Keef's Life

Last week, since I had a 40 percent off coupon plus 5 bucks reward from a bookstore here, I asked barista Aco and Ujang what books to buy.

Ujang, somewhat unsurprisingly, came up with the Handbook of Development Economics. Aco, however, had (better) idea: the biography of Keith Richards, Life.

It's the book everybody in town now talk and write about. From David Remnick of Newyorker to Michiko Kakutani of NYT to our own Taufiqurrahman --who lambasted a mediocre review by a music critic-turned-political pundit in our you-know-what daily.

I ordered my copy. Keith Richards', that is.

To celebrate Keef's biography, the Cafe plays Happy from Exile on Main St. album and Salt of the Earth from Beggars Banquet album.

Supposedly Summer Reading List

OK, most of you will be glued to TV watching the World Cup. Aco has been deriving some lemmas regarding optimal direction for penalty kick, taken from Levitt paper. I know, you may think we economists have funny way in seeing things, including football, but, sorry, just live with that, OK? You will get used to, as many of you already did.

In the meantime though, the Cafe is preparing to buy books for your summer perusal. Here is the list
1. Fault Lines, by Raghuram Rajan
2. The Company of Strangers: A Natural History of Economic Life, by Paul Seabright
3. The Upside of Irrationality, The Unexpected Benefit of Defying Logic at Work and at Home, by Dan Ariely
4. Zombie Anthology -- ask Ujang for detail
5. Primates and Philosophers: How Morality Evolves, by Frans de Waal

And, oh, I start to, -whaddayacallit?-, tweeting.

Torture of Book Sale

I am at my local library now and could not decide what to buy from their ridiculously low-priced ongoing book sale: Goethe's The Sorrows of Young Werther, Carlos Fuentes' A New Time for Mexico, or Toni Morisson's Sula.

One thing I know I won't take is anything from Michael Moore.

I think I'll go for Goethe.

Update: Goethe's Werther has gone. No wonder, it costs just 50 cents.

Akerlof and Kranton's Identity Economics

Do economists simply disregard social norm in their analysis?

Contrary to common belief, economists have tried to incorporate social norms in at least three ways. First, in collaboration with psychologists, they tried to model an agent's maximizing utility behavior with additional constraint of psychological bias. Second, they also tried to take into account other's utility function into the representative agent's utility function; known as endogenous preference approach.

This first two approaches still hold up a single representative agent behavior as micro-foundation of a social phenomena.

Akerlof and Kranton, in their latest book, Identity Economics, 2010, offer a different perspective. They use more than one representative agent and respective utility function (they called it identities) in looking at a certain social pattern.

I have read this interesting and readable book for the general public, but haven't had time to peruse the more technical academic journal articles behind this book --those on the bibliography. With that in mind, this is my knee-jerk reaction: how do we decide the number of agents' types and utility functions we need to put into account in analyzing, say, gender and labor market in Indonesia? Two, three, four? What is the general rule for determining that number?

Nevertheless, the book shows that economics, after all, has never been an isolated subject full with stubborn students. It did not stop with Milton Friedman's book on Price Theory.

Why I'd Rather Buy Two Cups of Coffee and Muffins

Following a Facebook discussion here, Ujang and I are amazed on how our friends on the left take Naomi Klein's Shock Doctrine seriously. I can not say anything on Klein's argument since I haven't read the book. And here is why.

Imagine you have 10 bucks in your pocket. Then somehow you read Tyler Cowen's review that says

Rarely are the simplest facts, many of which complicate Ms. Klein's presentation, given their proper due. First, the reach of government has been growing in virtually every developed nation in the world, including in America, and it hardly seems that a far-reaching free market conspiracy controls much of anything in the wealthy nations. Second, Friedman and most other free market economists have consistently called for limits on state power, including the power to torture. Third, the reach of government has been shrinking in India and China, to the indisputable benefit of billions. Fourth, it is the New Deal — the greatest restriction on capitalism in 20th century America and presumably beloved by Ms. Klein — that was imposed in a time of crisis. Fifth, many of the crises of the 20th century resulted from anti-capitalistic policies, rather than from capitalism: China was falling apart because of the murderous and tyrannical policies of Chairman Mao, which then led to bottom-up demands for capitalistic reforms; New Zealand and Chile abandoned socialistic policies for freer markets because the former weren't working well and induced economic crises.

