term solution. The noise around the chapter was seemingly so annoying to someone that critical posts on the Freakonomics blog were removed (see here, for example). Among the disturbing claims Levitt and Dubner provide is that climate scientists ‘turn their knobs’ such that their model do not provide outlier estimates, because an outlier model is hard to get funded. The economic reality of research funding generate a scientific consensus, rather than independent research (p. 182). The claim ressonates with a seminar I recently attended. The seminar was given by a Danish climate scientist who were concerned that the famous hockey stick graph, hailed as the undisputable proof of man-made climate change, resulted from lack of data, inappropriate methods, and an assumed stable temperature prior to the industiral revolution. The discussion in Superfreakonomics do, however, seem fairly balanced in places, see for example the discussion on page 199.

I would recommend Superfreakonomics to anyone unfamiliar with Freakonomics, but, honestly, it’s a Freakonomics 2, and not any more super than it’s predecessor, which is, notwithstanding, quite superb. Superfreakonomics is perhaps an easier read (or I’ve become a better and quicker reader), but lacks a character like Sudhir Venkatesh.

* Page numbers refer to the Allen Lane UK edition.

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The Turbulent Side of Biodiversity

September 5, 2010

It’s been a while since I visited the Freakonomics blog. A while back, however, I started reading last year’s Superfreakonomics, and paid the blog a visit. My attention was attracted to a post on biodiversity, perhaps since I’ve lately taken an interest in the economics of biodiversity. The post is written by James McWilliams and asks:

[…] But it’s worth asking: what are we really talking about when we talk about biodiversity? On the surface, the word signifies the entirety of biological life. […] But not unlike the terms “environmentalism” and “sustainability,” biodiversity has a turbulent side, one with hidden implications that complicate its value as a precise gauge for land conservation.

Entirety of biological life? Hm, not sure if I agree.

The heroic efforts of ecologists notwithstanding—biodiversity remains an impossible concept to quantify in absolute terms. […] But critical questions remain: Is this erosion anything new in absolute terms? Is the decline in diversity that we’ve diligently documented and rightfully scorned reflective of genetic erosion as a whole? From the perspective of global biodiversity, does [for example] a salamander really matter?

A wise man once pointed out to me that much of human development and economic growth has relied on replacing ecosystems with monocultures (think clearing a forest to sow grains); a development impossible without loss of biodiverstiy. Notwithstanding:

One school of ecological thought rests on the premise that “biodiversity often peaks” in ecosystems that have been moderately disturbed by human development.

A final concern:

A final concern deals with the fact that, as we expand the built environment, some species will suffer the consequences while others will thrive, or at least suffer less. All of which raises a thorny philosophical question: who are we to decide which species deserve to flourish or suffer more than other species? Given that any sort of development, however aggressive, has the potential to influence an innumerable range of species in innumerable ways, we’re stuck with the task of somehow assigning comparative worth to plants and animals that have far outdated our own existence on the planet […]

Preserving and fostering biodiversity is a profoundly important environmental challenge, one that will only intensify throughout the century. But because the concept is so difficult to pin down and quantify, preserving it may require doing so through less expansive standards. More general, and policy-applicable, standards such as density of production, extent of open space, public health concerns, and the integration of built and natural environment might serve environmental concerns more efficiently than a concept that, theoretically speaking, has as much sympathy for a landfill as it does a rain forest.

Gang Leader for a Day by Sudhir Venkatesh

May 26, 2010

I just finished Sudhir Venkatesh’s Gang Leader for a Day and am amazed. I did not expect it to be so interesting. I knew about Sudhir Venkatesh from his appearance in Freakonomics (the book) and knew he was an interesting figure with some extraordinary experiences to tell of. However, where Freakonomics were a bit dull and drawn out in parts, Gang Leader for a Day is interesting and facsinating throughout. Notwithstanding, the comparison is unfair; Freakonomics is about applied economics and some surprising and amusing conclusions thereof while Gang Leader for a Day is mostly descriptive of gang life in Chicago, in all facets.

Sudhir Venkatesh tells the story of when he, as a graduate student in sociology at the University of Chicago, wanted to study poor, black people in Chicago and ended up hanging out with and befriending a drug gang operating out of a public housing project. From being treated as a potential danger and an alien, he ends up tagging along as the leader of the gang rises in the city-wide gang network. On the way, he sees the interplay between the gang and the wider community, for good and for bad.

