Economics – Page 250 – artdiamondblog.com

A Public Choice Theory of the Absence of Evidence of the Exodus of the Israelites

The excavation of a fort from roughly the time and place of the biblical exodus of the Israelites from Egypt. Source of photo: the online version of the NYT article cited below.

The economic theory of public choice is often viewed as having begun with Buchanan and Tullock’s The Calculus of Consent. The theory seeks to explain the behavior of government, and government officials, as arising from the same self-interested motives as are used by economists to explain the behavior of free markets, firms, and consumers.

It didn’t look like much — some ancient buried walls of a military fort and a few pieces of volcanic lava. The archaeologist, Dr. Zahi Hawass, often promotes mummies and tombs and pharaonic antiquities that command international attention and high ticket prices. But this bleak landscape, broken only by electric pylons, excited him because it provided physical evidence of stories told in hieroglyphics. It was proof of accounts from antiquity.

That prompted a reporter to ask about the Exodus, and if the new evidence was linked in any way to the story of Passover. The archaeological discoveries roughly coincided with the timing of the Israelites’ biblical flight from Egypt and the 40 years of wandering the desert in search of the Promised Land.

“Really, it’s a myth,” Dr. Hawass said of the story of the Exodus, as he stood at the foot of a wall built during what is called the New Kingdom.

. . .

Recently, diggers found evidence of lava from a volcano in the Mediterranean Sea that erupted in 1500 B.C. and is believed to have killed 35,000 people and wiped out villages in Egypt, Palestine and the Arabian Peninsula, officials here said. The same diggers found evidence of a military fort with four rectangular towers, now considered the oldest fort on the Horus military road.

But nothing was showing up that might help prove the Old Testament story of Moses and the Israelites fleeing Egypt, or wandering in the desert. Dr. Hawass said he was not surprised, given the lack of archaeological evidence to date. But even scientists can find room to hold on to beliefs.

Dr. Mohamed Abdel-Maqsoud, the head of the excavation, seemed to sense that such a conclusion might disappoint some. People always have doubts until something is discovered to confirm it, he noted.

Then he offered another theory, one that he said he drew from modern Egypt.

“A pharaoh drowned and a whole army was killed,” he said recounting the portion of the story that holds that God parted the Red Sea to allow the Israelites to escape, then closed the waters on the pursuing army.

“This is a crisis for Egypt, and Egyptians do not document their crises.”

For the full story, see:

MICHAEL SLACKMAN. "North Sinai Journal Did the Red Sea Part? No Evidence, Archaeologists Say." The New York Times (Tues., April 3, 2007): A4.

(Note: ellipsis added.)

A female skelaton buried near the fort (above). Source of photo: the online version of the NYT article cited above.

Private Money Can Top Government Money in Space, as in IT

Lots of people are building new IT companies. You can start a company and sell it to Yahoo! or Google in a couple of years. But so can anyone else. Aerospace is different. To paraphrase John F. Kennedy in 1962: We choose to go to the moon not because it’s easy, but because it’s hard.

That’s why, as a long-time investor in IT and Internet start-ups, I’m now spending more and more time on private aviation and commercial space start-ups. I’m trailing an illustrius crew of IT pioneers: Elon Musk (Space-X, rockets, formerly with PayPal), Vern Raburn (Eclipse Aviation, very light jets, formerly at Microsoft, Symantec and Lotus), Jeff Bezos (Blue Origin, rockets, and still at Amazon, too!), Jeff Greason (XCOR, rockets and formerly with Intel) and Ed Iacobucci (DayJet, air taxi operator, and founder of Citrix).

. . .

On the space side, there’s a . . . strong parallel with the world of IT. The establishment in "space" is the government and especially the military, just as it once was (along with academia) for the Internet. I remember the days when commerce on the Internet was considered sleazy—but look at the innovations and productivity it unleashed.

In the same way, the current priests of space are dismayed by the privately funded space start-ups—unsafe, sleazy, frivolous. Imagine: Ads on the side of a rocket ship! Well, why not, if it helps pay for the fuel… and the R&D that designed the thing?

For the full commentary, see:

ESTHER DYSON "New Horizons for the Intrepid VC." The Wall Street Journal (Tues., March 20, 2007): A19.

