Hard Disks Cheaper Than CD:s

Hard disks have become cheaper than CD:s. At least the 200GB hard disk sold at 999 SEK at the local computer store (according to an ad in today's Dagens Nyheter) is cheaper than the 20 pack of CD:s sold at a discount in the grocery store at 99 SEK. The CD:s come with hard covers containing two CD:s each. 5 SEK/GB for the HD, 7 SEK/GB for the CD. One SEK is currently 1/7.55 USD.

Unscientific Scientists

As you might have noticed, Cosma Shalizi is back with several highly recommended posts. He has some interesting fresh thoughts about corporate governance. But my favorite among these is one pointing to a paper by Smolin, debunking a widespread scientific myth - that of the usefulness of the so called "anthropological principle". As Cosma thought, I actually found it to be "quite accessible" as I'd "normally read a popular science book on astronomy". And it was amazing to see how, at least in according to Smolin, really famous scientists have been able to get away for so long in using almost ridiculous errors in their reasoning behind important results:

Fred Hoyle once reasoned that carbon is necessary for life, that carbon must have been formed by stellar nucleosynthesis, and that this reaction could only have proceeded if carbon nuclei had certain properties, which experimentalists then proceeded to show they did have. Smolin fairly schematizes this as follows. (1) X is necessary for life (or intelligence, etc.). (2) X is, as it happens, true. (3) If X is true, and the laws of physics are Y, then Z must also be true. (4) Therefore Z.

All good arguments, it's only that, as Smolin points out to which Cosma agrees, the statement (1) about life is totally redundant, it has no place whatsoever in the context. And what ever "principle" Hoyle is using, it is not be an "anthropological" one as is claimed. Unfortunately, debunking myths - at least not in the scientific spheres - seem far from risk-free. This is colorfully illustrated by a link Cosma provides to a description of how retaliation has been carried out against Smolin.

Now, reading about the modern particle physics that Smolin is involved with, the little informed but often skeptical reader gets curious about the goals of this research. It seems like it is aimed at reaching unification of currently separate theories through observation of processes occurring at really high energy levels. Energy levels that are so high that these processes almost never interfere in what is usually going on in any engineering application. Hence it is the kind of basic research that is left to governments to fund. Is this the very reason why the unification aimed at is referred to as "Grand Unification"? That this "Grand Unification" in turn is described as an important step to one final, soon to be within easy reach, "Theory of Everything". A theory that would be able to describe even the most energy rich processes, including particles with energy levels over 15 orders of magnitude above these we can perform experiments on today (if I read my Hawkin's "A brief history..." right). Either these scientists are real wizards, able to guess and extrapolate far beyond the known landscapes of our universe(s!?), or they simply just won't get there. And if they were such wizards, wouldn't they have given us the final theory already?

Cosma is probably right in calling these researchers extremely smart, as his post implies. Aren't there lots of theoretically interesting problems in physics on energy- and length-scales somewhat closer to our human lives and technical applications?

No Hot Water, Cheap Healthcare - Who Pays?

Arnold Kling joins Alex Tabarrok in a renewed effort to teach us that there is no free lunch. If you use it you pay for it - or even worse, if the lunch is free you probably pay too much. Let me first thank these prominent teachers and economists for this deep insight. Let me then thank Arnold Kling for his good class on TCS on the so called "adverse selection" problem. Even though he seemingly fail to recognize the huge adverse selection costs for individual insurance policies, he identifies them when they arrive, though much diminished, on the scale of an employer's pool. Nevertheless, he gets to the conclusion of having a public insurance system. It has to be smallish, Arnold tells us, but without explanation.

Could the explanation be that having a part of the population living with little health care and no hot water should be viewed as a freedom of choice opportunity? A feature rather than a bug in the capitalist world? Do economists in general think that most people in advanced societies that happen to find themselves with no more than basic health care in apartments without hot water have done so thanks to their own rational choices? Have they tried to calculate the costs arising due to the difficulties that children born into those people's families might experience in fully exploiting their own possibilities to make rational decisions? What about criminality, isn't this sort of population more likely to be recruited by organized crime? Isn't crime generally extremely expensive to any economy?

Isn't it likely that policies that deprive the poorest in an advanced society of what the rest view as basic necessities will end up being expensive for all? No hot water, cheap healthcare - who pays?