On of my favorite passages in the book:

J.T. [the gang leader] was far more enthusiastic about my project [to study the informal economy of public housing projects; how people survive] than I’d imagined he would be, although I couldn’t figure out why.
“I have a great idea,” he told me one day. “I think you should talk to all the pimps. Then you can go to all the whores. Then I’ll let you talk to all the people stealing cars. Oh, yeah! And you also have folks selling stolen stuff. I mean, there’s a whole bunch of people you can talk to about selling shoes or shirts! And I’ll make sure they cooperate with you. Don’t worry, they won’t say no.”
“Well, we don’t want to force anyone to talk to me,” I said, even though I was excited about meeting all these people. “I can’t make anyone talk to me.”
“I know,” J.T. said, breaking into a smile. “But I can.”
I laughed. “No, you can’t do that. That’s what I’m saying. That wouldn’t be good for my research.”
“Fine, fine,” he said. “I’ll do it, but I won’t tell you.”

Read this book; I cannot imagine it not being interesting to anyone.

Innarresting Links

September 17, 2009

Various interesting stuff:

Freakonomics Q&A

August 26, 2009

Celebrating the paperback edition of Freakonomics, an author Q&A is available on the Freakonomics blog. I found the following question interesting and its answer amusing:

Q. Tell us about the criticism you have received from traditional/academic colleagues over Freakonomics. — J. Plain

A. Levitt’s academic colleagues tend to react in one of two ways. The majority of economists thought about it like economists: the success of Freakonomics probably increased the number of students wanting to take economics courses, and since the supply of economics teachers is fixed in the short run, the wages of academic economists should rise. That makes economists happy. A second group of economists decided that if Levitt could write a book that people would read, surely they could too. So there has been a flurry of “popular” books by economists — some good, some not so good. And then, inevitably, there are a handful of economists who feel that he violated the secret handshake of economics by showing the outside world that what economists do really isn’t that hard or complex. They will never forgive him.

Wall Street Journal’s Top 25 Economics Blogs

July 17, 2009

The Wall Street Journal lists their top 25 economics blogs. Jim Hamilton’s Econbrowser is among them:

Econbrowser
http://www.econbrowser.com
Originality: 5 light bulbs
Geekiness: 5 calculators
Readability: 3 reading glasses
For his day job at the University of Calif.-San Diego, economist James Hamilton works on the sorts of statistical problems that can leave even other trained economists confused. On Econbrowser, the blog he started in 2005, he (mostly) puts his insights on the economy into plain English. With a keen interest in energy markets, he was early with analysis of how a rapidly developing world and slowing oil production was pushing energy prices higher, and how those prices were affecting the economy. With his co-blogger, University of Wisconsin economist Menzie Chinn, he’s been delving into thorny macroeconomic questions and offering detailed, but understandable, explanations of how the Federal Reserve’s unconventional policy shifts work.
Quibble: Usually Messrs. Hamilton and Chin keep the wonk factor down, but not always. One recent post made the point that “dY = (1/Ä){[((Yññi+Yi))m/Di )+YññR]dR + YññZdZ}.”

Among others are Freakonomics, Paul Krugman’s blog, and Matt Kahn’s Environmental and Urban Economics blog.

Hat-tip: Env-Econ

The Purpose of Economics

June 3, 2009

The purpose of economics is, according to Gary Becker (a Chicago economist), ‘to understand and alleviate poverty.’ Levitt, at Freakonomics, writes

What’s surprising about Becker’s comment — and I believe he is telling the truth and not just being politically correct when he says helping the poor is the point of economics, because he never worries about political correctness — is that he is a staunch Republican and a firm believer in markets. There is no reason why that belief in markets can’t go hand in hand with really wanting to help the poor, it just usually doesn’t.

In a market economy, there are inevitably winners and losers. So most folks who worry about the poor are turned off by markets, believing that some other system could do a better job for the worst off. Becker, however, would argue that markets, especially when combined with access to good education, are the best shot the poor have.

In another Freakonomics post, Dubner discusses Becker’s idea of ‘the economic approach,’ where he somewhat surprisingly concludes that almost all deaths are suicides!