(Note: ellipses added, except for the ellipsis following the word "fuel" which was in the original.)

Medicare Part D Privatization “Has Succeeded”

The author of the commentary excerpted below, won the Nobel Prize in economics in 2000.

Last year, Medicare underwent a major expansion with the addition of Part D prescription drug coverage. A controversial feature of this new program was its organization as a market in which consumers could choose among various plans offered competitively by different insurers and HMOs, rather than the single-payer, single-product model used elsewhere in the Medicare system. Proponents of this design touted the choices it would offer consumers, and the benefits of competition for product quality and cost; opponents objected that consumers would be overwhelmed by the complexity of the market, and that it was unnecessarily generous to pharmaceutical and insurance companies.

Part D is a massive social experiment on the ability of a privatized market to deliver social services effectively. With the support of the National Institute on Aging, my research group has monitored consumer choices and outcomes from the new Part D market. . . .

. . .

My overall conclusion is that, so far, the Part D program has succeeded in getting affordable prescription drugs to the senior population. Its privatized structure has not been a significant impediment to delivery of these services. Competition among insurers seems to have been effective in keeping a lid on costs, and assuring reasonable quality control. We do not have an experiment in which we can determine whether a single-product system could have done as well, or better, along these dimensions, but I think it is reasonable to say that the Part D market has performed as well as its partisans hoped, and far better than its detractors expected.

For the full commentary, see:

DANIEL L. MCFADDEN. "A Dog’s Breakfast." The Wall Street Journal (Fri., February 16, 2007): A15.

(Note: ellipses added.)

Communist Hugo Chávez: Is He Loco to Fight Inflation with the Locha?

Hugo Chávez expects to end inflation by bringing back the "locha" 12 ½-cent coin (held in this picture by coin dealer Antonio Allesandrini). Source of photo: online version of the NYT article quoted and cited below.

(p. 8) CARACAS, Venezuela, March 17 — Of all the startling measures announced by President Hugo Chávez this year, from the nationalization of major utilities to threats of imprisonment for violators of price controls, none have baffled economists quite like his venture into monetary reform.

First, Mr. Chávez said the authorities would remove three zeroes from the denomination of the currency, the bolívar. Then he said the new bolívar, worth 1,000 old bolívars, would be renamed the “bolívar fuerte,” or strong bolívar.

Finally, at the behest of Mr. Chávez, the central bank said this week that it would reintroduce a 12.5-cent coin, a symbol of Venezuela’s prosperity in the 1960s and 1970s before freewheeling oil booms ended in abrupt devaluations, after three decades out of circulation.

Mr. Chávez champions these ideas, which will take effect in January, as ways to combat inflation, which in recent weeks crept up to 20 percent, the highest in Latin America. . . .

. . .

“We’re witnessing policy in the form of window dressing, all carried out at the whim of one man whose strong point is not economics,” said Hugo Faría, an economist at the Institute of Higher Management Studies, a private business school here. “Anyone who sees a 12 ½-cent coin as a remedy for this country’s problems isn’t thinking too clearly.”

For the full story, see:

SIMON ROMERO. "Venezuelan Lender Sets Siights on Currency Valuation." The New York Times, Section 1 (Sun., March 18, 2007): 8.

(Note: ellipses added.)

(Note: the online version of the title is the slightly different, "Venezuela to Give Currency New Name and Numbers.")

George Stigler on Astrology

I remember George Stigler saying (I think in conversation with me, but maybe as an aside in a lecture), that at first he had been inclined to reject a paper for the JPE that empirically tested astrology. His reason was that, while he liked what the authors were doing, he was not sure that what they were doing, most appropriately belonged in an economics journal.

But when the authors convinced him that they would not be able to publish it anywhere else, he changed his mind and published it.

The episode tells us something about Stigler, and something about scientific method. About Stigler, the episode provides strong evidence of the importance that Stigler placed on evidence, relative to theory.

On scientific method, the episode can be taken as an illustration of Karl Popper’s distinction between the context of discovery and the context of justification. There are many sources of hypotheses (the context of discovery). Famously, Kepler’s inspiration for the elliptical paths of planets, had a somewhat mystical source in the "perfect" solids. But what makes a theory "scientific" is not its context of discovery, but its context of justification, viz., is the theory subjected to empirical test?

