Tuesday, December 30, 2008
And for more recent work, allow me to suggest you a book on even more controversial economists' sub ethnic: The Chicago School, How The University of Chicago Assembled The Thinkers Who Revolutionized Economics and Business.
I don't think the author, Johan Van Overtveldt, wrote that as one, but I like to read it as a smooth excellent ethnography on otherwise very boring stuff of this, for many, source of contempt, and for many others, admiration.
Like any ethnography work, it has its several usual features like the description on power structure, hierarchy, recruitment, rituals, shared values and ideas, and conflicts. Overtveldt is a well informed author, and he separates his work, yet excellently knits, the several key ideas of Chicago school from price theory, monetarism, economics of regulation, law and economics, to finance. Unlike many less excellent social science writing, you don't find yourself lose the broader picture whenever you read some details somewhere in the book.
And it's not merely about Milton Friedman, George Stigler, Gary Becker, or Eugene Fama, but also many less influential figures that shaped the school the way it is now. Also, the most interesting part to me is the role of dissenters, people with either Keynesian tendency or less faith in market mechanism like the economists at Cowles Commision, the socialist Oskar Lange, and to some extent Ronald Coase, Frederik Hayek, and later Richard Thaler.
It tells one important lesson that even a most solid bastion of neoclassical economics needs their critics to be integral part of their citadel (to make it even stronger, I should say). Although most of dissenters did not survive, their most academically productive period was usually when they were in Chicago under its infamous intimidating traditional institutions like workshops and seminars there.
It's a real page turner but, and this is probably the turn-off for non economics specialists, you need to at least broadly understand different schools of thought on the issues above. I think undergrads' Micro and Macro Theory 1 (take Aco's and Ape's classes if you are at FEUI) should serve you well to enjoy this one of the best books I've read in 2008.
Thursday, December 25, 2008
Scientifically, as read in Xmas Specials section in The Economist, my theory seems to be confirmed:
The reason may be that capsaicin excites the trigeminal nerve, increasing the body’s receptiveness to the flavour of other foods. That is not just good news for gourmets. It is a useful feature in poor countries where the diet might otherwise be unbearably bland and stodgy.But I need more convincing empirical finding, and maybe household survey data could help by showing the relationship between chillies consumption, or purchase, to total income --presumably after controlling the price.
Yet, even if I am right. How could you tell why, as the article suggests, that, thanks to globalization, people in developed countries start to embrace chillies?
Then perhaps, I need to resort a second speculation: The food in developed countries are even more bland than in developing countries. So bland that it cancels out the income effect.
Wednesday, December 24, 2008
This is how they did the randomization (in which I am interested more):
For the study, three economists interviewed 1,600 Pakistanis, half of whom had been on the hajj in 2006 and half of whom had applied for visas to go but were rejected. Respondents answered 200 questions in face-to-face interviews that lasted hours. The interviews took place five to eight months after the pilgrims came home.
And this is the result:
Muslims who undertake the hajj "return with more positive views towards people from other countries," are more likely to say "that people of different religions are equal," and are twice as likely as other religious Muslims to condemn Osama bin Laden, the study found.Looks like economists can now have job opportunities in the Ministry of Religion...
Sunday, December 21, 2008
I was chatting with Dumbfounded Psychologist @ Oz the other day, casually trying to reveal the secret behind beautiful girls, where the best place to find them, and other great mysteries of life, when we stumbled upon two curious facts about economists (it goes without saying that we like gossiping about you guys - of course, we see you guys as our evil twins):
- Economists schmooze a lot, like celebrities (our metric is straightforward: There are more facebook profiles of economists than other academics).
- While you can wittily explain why doughnuts are generally safe, how to divide tasks among baby sitters, and why public toilet lids are dirty, you have (almost) nothing to say about things that pertain to the recent credit and financial turmoil (except some snippets from the media/blogs posts) -- the latter of which we thought is (or should be?) their main cup of tea; where are questions such as what is money?, how do credits create money?, can we have an economy without credits?, what does economic growth really mean?, what is the relationship between production and financial economics?, what is the fundamental source of financial instability?, are asset-price bubbles real?, why do we have (need) inflation? how does a bank run happen?, is globalization always good, how about the globalization of risks? why do we borrow, spend and save? and what is the underlying belief/morality for these three actions?