You may then say, but hey, Tyler is a conservative free-market economist. Fine, what about Dani Rodrik -- a respectable Harvard's KSG economist who is sympathetic to industrial policy and once write a book asking whether globalization has gone too far?

You may expect at least a kinder view. Instead he said that Shock Doctrine is a bad book needs to be trashed and it is very hard to understand how Klein felt good about Argentina in 2002 that just collapsed into a severe economic crisis, with a more than doubling of the share of population in extreme poverty and a 10 percent decline in GDP.

Need more evidence from the left? What about Will Hutton from The Observer, UK?

In her delusional, Manichaean world view, privatisation, free markets, private property, consumer freedom, the profit motive and economic freedom are just other terms for corporate self-enrichment, denial of voice, limitation of citizenship, inequality and, sometimes, even torture. The discredited electro-shock psychological treatment of the Fifties, we learn, informed the thought system of the free marketeers; it is guilt by association and assertion rather than proof, a weaknesses of too much of the book.

The only positive review I came across is from Stiglitz (I can see your baristas here yawn). But even he said:

Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies.

Enough said, it is a small wonder that I'd rather spend my 10 bucks for two cups of good coffee and muffins than Klein's book.

But then the Facebook discussion and the overwhelming praise from my comrades on the left gets me thinking that probably I should give Klein a fair chance. Maybe I can borrow the book from local public library, if they have a copy. Yet one thing for sure, it would have a very hard time to compete with other books I considered worth reading -- and I have a long list of them already.

Slowly Reading Superfreakonomics

I am reading Superfreakonomics now. Very slowly. It's been two weeks and I haven't even reached the controversial global cooling chapter.

Somehow I don't find the book a page turner; perhaps because I found out that reading the original journal articles behind all of those anecdotes are more interesting. Those articles might not be as entertaining and have definitive finding as the book suggest (and oh, the math, too); but it is actually nice to see how those article's authors use their creativity (and hard work) trying to make interesting (and robust) case based on data.

Nevertheless, the book still serves a good entry point to those cute economic papers. Of course, you may have different opinion.

Facebook Solution

On a recent visit to my favorite secondhand bookstore here, I bought a small book with nice cover titled On Rumors, by Cass Sunstein. I like this short book while discussing its first two subtitles -- how falsehood spread and why we believe them-- (answer: informational and confirmatory cascade and group polarization) ; but not so much on the third -- what can be done.

It's a small wonder nonetheless, knowing that Sunstein, along with Thaler, is the leading figure in paternalistic libertarianism. He goes that to prevent falsehood to spread, we need to create a "chilling effect" against rumors through law.

But actually I like what he describes as (overly) optimistic market-for-ideas solution when he write:

"Perhaps the Facebook generation and its successors will treat a wide range of rumors, including negative and vicious ones, with bemusement or a yawn."

This is spot-on.

A book of un-common sense, soon to be on the shelf at the cafe of un-common sense

So about more than a year ago, Gary Becker called to Cafe Salemba. He said he liked the cafe and had been very much inspired by it. "And, your tagline: a cafe of un-common sense, I love it!" he added.

Of course I'm lying. It's the other way around: we have been inspired by Becker and the likes: Stigler, Levitt, Friedman (Milton and David, not so much Tom), and of course Cafe Hayek.

I just couldn't help fantasizing the scene of Becker calling me, as I came across his new book with Posner: Uncommon Sense. Recommended.

HBS, Hilarious B-school

Do you know how the HBS students made the school pay for the BMW they rode to school? Or the difference between Sloan, Kellogg, Wharton, and HBS?

I did not until I read this book, Ahead of the Curve: Two Years at Harvard Business School.

To give you some idea, it's written by Philip D Broughton, an Englishman, former Paris correspondence for British The Daily Telegraph, holder of undergraduate degree in Classics from Oxford, who decided to give up journalism for MBA at HBS even without knowing how to run Excel on the first day of the School. In short, a page-turner hilarious account with strong hint of typical Englishmen wits and dark humor on life at one of world's most prestigious B-Schools.

Recommended for summer reading and for those who contemplate to take B-school or live business and corporate life.

Presidential Summer Reading

If you were to recommend summer reading for Indonesian presidential candidates, what are two books you want them to read?

My recommendation:
#1. Capitalism and Freedom by Milton Friedman, to help them comprehend how market economy works, even if they eventually dislike it.
#2. Catcher in the Rye by JD Salinger, to remind them how being phony can be so sickening for others.