Hypotheses are not ruled out of science ab initio, but by being inconsistent with the evidence. I agree with this view, which explains why I am a (passive) member of the Society for Scientific Exploration, which is devoted to the empirical testing of politically incorrect theories (such as UFOs, the Shroud of Turin, ESP, the Loch Ness Monster, etc.)

The JPE astrology article, accepted by Stigler as editor, was:

Bennett, James T., and James R. Barth. "Astronomics: A New Approach to Economics?" Journal of Political Economy 81, no. 6 (Nov.-Dec. 1973): 1473-75.

A more recent empirical test of an astrological hypothesis is:

Wong, Ka-Fu, and Linda Yung. "Do Dragons Have Better Fate?" Economic Inquiry 43, no. 3 (July 2005): 689-97.

For more on Popper’s views of science, consult:

Popper, Karl R. The Logic of Scientific Discovery. New York: Basic Books, 1959.

Futures Markets Would Reduce Chinese Volatility

Source of graphic: online version of the WSJ article cited below.

Market participants consider futures the next big thing for China’s financial-sector development. The exchange currently trades contracts in copper, aluminum, natural rubber and fuel oil — commodities that China imports in large quantities.

But trading is largely closed to foreigners. Futures on financial products, such as stock indexes and currencies, don’t yet exist in China, though they are integral to other market economies.

Reviving Case for Futures

China banned exchange-traded financial derivatives in 1995 in response to a meltdown in its bond-futures market. Within minutes, $10 billion in market value was wiped out, in what remains the country’s most damaging market debacle to date. By contrast, last week’s drop in stocks has revived the case for financial futures.

Officials now say share prices probably wouldn’t have fallen so abruptly on Feb. 27 if index futures existed. That’s because shares probably wouldn’t have surged as quickly as they did last year — the Shanghai Composite Index rose 130% — if investors had had the chance to use stock-index futures to bet against the market on its way up.

Futures contracts are thought to build more of a two-way market, because they give investors the right to buy — and sell — based on expectations about how the value of an index, stock, currency or commodity might move within a particular time frame. Without them, the only way for investors to make money is in a rising market, a risky prospect over the long term.

For the full story, see:

JAMES T. AREDDY. "Futures Could Help Cure China’s Boom-Bust Cycles." The Wall Street Journal (Thurs., March 8, 2007): A2.

(Note: the online version had a slightly different title: "China Tries Longer-Term Response to Stock Volatility.")

Anti-Wal-Mart is Anti-Free-Choice

Source of logo/header: http://www.muddycup.com/mudlane/img/header.jpg

The article excerpted below reveals the soul of much of the anti-Wal-Mart movement. It is not anti-big; it is anti-competition and anti-free-choice.

How in the world did a guy who started his first coffee shop on Staten Island six years ago and now runs five others in far-flung Hudson Valley towns become the moral equivalent of Wal-Mart and Starbucks? “Well, it’s now official,” he announced last month on the Web site that promotes his Muddy Cup coffeehouses. “I am now head of the evil empire.”

. . .

And now the talk of New Paltz has to do with something far more important than mere marriage — coffee. More specifically it’s whether Mr. Svetz is plotting an act of entrepreneurial imperialism by presuming to open one of his Muddy Cup coffeehouses next door to the ultimate green icon in town, the funky 60 Main coffee shop operated in conjunction with the nonprofit New Paltz Cultural Collective.

. . .

Little did he know. As word filtered out he began receiving a blizzard of e-mail messages from 60 Main proponents, reacting to an urgent appeal from the collective. The messages threatened a boycott and told him to stay home. “If we can stop Wal-Mart we can stop you,” said one.

“We do not want to become yet another small town taken over by huge corporations,” read another.

. . .

Mr. Svetz is still stunned by the whole thing, particularly his sudden status as a giant corporation. He says that just as lots of bars coexist in town, several coffee shops can too. Maybe he’s right. Maybe he’s not. He’s not Wal-Mart, but maybe it’s fair to ask how many artist-friendly coffeehouses the village can support. But it’s hard to argue when he says that even in New Paltz, businesses generally have to compete to survive, not find a way to build a Berlin Wall around town.

“When a community starts building walls and saying you don’t belong here or you don’t think like we do, that can’t be a good thing,” he said.