Please tell us what's going on?
Looking forward to some economic insights, as always,
Belligerent Sociologist @ NYC (also on behalf of Dumbfounded @ Oz who is happily holidaying)
Dear Belligerent Sociologist @ NYC,
The answer is easy. We don't know.
One of the reasons for the rejection, as cited by various press reports, was "the Law will give so much power for the Finance Minister and Central Bank governor to deal with the crisis." Wait, isn't that what they are supposed to do -- dealing with the crisis? The opponents also rejected the idea that the Finance Minister is the authority to announce that the country is in a crisis (hence activating the Law). "Like war, it should be announced by the president." Come on...
Honestly, I don't have a clear information on what's going on behind the curtain. It hope it just a matter of lack of communication between the government and the parliament (well, the definition of 'communication' also matter). I hope it's not because it's getting closer to the election and politicians try to capitalize the crisis by... preventing the government from doing well.
Update: Aco's post on the issue in exegesis.
I'm a donut lover. Recently I found all these emails telling us not to eat donut made by some favorite donut makers. The reason is, they use preservatives and hence bad for your health. I've been an addict of one particular brand. It's a chain and very popular. Whenever I go there I have to wait in a long line before I get my donut, but trust me, the donut is worth the queue. Now these emails make me rather worried. I know you're no expert on health and all that, but what do you think?
Donutlover @ Jakarta
As you said, I don't know anything about health, nutrition, etc. My main tool is economics and here is my take. First, a big brandname with reasonable competition would be very careful so as not to disappoint its patrons. In the case of food and beverages, this includes especially issues related to health. Second, adding a material or ingredient in production means more cost. So if one producer can make a tasty donut with no or less preservative, the second would be foolish to produce equally tasty donut with or more preservative. Third, you mentioned that you always have to stand in line to get your donut. That's a good sign. It means they are more likely to come up with freshly made donuts. In other words, their donuts don't need much time between oven and your mouth. Why need (more) preservatives if that is the case? Four, from what I heard, every donut has preservative. It's a matter of how much. But then, see the preceding three points. Finally, let me tell you that everything entails risk. But avoiding risk completely means you have to stop consuming everything.
So, if I were you, I would ignore those emails. Enjoy your donut. I'll join you next time.
Friday, December 19, 2008
I thought the press people took pride in "fighting with pen". Has it changed now to "fight with shoes"? My hypothesis is, that shoe-throwing journalist guy is a lousy one. Because he can not use his pen -- or mouth. He might be better as a dartboard player (ah wait, not really: he missed!), but not as a respectable journalist.
Hey, don't throw me shoes. It's not that I like Bush. I hate him, too. But be civil: "shoot" him! With a pen, in your paper, that is.
Addendum: As you might have expected, some local journalists are excited. Budiarto Shambazy praises the shoe thrower for "proving that shoe is more effective than pen" (can you believe it? That is said by a senior journalist). While Syirikit Syah, a media watch activist, writes that she wishes the shoe-thrower health and freedom (The Jakarta Post, 20/12/2008), even though he, the thrower, expressed his opinion "violently and unprofessionally". Welcome to shoe journalism!
Wednesday, December 17, 2008
Hi there. As our favorite psychologist Tirta reminds us, we're approaching the end of the year again. We don't like being older. But as you can't deny gravity or greed, time is unbeatable. And we like to fool ourselves by sweet resolutions, only to fail them very quickly. The dumbfounded psychologist offers his explanation. Enjoy! -- Kate
ps. Sorry the fonts were too small. I have fixed 'em now.
pps. Forgot to tell you. It took me awhile before realizing that the smart Dumbfounded Psychologist @ Australia is our own guest blogger, Tirta. Of course he didn't tell me that. (Well to tell you the truth, I took one special course in Langley long time ago. I can read patterns in writings and then identify the writer with 98% accuracy - so far). So my apologies, Tirta; Peter Parker might have to order another spidey costume?