Unintended Consequences of the Endangered Species Act

May 15, 2009

I’ve posted on research on the Endangered Species Act earlier. Yesterday, Freakonomics’s Stephen J. Dubner mentioned an earlier post of theirs which discusses the unintended consequences of it (Dubner draws a parallel to other protective laws with similar unintended consequences):

Consider the Endangered Species Act (E.S.A.) of 1973, which protects flora and fauna as well as their physical habitats. The economists Dean Lueck and Jeffrey Michael wanted to gauge the E.S.A.’s effect on the red-cockaded woodpecker, a protected bird that nests in old-growth pine trees in eastern North Carolina. By examining the timber harvest activity of more than 1,000 privately owned forest plots, Lueck and Michael found a clear pattern: when a landowner felt that his property was turning into the sort of habitat that might attract a nesting pair of woodpeckers, he rushed in to cut down the trees. It didn’t matter if timber prices were low.

This happened less than two years ago in Boiling Spring Lakes, N.C. “Along the roadsides,” an A.P. article reported, “scattered brown bark is all that’s left of once majestic pine stands.” As sad as this may be, it isn’t surprising to anyone who has examined the perverse incentives created by the E.S.A. In their paper, Lueck and Michael cite a 1996 developers’ guide from the National Association of Home Builders: “The highest level of assurance that a property owner will not face an E.S.A. issue is to maintain the property in a condition such that protected species cannot occupy the property.”

[…]

In a new working paper that examines the plight of the cactus ferruginous pygmy owl, the economists John List, Michael Margolis and Daniel Osgood found that landowners near Tucson rushed to clear their property for development rather than risk having it declared a safe haven for the owl. The economists make the argument for “the distinct possibility that the Endangered Species Act is actually endangering, rather than protecting, species.”

The article concludes: “…if there is any law more powerful than the ones constructed in a place like Washington, it is the law of unintended consequences.”

Stay tuned and I will use that exact quote from the List, Margolis and Osgood paper in my own research!

Related post:

Wikipedia vs. Public Restrooms, and Social Knowledge

April 12, 2009

The user who visits Wikipedia to learn about some subject, to confirm some matter of fact, is rather in the position of a visitor to a public restroom. It may be obviously dirty, so that he knows to exercise great care, or it may seem fairly clean, so that he may be lulled into a false sense of security. What he certainly does not know is who has used the facilities before him.

The words belong to Robert McHenry, a former editor in chief of the Encyclopædia Britannica. I found the quote in David Weinberger’s book ‘Everything is Miscellaneous’ (p. 132). The quote is taken from an article McHenry wrote on TechCentralStation.com back in 2004. I’m sure it makes interesting reading. 2004 is five (5!) years ago, however, and a lot has happened since then.

Another skeptic towards Wikipedia is (or, was) Stephen J. Dubner of Freakonomics; he discovered himself on a list of well-known economists. That was 2005, however, and Dubner’s skepticism has faded (if my memory serves me right, that is; I’m sure he mentioned his newly won trust in Wikipedia somewhere, but I wasn’t able to find it; I need a backward-link seeking tool to find entries linking to the post I link to above, because it was when he mentioned his new view of Wikipedia he linked to the old post with his Wikipedia skepticism I found that; confusing I know, but it’s not important, so just forget about it).

Wikipedia may be great, but it also may be wrong from time to time. To know, you need to find out whether an entry is disputed or not. If it is, I’m sure the relevant discussion page suffices to make sure what is trustworthy and what is not, and eventually what side of the dispute you want to sympathize with. However, if the subject is a bit odd, Wikipedia may be wrong and still not disputed because so few people ever looks up the entry.

So, can Wikipedia be trusted on the big, important entries, but not the small ones? When is an entry big; when is it small? My conclusion is that Wikipedia may be a good starting point, but usually I rely on Wikipedia to take me somewhere else, to ‘real’ sources. Wikipedia doesn’t feel real to me, but it collects threads to a lot of real stuff.

The old rule of not relying on only one source remains. Paradoxically, Wikipedia, which is generated from innumerable sources, needs to be checked towards different sources before one can rely on it.

Weinberger concludes his section containing the McHenry quote with the following sentence:

Knowledge – its content and its organization – is becoming a social act [p.133].