Minimum Standards

David Meyer adds lots of links to the blogosphere as well as references to academic papers a propos the discussion that started with Alex Tabarrok's claim that minimum requirements for housing standards are unhelpful. Still, the most supportive quote for Alex' case I've seen is put forth by DeLong, saying that "Alex is in fact teaching [his students] to think like economists". A statement I would rather read as a caution against only thinking about issues from the economist's viewpoint. Thanks to Anne for the link.

Comparing Growth to Equality

Tyler Cowen explains why the rate of economic growth is important, emphasizing that:

"had America grown one percentage point less per year, between 1870 and 1990, the America of 1990 would be no richer than the Mexico of 1990."

Abiola wholeheartedly agrees, and declares that he is glad to see that also Yglesias does so. And indeed, the question should really be who does not?

However, when comparing befits for different populations at different times, you are implicitly assuming that you can aggregate individual's gains into a population gain. Then let's do so in order to see to which extent equality should be weighed into the growth equation. It seems to me that a logarithmic utility function is a good tool for this, at least it was in this paper on taxes and leisure quoted here by Arnold Kling. Experiencing such utility adds equally much of it for every doubling of the consumption. With geometrical income growth you hence get arithmetic utility growth.

So - let's assume that the Land-of-the-Free, F, steadily leaves a share, p, of its population behind at constant consumption, while annually multiplying the consumption for the rest by a factor 1+Gf.

The Welfare State, W, on the other hand advances consumption for all its citizens each year by a smaller factor 1+Gw.

Now, for simplicity, let's further assume that all people in both W and F, initially upholds the same consumption c0, and hence the same utility u0. Each and every year, W hence adds Gw*u0 to the total utility experienced (assuming Gw small enough to make ln(1+Gw) close enough to Gw) by the population from its consumption while F adds (1-p)Gf*u0. The utility experienced by people in the Land-of-the-Free hence outgrows the Welfare-State if, its economic growth times one minus its share of people left behind, is larger that the Welfare-State's growth. For instance, growing at a rate of 5% while leaving 10% of the population behind would advance the population's welfare at the same rate as if growth were 4.5% and equally distributed. It should be noted for completeness that the total growth-rate for F is initially 1+Gf/(1+p), but that it converges (as the share consumed by the poor goes to zero) to 1+Gf.

I'm not an economist, at least I am not a macro-economist, but let me tentatively suggest an approximate growth rate for the Land-of-the-Free of something like 3.5% and that a 1/7th of its population is left behind. This would let F add 3% to its utility each year and with a 2.5% growth in W, F adds 0.5% of the initial utility more to its total utility than does W. In 200 years, F's utility added would have exceeded that added by W by the whole amount of the initial utility. In steady state, the welfare in the the Land-of-the-Free will with these numbers eventually converge to an amount that is 50% higher than that of the Welfare-State's.

An impressing win for the Land-of-the-Free - but hardly a sudden Welfare-State collapse!

Economist's Assumptions Mistaken for Reality (again)

Alex Tabarrok is telling his students that requiring apartments to have hot water is not useful to the tenants. How on hearth could he possibly have come up with such an idea? The answer, not surprisingly, is economic theory and the oversimplified assumptions upon which it builds. As Daniel Davies writes at Crooked Timber: about "The correct way to argue with Milton Friedman...
if you give away the starting assumptions - Friedman's reasoning will almost always carry you away to the conclusion he wants to reach"
The assumptions of economic theory states that people satisfy their own static preferences, with no respect whatsoever to other people, except for the volumes and prices they are offering and bidding you for goods and services. No big mystery why its result most often tells you that people are best off when left to themselves. In the real world, we all know that people are actually interacting through other means than buying and selling. We look at each other and try to act and live similar to each other, at least like those we identify as belonging to our group. And this has an impact also on our economic behavior, which is far from being individual and independent. Why are young people from certain groups less likely to acquire higher education? In some countries, their parents economic resources may provide answers. But here in the Welfare-state, tuition is free, and Government subsidies funding for students living-costs. So, why are young people from certain groups less likely to acquire higher education? What are these groups? They consist of people with on average lower education. We want to stick to our group, we are not "economic man". If parents and friends don't expect you to study, that will have an impact on your choice. More precisely, it will diminish your chance to chose education and the higher lifetime income that is associated with it. The whole economy loses from negative peer pressure. And apartments without hot water just serve too well as theatrical properties to manifest low-income lifestyle that is easily is passed on to future generations.