On New Year's Resolutions
Dear Cafe Salemba goers,
It's that time of the year again, when we all stop, sit, and reflect on what we have done in the past twelve months, and what we would like to do in the upcoming twelve. Yes, it's time for New Year's resolutions, time for all sorts of admirable pacts between our present and future selves, from reading more books to smoking less.
Yet it's almost a truism that only about a third of these resolutions will be eventually fulfilled, as we will fail another third, and the last third...well, we won't even remember what the last third are. And then it comes full circle, when in twelve months time, we will sketch another list of things to commit to in the year to come, and again fail two-third of them. And so it goes, annually.
For any psychologist (including a dumbfounded one, like me), this has to be one of the most intriguing habits of our species. So in my last visit to the cafe this year, I'm going to sip some regular flat white, as usual, and chat a little bit about why we're not that good when dealing with annual resolutions. I'll also share some ideas that might be useful to overcome this problem.
Here's why New Year's resolutions are awfully hard to stick to. When we make commitments, we simulate what lies ahead. We travel mentally into the future, and imagine ourselves doing what we think we should do. We see ourselves sitting in a desk, diligently reading serious books; we see ourselves in a cafe, sipping coffee and having good conversations sans cigarette. All too easy for creatures as smart as us.
The simplicity of this simulation, however, is deceptive. The brain, because it was naturally built in a kludged manner over millions of years, is not an ideal tool for future peeking purposes. It can never fill in all the important details, such as the gossip magazines that will be scattered around our desk, and the smoking friends who will seem to enjoy themselves more than we do. And as they always say: The devil is in the details. All of a sudden there is a profound change in the equation: Books appear boring and cigarette seems irresistible -- and there you have it: We find ourselves back to magazines and nicotine again, before January ends.
Now multiply this simple example by some orders of magnitude, and you have a psychological explanation why New Year's resolutions don't work. So if you, in a few weeks time, find yourself not making it to the fourth item on your resolution list, you can at least understand why: It's because your brain is an imperfect biological organ that lives primarily in the present1, not an ideal logical machine in some atemporal planet.
Okay. Now the antidotes. I have two. One psychological, the other sociological. Wait...make it three (I'm pretty sure I have to have an economic one, or else Kate and the barristas will kick me out of this place).
First the psychological. In one set of randomised experiments, my colleague Roy Baumeister found that self-control tasks depleted people of blood sugar more than other, comparable tasks; in another set of experiments, he showed that people who consumed blood sugar during the experiment performed better in a number of self-control tasks relative to the control group2. Blood sugar, he then went on theorising, is the fuel of our self-control engine. Whenever we need to exercise self-control to commit ourselves to things we wouldn't otherwise do, like faithfully adhering to New Year's resolutions, we need to refill our blood sugar. So next year, make sure you have enough blood sugar before opening that first chapter of the book, or before going out with your smoker friends.
The sociological solution is a non-brainer: Socialise with the right crowd. Find yourselves, as often as possible, among bookworms and non-smokers. Recent research by the sociologist Nicholas Christakis has shown how smoking, obesity, and even happiness may spread from person to person in a dynamic social network 3. Unless you prefer to live your life in an atomic fashion, hang out with those who are more likely to help you with your set of resolutions. No, it's not manipulating others for your selfish benefit, it's applying the insights from the new science of network4.
Finally, the favourite solution of your manager and hosts. Some dismal scientists have recently pursued the time-honoured idea that better commitments requires better financial incentives. Last year, Jordan Golberg, Dean Karlan, and Ian Ayres set up a virtual company called stickk.com, where you can put some money in and ask the company to give it away to your most hated charity every time you fail to finish that first chapter of the book or find yourselves holding a burning cigarette. You will commit, their reasoning goes, when there is something significant (read: money) at stake.
That's it folks. I'm off for a holiday now.