For the full story, see:

PETER APPLEBOME. "Coffee Puts Laid-Back Town on Edge." The New York Times, Section 1 (Sun., March 4, 2007): 21.

(Note: ellipses added.)

UNO Economics RA Talks Personal Finance

Molly McGrath. Soure of photo: online version of the Omaha World-Herald article cited below.

Molly was one of our Research Assistants last year in the UNO economics department:

(p. 1D) Miss Nebraska Molly McGrath has driven more than 25,000 miles since being crowned in June, mostly to schools as she talks about personal finance issues like avoiding debt and using money as a tool to realize dreams.

"There is a drastic need for economic and financial education with all people, but especially in low-income communities and especially among our youth," McGrath told about a dozen people at a recent meeting of the Rotary Club of Omaha-North.

McGrath knows about making ends meet. Her parents could not help her pay for college, so she has used more than $20,000 in scholarships won through the Miss America program. She also cleaned toilets, dorm rooms and apartments as she earned her undergraduate degree at New York University in New York.

"I was known right away at NYU as the girl from Nebraska," McGrath said. "And after I started this cleaning business I was known as the girl from Nebraska who cleans toilets."

For the full story, see:

JOE RUFF. "Miss Nebraska teaches dollars and sense." Omaha World-Herald (Monday, February 26, 2007): 1D & 2D.

Bush Should Take Lab Coat Off

Decisions about which new technologies to develop should be left to the market, not the government. One reason is that markets generally make the more efficient choice. Another reason is that when technological risks are taken in the market, they are taken with voluntary private money; when risks are taken by the government, they are taken with your money that has been coerced from you through taxation.

With all due respect, President Bush should take the lab coat off.

(p. A16) FRANKLINTON, N.C., Feb. 22 — President Bush put on a white coat and visited a laboratory here Thursday to promote his goals for making alternative fuels from switch grass, woodchips and other plant waste.

After touring the laboratory, which is developing enzymes to make cellulosic ethanol, fuel distilled from plant byproducts, Mr. Bush spoke buoyantly about new technologies that may reduce the nation’s thirst for foreign oil.

For the full story, see:

EDMUND L. ANDREWS. "Bush Makes a Pitch for Amber Waves of Homegrown Fuel." The New York Times (Fri., February 23, 2007): A16.

Mugabe Eats Cake As He Ruins Zimbabwe Economy: More on Why Africa is Poor

Tyrant Mugabe eats cake while his slaves starve. Source of photo: online version of the NYT article cited below.

JOHANNESBURG, Feb. 21 — President Robert G. Mugabe of Zimbabwe turned 83 on Wednesday to the strains of the song “God Bless President Mugabe” on state-controlled radio, along with an interview on state television, a 16-page paean to his rule in Harare’s daily newspaper and the prospect of a grand birthday party — costly enough to feed thousands of people for months, his critics argued — on Saturday.

Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.

. . .

On Wednesday, The Herald, the state-managed newspaper, included in 16 pages of tributes to Mr. Mugabe an editorial calling him “an unparalleled visionary” and “an international hero among the oppressed and poor.”

. . .

“The guy is insensitive,” John Shiri, 41, a teacher at a primary school, told a local journalist. “There is no bread as we are talking, but he will be feasting and drinking with his family and hangers-on when there is no wheat in the country.”

. . .

Tawanda Mujuru, who runs a vegetable stall on Samora Machel Avenue in downtown Harare, said that she would be working in a factory if not for the failure of Mr. Mugabe’s economic policies.

“He has the guts to eat and drink when we are suffering like this,” she said. “Let him enjoy. Every dog has his day. We shall have our day.”

For the full story, see:

MICHAEL WINES. "Mugabe Gets Ready to Eat Cake While Fellow Zimbabweans Can’t Find Bread on Shelves." The New York Times (Thurs., February 22, 2007): A6.

(Note: ellipses added.)

Would Consumers Be Better Off with No Satellite Radio?

Source of graphic: online version of the NYT article cited below.

It appears as though the market for satellite radio may not be big enough for two firms to profitably survive, although one merged "monopoly" firm might survive. But the antitrust government authorities appear to seriously be considering to forbid the merger.