I twisted when I read that. When was knowledge, its content and organization, not social? I’m certain dear Deirdre wrote somewhere (probably in ‘The Rhetoric of Economics’) that research is social; research is supposed to produce science, and if we’re strict about knowledge, it comes from science. Not all kinds of knowledge, for sure, but certainly the kind Weinberger is talking about. Research IS social. It’s not objective; it’s colored by the subjects involved and the social environment they do their research in. What Weinberger tries to tell us, I think, is that more people may take part in the process he calls knowledge (the social act). No initial requirements to participate are necessary, or rather, requirements (I’m thinking education; position; image) doesn’t matter, or matter less. Whether that is a good thing or not, I haven’t yet decided.

Related post:

The Cost of Standby Computers

April 1, 2009

On Freakonomics, Daniel Hamermesh rebuff a claim that standby computers in the U.S. waste $2.8 billion on energy.

It ignores the cost of turning computers off — and having to turn them on again the next morning. Let’s say that process takes five minutes per day, and one does it 250 days per year. That’s 1,250 minutes, or more than 20 hours per person per year.

Assume the average computer user’s wage is $21 per hour, and take the old estimate that time is valued at one-third of the wage. So each person’s time per year turning his/her computer off and on is worth 20 x $7 = $140. I’m being conservative and assuming only 50 million U.S. computer users. That gives a cost of turning computers off/on of 50,000,000 x $140 = $7 billion, which is 2.5 times the alleged savings from turning computers off. Even if people’s time were valued at only $3 per hour (less than half the minimum wage), leaving computers on would still make sense.

This story is yet another example of environmental savings uber alles — that saving $1 in environmental damage is worth much greater costs incurred along other dimensions. These stories assume explicitly — or, more usually, implicitly — that people’s time has no value.

I read through some of the first comments, and every comment had problems with Hamermesh’s argument. Mostly, people claim they do other things while their computer starts up or closes down. Myself, I tend to do unecessary things while the computer starts up and would prefer to just start working.

The story also reminded me of an old post on Environmental Economics on an energy saving plan at the Appalachian State University, linking it to carbon release. Ol’ mighty John Whitehead mixes up the numbers, however (see the comments).

Skyscrapers Are Green

March 23, 2009

Bringing down carbon emissions requires us to drive less, and Americans particularly so. A couple of economists studied the carbon footprint from living in different areas in the U.S. (see story here):

In almost every metropolitan area, we found the central city residents emitted less carbon than the suburban counterparts. In New York and San Francisco, the average urban family emits more than two tons less carbon annually because it drives less. In Nashville, the city-suburb carbon gap due to driving is more than three tons. After all, density is the defining characteristic of cities. All that closeness means that people need to travel shorter distances, and that shows up clearly in the data.

In an extended account of the study, Gleaser (the author) highlights some of the paradoxes in true environmentalism:

[…] if you want to be good to the environment, stay away from it. Move to high-rise apartments surrounded by plenty of concrete. Americans who settle in leafy, low-density suburbs will leave a significantly deeper carbon footprint, it turns out, than Americans who live cheek by jowl in urban towers. And a second paradox follows from the first. When environmentalists resist new construction in their dense but environmentally friendly cities, they inadvertently ensure that it will take place somewhere else—somewhere with higher carbon emissions. Much local environmentalism, in short, is bad for the environment.

It’s hardly surprising that living in cities requires less driving and less heating. It also seem plausible that constructing new houses, with all the wires and pipes that needs to be connected, should be easier and greener in densly populated areas than in the suburbs and in the country-side.

In the article, Gleaser claims that it is paradoxical that staying away from the environment is good for it. Can someone please explain to me the paradox in that? If a piece of environment is to be kept in a pristine or anything close to a natural state, of couse you have to stay away from it.

Hat-tip: Freakonomics

Economics Is Hard

March 19, 2009

In an old post on Freakonomics that discusses the Coase Theorem, Steven Levitt, the great economist, writes:

The basic idea of the Coase Theorem is that no matter who is assigned property rights, as long as transaction costs are not too high, the efficient outcome will be achieved.

That’s wrong, as far as I know. Well, at least, Deirdre McCloskey, who seem to know her stuff better than most, writes in her little gem Economical Writing:

“[T]he Coase Theorem” [that is] “the proposition that property rigths matter to allocation in the case of high transaction costs” (which, incidentally, is the correct statement of the theorem, widely misunderstood in economics) [p. 60, 2nd edition].