Oh, one last thing before I go. To Kate, Aco, Ujang, Sjamsu, Ape, and Rizal: Thanks for being generous to psychology over the years; I just noticed that among the tags on the right, psychology (14) fares rather well, on a par with capitalism, competition, econ 101, and household economics, and above corruption (8), financial market (11), labor economics (13), macroeconomics (13), poverty (13), and property rights (8). Well done shrinks!
Happy New Year 2009,
Your Dumbfounded Psychologist @ Down Under
1 Some of you might raise your eyebrows here and wonder: What about memory? Surely that's a sign that the brain also lives in the past? Well no, that is not true. Memories, according to Psych 101, are never recalled, they are reconstructed. One of the most groundbreaking neuroscience findings this year is that brain cells that fired when one experienced an event for the first time fire again whenever one is remembering that event -- which indicates that remembering, in fact, is re-experiencing.
4 If you don't believe me, say hi to the Belligerent Sociologist @ New York. He would be delighted to tell you all you need to know about this new science.
Monday, December 15, 2008
This is an example of the distorted incentive at work: creating elementary schools with "international standard." Is it the priority for now? For me, some other problems need higher priorities. First, quantity and maintenance of school buildings, especially junior secondary schools in remote areas. For every 7 elementary schools, there is only one junior secondary school, so achieving a universal enrollment rate for children aged12-15 is more difficult. Don't get me start with the physical quality of existing schools.
Second, lower cost of schooling; not just tuition fees but also expenses for books and uniforms.
Third, teacher management. Pupil-to-teacher ratio in Indonesia is about 14 to 1, that's quite low. But the average class size is 37 students. This shows that we have oversupply of teacher with short working hours. Geographical distribution of teacher is also another issue. Sixty-five percent of all schools in Indonesia are overstaffed. Yet we often here the stories of a single teacher taking care of all students in a remote school.
Then you can add the quality of teacher, low perceived return on education, and other issues that are in higher list of priorities.
Of course, having more schools with international standard is good. But, for Rp1 billion allocated subsidy for three years to each school - with only limited number of students can be admitted - surely there are better ways to spend public budget. And, should such project be a public-sector one? The private sector can fill the gap for the international-level schools (and they have done it), while public budget will be better used to improve access.
Update: a friend of mine wrote this op-ed about another idea to use education budget to improve PC-per-student ratio. Again, the idea is good. But when you think you have tons of money in your pocket, you care less on how to spend it efficiently.
Jeremy: From my observations, sometimes it's better off not knowing, and other times there's no reason to be found.That was from Wong Kar Wai's "My Blueberry Nights," starring Jude Law as Jeremy, the cafe manager, and Norah Jones as Elizabeth. So yes, don't blame the blueberry pie. The market just don't clear, that's it...
Elizabeth: Everything has a reason.
Jeremy: Hmm. It's like these pies and cakes. At the end of every night, the cheesecake and the apple pie are always completely gone. The peach cobbler and the chocolate mousse cake are nearly finished... but there's always a whole blueberry pie left untouched.
Elizabeth: So what's wrong with the blueberry pie?
Jeremy: There's nothing wrong with the blueberry pie. Just... people make other choices. You can't blame the blueberry pie, just... no one wants it.
The question is, "why do you keep serving it?" Lizzie asked Jeremy, at the end of the movie. "In case you come back..." answered Jeremy.
On monetary policy, the government confines themselves into a free capital mobility regime. Since long time ago Rupiah did not act as the master in his own home. The government does not trust in the strength of own currency. The US dollar is allowed to become price benchmark in the country. The illusion is created as if Indonesia is a dollar haven and market psychology is formed to save the dollar as if it is precious jewelry. In other countries, (however), all public transaction are set in local currency.First off, the empirical questions: Do we now have to pay our lontong sayur with US dollar money only? Are our Pegawai Negeri now paid in US dollar? And, for the other country's example, if China wants to buy Treasury bills from the US, --a public transaction, yes?--can they just hand in the renminbi to the US Treasury, and the latter will happily accept it?
Suggested answers: No, no, and no.
Does it means that the exchange rate, not only against US dollar, is not important? No. It determines our balance of payment, our window to the world economy.