Paternalistic - yes! But if its so right to wage war against cancer, drugs (a war that somehow excludes alcohol...), terrorism; why not poverty?

Update: Tabarrok continues the discussion here.

Enjoying Leisure

Arnold Kling continues the debate on happiness, leisure and taxes in the perspective of comparing Europe to the U.S. He does so in a post called European Productivity. I found this contribution to the discussion highly interesting, in this paper by Edward Prescott that Kling points to, my simple calculations and observations below is carried out in much greater detail. The qualitative implications are the same, tax-rates seem to determine our rational choice between consumption and leisure (and log-utility is the simplifying tool). However, when Kling is trying to spin the story against us Europeans using the following quote, he seemingly forgets about economy and embarks a vessel similar to that of the happiness research he so much likes to critize.

"Bartlett questions how much the Europeans are enjoying their leisure:

>>One reason for the short workday is that Europeans seem to get sick a lot more than Americans. According to a July 25 report in The New York Times: on an average day 25 percent of Norway's workers call in sick. A 2002 study in Sweden found that the average worker there took more than 30 sick days per year. Makes you wonder just how good their health care systems really are.">>

Instead of holding on to the economistic path so successfully entered here, an entirely different direction is pointed out! Before going into a discussion with Bartlett, let me continue the economic perspective:

We've converged upon log-utility and rational choice as the explanation for the observed variations in leisure given the differences in tax-rates. Why not use this utility function to measure how much utility the European welfare-state gains when it transfers wealth from high to low-income households!? Why not - because different households utilities are not comparable to each other? Well - with an argument borrowed from and similar to one put forth by DeLong, using individual weights on utilities to make them comparable should erase the utility increase from the welfare-state transfer system only if rich households utility were assigned larger weights than low-income households.

According to Edward Prescott's calculations:
"If France were to reduce its effective tax rate on labor income from 60 percent to the U.S. 40 percent rate, the welfare of the French people would increase by 19 percent in terms of lifetime consumption equivalents."
I would say that this decrease for the "stand-in" houshold used in the analysis is surprisingly small. With log-utility and some reasonable estimate of how the top 20 percent of French labour income tax is used to redistribute income, it is far from unlikely that the French actually gain welfare by keeping their high taxes, at least as calculated this way.

Update: Thanks to Ivan for pointing out this discussion, which also occurs here.

Another Benefit from Capitalism

I've gotten a report from over there that their pharmacies actually offer penicillin in several different flavors. Well, we do have at least some of these flavors here in the Welfare-state too - but here they all taste just too awful much of penicillin. Our state-run monopoly has, to my knowledge, no good excuse to offer. Perhaps they're just lazy. Those of you who have tried to give the stuff to a small child knows just how much pain the monopoly inflicts upon us welfare-state citizens. And I wasn't even told until yesterday that this problem is perfectly solved in the states!

May I suggest it is time for some more liberalization?

Update: I've been made aware of that this post might need some clarification. It is of course a very good thing that efficient medicine for many diseases are available to most people in the industrialized world. That said, I still consider it a significant achivement that pharmacies in the U.S. are able to deliver penicillin that is easy to give to children. The failure of the Swedish state run monopolistic pharmacy to do so is, I think correspondingly severe.


Sometimes - espesially at bad times - it seems that science tells us that things are steadily falling apart. According to well proven results (in science such are a.k.a "laws of nature") from thermodynamics, disorder increases with time in any closed system. Happily enough, we are often enjoying the benefits of increasing, or at least maintained order in many of the open systems that we are a part of. What have science to tell about this? Do we have to resort to religion to display our gratitude over the splendid order of Nature?

I don't have anything in particular against religion, but it seems to me that the tendency things have to organize themselves around the exploitation of some resource is too strong for any God to control. Not in the most basic setting perhaps. In an ideal gas with particles (monoatomic molecules) only interacting through contact forces when they bounce into each other, disorder is the rule (in a neatly described kind of way). Even when heating and cooling is added it only produces a smooth, static and easily predictable (using some calculus) temperature gradient through the gas.