If they do so, they will be presuming to tell the consumer that she is better off with no satellite radio, than with one merged "monopoly" satellite radio.

Note the secondary issue of whether it’s appropriate to call a merged company a "monopoly." If the "industry" is defined as "satellite radio," then the merged company would be a monopoly. If the "industry" is more broadly defined as "broadcast radio," which would include AM, FM, and internet stations, then the merged firm would be a long way from a monopoly.

But either way, the government should stay out of it.

(NYT, A1) The nation’s two satellite radio services, Sirius and XM, announced plans yesterday to merge, a move that would end their costly competition for radio personalities and subscribers but that is also sure to raise antitrust issues.

The two companies, which report close to 14 million subscribers, hoped to revolutionize the radio industry with a bevy of niche channels offering everything from fishing tips to salsa music, and media personalities like Howard Stern and Oprah Winfrey, with few commercials. But neither has yet turned an annual profit and both have had billions in losses.

. . .

Questioned last month about a possible Sirius-XM merger, the F.C.C. chairman, Kevin J. Martin, initially appeared to be skeptical, but later said that if such a deal were proposed, the agency would consider it.

In a statement yesterday, Mr. Martin acknowledged that the F.C.C. rule could complicate a merger but said the commission would evaluate the proposal. “The hurdle here, however, would be high,” he said.

The proposed merger, first report-(p. C2)ed yesterday by The New York Post, promises to be a test of whether regulators will see a combination of XM and Sirius as a monopoly of satellite radio communications or whether they will consider other audio entertainment, like iPods, Internet radio and HD radio, to be competitors.

“If the only competition to XM is Sirius, then you don’t let the deal through,” said Blair Levin, managing director of Stifel Nicolaus & Company and a former F.C.C. chief of staff. But Mr. Blair said he expected the F.C.C. to approve the merger.

For the full NYT story, see:

RICHARD SIKLOS and ANDREW ROSS SORKIN. "Merger Would End Satellite Radio’s Rivalry." The New York Times (Tues., February 20, 2007): A1 & C2.

(Note: ellipsis added.)

(WSJ, p. A1) But because XM and Sirius are the only two companies licensed by the Federal Communications Commission to offer satellite radio in the (p. A13) U.S., the deal is likely to face significant regulatory obstacles.

Broadcasters said yesterday that they will fight the proposed merger, and FCC Chairman Kevin Martin released an unusually grim statement saying that the two companies will face a "high" hurdle, since the FCC still has a 1997 rule on its books specifically forbidding such a deal which would need to be tossed. The transaction also requires the Justice Department’s blessing.

Indeed, XM and Sirius may be rushing into a deal because they sense the regulatory terrain will only get tougher. People close to the matter said that the two companies acted because the climate is already changing with the election of a Democratic-controlled Congress. Future developments — such as the possibility of a Democratic president — could make it even harder for the proposed merger to pass muster.

In their strategy, the two companies may be subtly acknowledging the risks before them: By conceiving their deal as a merger of equals and declining to say which company name would emerge ascendant, they minimize the business risks should the deal fall through. If, for example, the combined company were to be dubbed Sirius, XM could be vulnerable to a decline in sales during a regulatory review period that could last a year. A person familiar with the negotiations said the two companies have set March 1, 2008, as their "drop-dead date," after which either side can walk away if approval is not granted.

The coming regulatory battle is likely to focus on the definition of satellite radio’s market. The two companies are expected to argue that the rules established a decade ago, which require two satellite rivals to ensure competition, simply don’t apply in today’s entertainment landscape.

Since 1997, a host of new listening options have emerged, making the issue of choice in satellite radio less important for consumers. Executives cite a new digital technology called HD radio, iPod digital music players, Internet radio and music over mobile phones as competitors that didn’t exist when the satellite licenses were first awarded.

For the full WSJ story, see:

SARAH MCBRIDE, DENNIS K. BERMAN and AMY SCHATZ. "Sirius and XM Agree to Merge, Despite Hurdles For Regulators, Deal Pits Competition Concerns Against New Technology." The Wall Street Journal (Tues., February 20, 2007): A1 & A13.

(Note: ellipsis added.)

Source of graphic on left: online version of the NYT article cited above. Source of graphic on right: online version of the WSJ article cited above.