What's yours?

Harold

My favorite summer reading: Harold and the Purple Crayon.

Harold is terribly funny. He mistook oatmeal bowl for a flying saucer.

Non-economic Perusals

It seems that we've been to much discussing uncool stuff like general election or the US economy. It's time to chill out a bit and talk about literature.

Critics are going gaga over Roberto Bolano's 2666. After The Savage Detectives, that I never finished, this 900 something pages has just been posthumously published. I've just checked it out from the library. Of course, god knows when I will have time to read that, but from first several pages, I'd say it'll be better than the Detectives, albeit its length.

The last novel that I just finished is The Taqwacores --a recent underground hit. Think of JD Salinger plus Hunter Thompson plus Salman Rushdie, all blend into this radically blasphemous small book. So bad that it's good, so wrong that it's honest, so hopeless that it's hopeful. A genius work of Orwellian controlled insanity at maximum level.

Two strong conditions for readers: be very, I mean very, open minded and willing to dig and read between the lines. Otherwise I bet you will be excruciatingly mad, feel grossly offended, and probably want to hang the author. The smallest possibility this book may have is to be legally published in Indonesia.

The Ethnography of Chicago Economists

In 1973, Axel Leijonhufvud of UCLA wrote a satire, self-mocking, nonetheless quite accurate, paper on the anthropology of Econ tribe (in pdf here) published in Western Economic Journal. It's a useful paper, should you fail to understand contemporary economists and economics as one among so many odd creatures in the world.

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.

Two History Books

I am into history now. Over the last month, I read about Maghribi traders and Genoese podestas, and listened to my classmates term paper's proposal on Texan cowboys' rule on cow stealing and Spanish Moslem, Jew, Christian courts. All are fascinating.

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. 2

Well said.

A Lot of Corn

From McKenzie's Why Pop Corn Costs So Much at the Movies?

What is the basic problem with the corn and ethanol subsidies? To fill up an SUV with ethanol, it takes 450 pounds of corn, which contains enough calorie to feed a poor person for a year.

Four hundred and fifty pounds equals to 204 kilograms. And that's a lot of corn.

And about the book, it's an interesting reading that tells you how messing up the market price may lead to disastrous (unintended) impact. Recommended additional reading list for students of undergraduate's Microeconomics Theory (a.k.a price theory).

Why (Not) I?

Aco could proudly claim that he's ahead of me by (dreaming) to write a novel about economics and politicians. But these guys, Ray Fisman of Columbia and Edward Miguel of Berkeley, seem (way) ahead both of us. They are about to publish a story (or stories) on how economics (with data) can reveal how the gangster's (read: dirty diplomats, politicians, dictators, bureaucrats) minds works. The title is Economic Gangsters: Corruption, Violence and the Poverty of Nations.

And more embarrassingly, they even devote a whole chapter on Soeharto --the man the two of us should know better.

Another embarassment comes from Elisabeth Pisani, who wrote about Taman Lawang and Lapangan Banteng --a book that now is recommended by Marginal Revolution. The title is The Wisdom of Whores: Bureaucrats, Brothels, and the Business of AIDS

Here's some excerpt:

Lenny, another doyenne of the city’s transgender hookers who was putting on her make-up while Nancy pontificated, laughed. Lenny is not thrilled that the Department of Social Affairs has tossed her, along with all waria, into a box marked “mentally disabled”. But she had to agree with “over the top”. Lenny had organised a group that was lobbying for equal rights for waria. She interrupted her face-paint rituals to tell of a recent meeting with a parliamentary sub-committee. “We’re in the national parliament asking to be taken seriously as a community, and I see that two of the girls are missing. I send someone off to look for them and guess what? They’re screwing the security guards in the bathroom.” She shook her head in disbelief and went back to her mascara.

I've ordered my copy. The book seems terribly fascinating --and more importantly, because it makes me enviously feel: "it should have been I who write books about those interesting things just under my nose with that kind of style". Oh, well.

Summer Reading List

Dede of Diskusi Ekonomi once told me that according to the late Sumitro Djojohadikusumo, an Indonesian prominent economist and ex political rebel, intellectuals should speak French.

Who doesn't want to be seen as intellectual? With that spirit, I start to read Andre Malraux's Le Condition Humaine. But since I am at best a fake intellectual, I can only read its English translation.