Now, add a second force; gravity: any "blob" or "bubble" in the gas now has the particle contact forces still acting on its surface, plus gravity working in all of its volume. We have hence created scale dependence, making a blob of gas (large volume to surface) doing different things than a single molecule (low volume to surface i.e. gravity negligeble), depending on its size and the averages over the molecules in it.

With heating from the top, nothing new is really achieved this way. But, with heating from the side, a nice little heat engine called natural convection cell is created, which helps the thermodynamic molecular diffusion to extract energy from the heater(-cooler pair), thereby keeping itself going! However interesting this is, the thing that really get me started on this is of course heating from below. Enough heating from below actually produces a tiny ecosystem of small convection cells. Looking at a video showing the development of these so called Benard cells seem to show that these cells spontaneously fall apart when too big, and promptly are put out of business by its greedy neigbors when too small. They have metabolism - are extracting energy from the area they are sitting on and dumping spill heat to the cool surface above them. They move. You might even say that they have some form of generation change looking at the large cells that fall apart in the video. Very life-like. Observe that the stable hexagonal pattern occurs only at specific levels of heating. For mild heating, long convection rolls result - for stronger heating, a rich turbulent specrum of vortices is produced.

Very life-like indeed, at least for just being a bunch of lose dead particles heated from blow!

Benard cells

The picture and video where taken from here, where more examples are available. See also some of these posts in my Furl-archive.

Summer - At Last!

Finally the summer heat has come to the North! Good temperatures for a bath even in lakes north of the Dalecarlia river (in "Norrland"). I love this country (sometimes)!

taking a bath in lake Narsen, Dalecarlia

The Dismal Science

Sorry, I just have to follow up on my prevous post. Economists jumping on those in other fields in social sciences - it's just not very stylish. We are reminded, at this post by DeLong that standard economic theory fails to explain the observed levels of equity returns and interest rates. Economics is really "The Dismal Science". DeLong and others has found some hope that the problem is not due to lack of realism of the basic assumptions in Economics, but rather "in the specification of uncertainty ". (Had we really seen the development of quantum theory in physics if the shortcomings of classic theory, i.e the photovoltaic effect, the boltzmann radiation 'heat crisis', had not eventually been attributed to just the basic assumption, that of continuitiy of the energy spectrum?)

To my very far from expert understanding of it - the high (historic) equity premium is evidence that people are highly risk avert. Which they don't seem to when it does not come to equity investment. And the high indicated level of risk-aversion would mean that people find little use per dollar from hefty gains, but good use from small gains and much pain from small losses. Hence they would try to convert the hefty future gain from steady economic growth to a small gain today, they would have a great interest in borrowing money. Which would drive up interest rates to levels far above the observed. That's the puzzle, one of many in economics I guess.

Now, just take this risk-aversion thing - and look how yours change more or less in no time - as described by the Allais paradox. People just don't seem to have consistent risk-preferences (try your own and your friends' using Allais' experiment!), how could you really expect to explain advanced things like interest rates using such concepts? To me it seems that - among other things - a closer description of how people really handle risk is needed, rather than some change "in the specification of uncertainty".

Update: John Quiggin has what seems to me a much balanced and reasonable comment on Crooked Timber.

The Happiness Police - Really That Bad?

Arnold Kling who usually writes about economic research writes about so called happiness research on TCS (and hosts a discussion about it on his EconLog):

I am afraid that "happiness research" amounts to nothing but a flimsy excuse for left-wing academics to claim that they should be given control over how the rest of us live.

Let me offer a final thought experiment. Suppose that you could choose to live either in our society with its current choice of lifestyles or in a society where "happiness police" tell you how many hours you can work, what kind of job you can have, and what kinds of goods and services you can buy. Which society would make you happier?

Research as a flimsy excuse? Perhaps - but they say that "it takes one to know one". Economic research itself is for some reason called the "dismal science". And from times to times it is actually used to make right-wing claims that government should withdraw from most of its current tasks. Lets carry out Arnolds thought experiment:

How bad would it really be to live in a country where the "happiness police" tells lorry drivers and airline pilots not to work until they fall asleep? Have the "happiness police" to keep people away from distributing and consuming illicit drugs? That bad really?