The quote is taken out of context, which is a discussion of the use of Capitalization, but that’s beside the point. Now, I looked the theorem up in the book I learned it from back in the days (‘Environmental Economics – In Theory and Practice’ by Hanley, Shogren, and White, 1997), and it was wrongly stated there as well:

The so-called Coase theorem posits that disputing parties will work out a private agreement that is Pareto efficient [that is, no-one can be made better off without making someone else worse off], regardless of the party to whom unilateral property rights to the non-market asset are assigned initially [p. 25].

Both Levitt and my text book are right, of course; property rights do not matter to efficiency when transaction costs are ignored. They are always present, however, and that’s were Coase put his emphasis, I think; when transaction costs are substantial, property rights matter. I should look up Coase’s original formulation and find out for myself, I know. I’m lazy, though, maybe some other time. I did google it, however, and every single explanation I found among the top hits got it the wrong way.

Economics is hard. Or confusing, maybe.

Iceland in Crisis

March 9, 2009

Since Iceland is one of Norway’s neighbors and since my supervisor is Icelandic, I found this article about the financial mess on Iceland quite interesting. It’s called ‘Wall Street on the Tundra’ (another title I don’t quite understand; to call Iceland Wall Street is, well, strange, I think, and while tundra may be exotic, what does it have to do with the financial trouble?), and the introductory paragraph goes like this:

Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.

Among the more amusing paragraphs, you’ll find the following caricature of how Icelandic banks operated:

You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets.

The author (Michael Lewis) also comes up with an interesting theory of why so few seemed to foresee the global economic downturn:

One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem.

Hat-tip: Freakonomics

UPDATE: My Icelandic supervisor made me aware of a more informative and analytic story on the Iceland crisis from the Wall Street Journal.

Do Macroeconomics Need a Revolution?

March 9, 2009

The environmental crisis has lead to stark criticism of economics from environmentalists; here is my latest post on the voodoo debate. The financial, or rather, economic, crisis now leads economists to attack macroeconomists. Freakonomics discusses a recent research paper that goes far to suggest that time’s up for macroeconomics as we know it and that a regime shift is needed. As far as I can tell, the situation has all the signs of a scientific revolution, but those things usually takes a generation or so.

Justin Wolfers writes, under the charming title ‘More Navel-Gazing from Academic Economists’ (which I don’t get, by the way, first of all, Who aren’t navel-gazing? and second, Do he suggest that the discussion is irrelevant outside academic economics? third, Aren’t academic economists supposed to be occupied with academic economics, and thus be, to a certain extent, navel-gazing?), that macroeconomists write to each other, pursuing formal elegance (I wanted to write eloquence, but became uncertain; I’ve now decided it would fit as a metaphor; anyway) instead of empirical knowledge.

The claim is that academic macroeconomists have become mired in a particularly fruitless equilibrium, in which each is engaged in the search for ever-greater levels of formal elegance, at the expense of empirical relevance. There’s definitely something to this.

Mr. Wolfers is optimistic though:

Despite this observation, I don’t share the gloom of the naysayers, but my optimism comes from looking beyond macro. As a whole, the economics profession has become more empirically grounded.

The post on Freakonomics links to further discussions for those interested.

Economics Rap

February 19, 2009

This is hillarious. From Freakonomics, a rap about economics:

It’s all about the Law of Supply and Demand,
Prices are set by the Invisible Hand.

A floor that’s put on your product’s price
Is something the consumer will find not nice.

If you raise your price when demand’s elastic,
Your revenue will drop and you’ll go ballistic.

Get the same extra utiles for each extra dollar,
The maximum utility is sure to follow.

Produce where price equals marginal cost
If you don’t you’ll find that your profits are lost.

Always think about cost, opportunity,
If not, you’ll find you’re hurting your community.

Think margin, think margin.

Monopolists set MR to marginal cost
The result is that consumer surplus is lost

Make sure your strategies are subgame perfect
Plan your strategic interactions without any defect.

Tax the inelastic, or you’ll be hurtin’
Because you’ve created a large excess burden.

With positive externalities it’s always wise,
To encourage more production — subsidize.

A tariff or a quota helps a few producers,
But consumers will always be the big losers.

Sometimes you gotta choose efficiency or fairness,
Ya need more than econs, ya need political awareness.

Think margin, think margin.

The rap is written by Daniel Hamermesh, a regular contributor to Freakonomics. According to the post, he usually perfoms this rap to his microeconomics class “while wearing a whoopee cap and riding around the lecture theater on a Razor scooter.” Now I hope to see a video of this on YouTube anytime soon!