Second, the theoretical one. If you, a sane government, adopt a free capital mobility regime, you must have known and assumed that the interest rates ups and downs, be it domestic or international rate, hence capital inflow/outflow, do not lead to a drastic volatility of your exchange rate --hence trade.
In other words, you trust your currency to stay more or less within a reasonable span.
How do you then relate the first and third sentence of above passage?
Suggested answer: .............(don't ask me, I can't pretend to know the answer, too)
Wednesday, December 10, 2008
I'm feeling feminine. I'm in Surabaya now and they gave me one of these "executive ladies rooms with feminine services and facilities". I don't know why they did that. As far as I remember I don't look like a lady. As I enter the room, the TV is on with the hotel info slides rolling and Diana Krall singing "One of Those Things" repeatedly in the background. Then there is this pink pair of pillows. I'm a little disoriented. On the one hand I feel like protesting: What now, as if the world is not enough with "ladies nite" at discos, "ladies first" at elevators, or "ladies parking only" at malls? On the other hand, I think it's cute.
What's the economics of this? Ah, never mind. I'm enjoying this soft scent from the nice potpourri...
Monday, December 08, 2008
It just occurred to me this morning that cafesalemba is quite a productive blog, which indicates that you guys must be spending a substantial amount of time hanging around in the cafe. But then I thought about two of your most beloved econ 101 ideas: incentive and opportunity cost, and couldn't figure out how to rationally reconcile these lessons with your behaviors of -- apart from sipping coffee, of course -- writing frequent posts and promptly responding to comments. You see, economists like to say that voting, for example, is irrational because the incentive is far smaller compared to the cost of registering and casting the ballot, and that one can make better use of their time instead. Now I take this voting example to heart, and wonder how it applies to your daily cafe behaviors. Given that the benefit of post writing and comment responding in this blog is less clear than the many alternative usage of your time (benefiting readers and commenters can never be guaranteed, and gauging the impact of your blog is close to impossible), I think I have to ask this question: Why blogging?
In anticipation of some economic enlightenment,
Dumbfounded Psychologist @ Australia
PS: Please don't say that blogging is a form of expression, it's my kind of explanation.
Dear Dumbfounded Psychologist @ Australia,
I can't speak for the baristas, but I'll do for myself. Here goes. I blog when doing it gives me more pleasure than discomfort. Right now I have exams coming up and couple of papers due next week. To your view, I probably have to be preparing myself for the exams or finishing the papers now. But I don't feel like doing either of them. Instead, I am answering your question. Because for some reason, I feel happier doing that. This is another way of saying that the benefit is higher than the cost, to me. Now. The benefit can take many forms: maybe because I like you, maybe because I want to show up (and it gives me pleasure), or simply because I'm in the mood for blogging. Whatever it is, it makes me, again happier than the alternatives. The cost of it is, yes, the time I am spending not for studying (or writing paper, whichever likelier to give me better grade). But the fact that I'm posting a blog entry now tells you that I value the benefit more than the cost. When will I stop? When the additional cost match the additional benefit. That is, when the guilt from not studying (again, or writing, whichever serves as the second best to blogging now) has reached the additional satisfaction of blogging. That is, if I add one more sentence, I don't feel happy anymore. And that's about [looking at the clock]... now.
So see you next time,
But I don't understand why, when his idea has been seriously taken by people that really want to make profit by lending to small and poor investors, the microfinance, he was fumed and pointed them as moneylenders, the bad guys he wants to get rid of.
I read this in Tim Harford's article (HT: Marginal Revolution) that summarizes the debate on whether it is appropriate to actually make money and adopts profit maximizing value in microfinance, or should it be left as non profit motive. This, I think, an important topics and we'd be in a better situation should this be read and discussed by anyone seriously involved in microfinance frenzy in the country.
There is nothing intrinsically sinful about pawnbroking or intrinsically virtuous about microloans: what matters is the effect on the clients. And to our discredit, we don't really know what that effect is. There have been only two serious cost-benefit analyses - and they've produced a split decision as to whether, given the subsidies involved, microfinance delivered value for donor dollars.Thus we don't really know, empirically, whether microfinance initiatives helps the poor. Which brings me into a question to friends advocating microfinance that might read this posting: do we have empirical evidence on the impact of microfinance to, say, poverty in Indonesia?