Moreover, to justify my three percent of irrationality --and to avoid being labeled as narrow minded immoral psychology illiterate (ha!)--, I have Daniel Gilbert's Stumbling on Happiness and Marc Hauser's Moral Minds on my desk now. I've just finished Thaler and Sunstein's Nudge that proposes some measures of libertarian paternalism to improve your life (yeah, right)

After learning some introduction to behavioral economics (and the role of psychology in economics), I must admit that I think I suffer from confirmation bias: instead of weakening my rational choice approach, those conflicting information makes me feel the other way around.

I like the readings though, and so far I find the best short summary on the topic is Matthew Rabin's Psychology and Economics, JEL, vol (36) 1, 1998.

On top of my pile of books, there is a promising novel by Jiang Rong, Wolf Totem. The first half of first paragraph reads:

As Chen Zhen looked through the telescope from his hiding place in the snow cave, he saw the steely gaze of a Mongolian grassland wolf. The fine hairs on his body rose up like porcupine quills, virtually pulling his shirt away from his skin.

I've never seen a Mongolian wolf, but those words captivate me.

At least that's the plan for summer. But as usual, it's always subject to (very likely) change. How do you call this irrationality, by the way?

Undercover Economist in Action Again.

I am immersed into the second adventure of our undercover economist, Tim Harford, in his attempt to unravel The Logic of Life: The Rational Economics of An Irrational World, using rational choice theory of mostly Gary Becker and Thomas Schelling.

He describes the tool as follows:

"In the hands of economists, "rational choice theory" produces an X-ray image of human life. Like any X-ray, rational choice theory does not show everything. Nor is the picture necessarily very pretty. But it shows you something important, and something you could not see before" --page xiii

My favorite is chapter six, The Danger of Rational Racism, that tells how you, out of your perfectly rational thought, can become a racist even before you realize it --assuming, ex ante, you are not a racist by heart and/or there is no such thing as racist culture or psyche.

Nevertheless, overall, the book is fun, very well written, and the reading enjoyable. Highly recommended for both economists and non economists, no Econ 101 prerequisite required.

If On A Winter's Night An Economist

I too am intrigued by this question from Diskusi Ekonomi: Is there any case in which standard economic cost-benefit/incentive framework can not be applied into?

For a non economics student, this query might sound annoyingly stupid. But after you read economics,--Freakonomics, for instance--, it may not be that foolish anyway.

Today I think I find a case in which such framework might not work, that is, the problem of writing/reading/interpreting a literary work.

From Italo Calvino's If On A Winter's Night A Traveler, an excellent novel I fetched from the library to balance my other winter-break reading of, well, The Machinery of Freedom: Guide to a Radical Capitalism, I read this passage:

"...She explained to me that a suitably programmed computer can read a novel in a few minutes and record list all of the words contained in the text, in order of frequency. "That way I can have an already completed reading at hand," Lotaria says, "with an incalculable saving of time. What is the reading of a text, in fact, except the recording of certain thematic recurrences, certain insistence of forms and meanings? An electronic reading supplies me with a list of the frequencies, which I have only to glance at to form an idea of the problems the book suggests to my critical study. Naturally, at the highest frequencies the list records countless articles, pronouns, particles, but I don't pay them any attention. I head straight for the words richest in meaning; they can give me a fairly precise notion of the book"..." --page 182.

For me, that is a futile attempt to decipher a literary work or text. I know next to nothing of linguistic or literary criticism, but it seems to me that Calvino mocked the use of content analysis.

OK, I digress. My point is that in interpreting a novel, economics does not help, too. And that's perfectly fine.

My current dæmon is 0.8(F+B+S)+0.2K -- what's yours?

Has anybody seen The Golden Compass or read His Dark Materials? I have just seen the movie. I like it: it got me thinking. What would be my dæmon if it ever existed? Is is settled already like the dæmons of adults, Miss Coulter's or Lord Asriel's? Or is it still changing like that of Lyra Belacqua's, the kid? I'm not sure if mine is still trying to find its final form. But I guess I would love it if my current dæmon is some sort of a creature made of eighty percent of Friedman, Becker, and Stigler combined and twenty percent of Keynes. That is, 0.8(F+B+S)+0.2K. I'm not sure how it looks like (I sure hope it's not ugly like Coulter's golden monkey).

How about yours?