Dean Karlan, a microfinance economist at Yale, is frustrated by this lack of serious research into what works. He also thinks Yunus's talk of "the moneylender's thinking" is unhelpful. "If you're trying to make the world a better place but you're not, that's bad. If you're trying to make profits and don't care about people, but make them better off anyway, that's good," he says.
Also it is interesting to discuss two buzzwords that oftentimes brought in to argue the superiority of Grameen-like microfinance: the peer control, or group liability, and the role of women as debtor, because:
Already, solidly held beliefs about microfinance have been shaken. The "group liability" system, in which a group of borrowers guarantee one another's loans, is still supposed by many to be the secret behind Grameen Bank's low default rates. But a randomised trial in the Philippines conducted by Karlan and a World Bank economist, Xavier Gine, found that group liability was discouraging new customers without improving repayment rates. Grameen itself quietly dropped group liability some time ago.Anyone in the business or aware of the issue, please feel free to jump in and join the fray.
Another sacred cow of microfinance is that women make best use of the money - the Grameen Bank says 97 per cent of its borrowers are women. But another randomised trial, conducted in Sri Lanka by a team of researchers including David McKenzie of the World Bank, found that male borrowers seemed to make a far higher return on their capital. As with the ZaFinCo study, it's just one experiment in one country.
Friday, December 05, 2008
I decided to call Philips, my favorite political scientist (and avid LP collector), to consult this result. After hearing my brief explanation, he just laughed and said, " they are probably the bad guys themselves".
Maybe so. Any other idea?
Thursday, December 04, 2008
Wednesday, December 03, 2008
I'm a chief janitor at an office building. In my attempt to cut costs, I recently decided to change toilet paper from the average, two-ply rolls to the thinner, one-ply rolls. Of course the latter is cheaper -- it's only half the price of the previous type! But why now, as I'm balancing my book, I find the costs end up pretty much the same?
Jo the Janitor @ Manggarai
p/s Say hi to Dumbfounded @ Oz
Dear Jo the Janitor @ Manggarai,
Because people are used to the "average, two-ply roll". When you replace it with the thinner one, they simply take more (longer, for that matter), fold it, and wipe their a**. On average, your boys will have to supply rolls twice as frequently to the toilets. So, if you think you can save money by changing the rolls that way, think again. Here's my suggestion. Find another type, still two-ply roll, but rougher (and hence cheaper). Your toilet patrons will think twice to overuse it or they will hurt their a**.
p/s Dumbfounded @ Oz might not like this toilet talk.
I have just finished a children book published by, yes, Yale University Press: A Little History of The World by EH Gombrich. If you have an 8 years old inside yourself who is easily be distracted while reading long passages with difficult words like myself, this is for you. I feel like refreshing the whole of my high school history lessons, yet in a very simple and fun way, by reading this small history book from western perspective --if not Austrian perspective, for the author was born in Austria. This is the Sophie's World of western history.
The second book I read slowly now is Niall Ferguson's The Ascent of Money. Reviewed by Michiko Kakutani at The Times today, this tour of the role of money across the years is a page turner. It reads:
Angry that the world is so unfair? Infuriated by fat-cat capitalists and billion-bonus bankers? Baffled by the yawning chasm between the Have, the Have-nots--and the Have-yachts? You are not alone. Throughout the history of western civilization, there has been a recurrent hostility to finance and financiers, rooted in the idea that those who make their living from lending money are somehow parasitical on the 'real' economic activities of agriculture and manufacturing. This hostility has three causes. It is partly because debtors have tended to outnumber creditors and the former have seldom felt very well disposed towards the latter. It is because financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty rather than prosperity, volatility than stability. And it is because, for centuries, financial services in countries all over the world were disproportionately provided by members of ethnic or religious minorities, who had been excluded from land ownership or public office but enjoyed success in finance because of their own tight-knit networks of kinship and trust...p. 2Well said.