The Darkness of August

Suddenly we're there - in that part of summer where the nights get dark again. After two months of continous light, we Swedes are actually surprised to see the nights getting dark. We call it "the Darkness of August" (Augustimorkret). Technically, or at least astronomically speaking though, this is no different from the bright Nordic light we experience in May. Compare a "white" sheet of paper to a "grey" cloud outside by holding it up against the window...

Darkness of August over Stockholm, the Eastern part of the Southern Borrough as seen from south of Hammarby lake.


Weekend before last, this osprey was fishing in the Hammarby lake, just outside the central parts of Stockholm.

Even though it might not be immediately clear from above picture, it is indeed an osprey, and here is a good picture if you want one (with sound too). Not that it is a very rare bird, what struck me was that it chose a water that is deemed not suitable for bathing by the health authorities. Water quality elswere around Stockholm is usually much better than that. Do we need a special food administration for birds?

Thou Shall Not Experience Relative Utility!

Some consumption, it seems, rewards the consumer differently depending on the consumption of others. It may feel quite good to own a reasonably new car, at least until all the others buy brand new SUV's. To my knowledge, in economics this phenomenon is studied under the name of "relative utility", or "keeping-up-with-the-joneses-utility". Probably, this is something that could help to narrow the gap between the dismal science and real life. Unfortunately though, it complicates matters, as people's economic discussions via relative utility gets much tighter intertwined. It might, from a technical perspective, look like any other externality to the market. Polluters degrade the air without compensating those who breathe it; SUV drivers impose increased traffic risk on others without compensating them. And - buyers of conspicuous consumption goods make each others goods look less conspicuous in comparison; they degrade each others experience of "relative utility".

Now, that's another big problem for the concept of "relative utility". Unlike other externalities, they might look as closely linked to a certain less generous and not so pleasant feeling - envy. Here in the welfare state, it's not only envy, it's "The Royal Swedish Envy". Quite natural when most of us pay and receive quite a lot of our household incomes in a big zero-sum game that is our local and central government budgets. But to support what to me looks like a welcome precision to the far to course-axed models of our economy, I would rather think of "relative utility" as something that has to do with social compatibility. You simply have to posses a basic equipment in terms of clothing, housing etc. to manage your social life. Even if falling behind or advancing ahead really wouldn't deprive you of or give you any crucial stuff, it would certainly make a difference when being together with others.

Are our consumption then best described as being conspicuous or basic, do we derive relative or absolute utility from it? I began to think of this in the context of leisure versus consumption (below), starting from a post and later a comment by Arnold Kling, and got further into it reading a NYT-article pointed to by Anne.Therefore, it was natural to look at labor data from the US and from other countries in the OECD. It actually seemed to me that absolute utility does a good job in describing the various tradeoffs between leisure and consumption. Nonetheless, as relative utility may add to describe phenomenon ranging from things like segregation and government interventions to redistribute income, to the home bias in equity investments it should be an interesting field of study. Perhaps even more so as we are hopefully approaching standards of living where increasing shares of our consumption is devoted to show off wealth.

Here are my calculations:

C is the total volume of consumption
PC is the total price for it (in hours worked per day to buy it) and
pC is the price per consumption unit (in hours worked).
L is the total volume of leisure in hours per day and
PL is the total price for it (in hours you cannot spend at work)

The stylized facts for the US is that leisure (for people employed) for the last 25 years or so have been fairly constant, but that the volume of consumption each worked hour buys have increased.

L is constant and PC is constant (L+PC=24 per definition). Now, the optimal distribution of consumption and leisure is reached when the marginal utility of consumption equals the marginal utility of leisure.

UL is used for utility of leisure;
UC is used for utility of consumption as a function of the volume of consumption, C. Both's derivatives with respect to total cost should optimally equal:

dUL/dPL = dUC/dPC (note that dUL/dPL is constant)

As the unit price of consumption decreases, more utility is gained from consumption per worked hours, we thus have to get more consumption to arrive at a point where marginal utility of consumption volume is lower:

dUC/dPC = dUC/dC*dC/dPC = dUC/dC*1/pC


dUC/dC = pC * dUL/dPL
dUC/dC = PC/C * dUL/dPL
UC = constant + dUL/dPL*PC*ln(C)

The utility is a function of the logarithm consumed volume C, although the total price (in hours) paid for it stays constant, its volume increases (with the decrease in prices), the utility derived from it increases, but as the utility function quickly flattens, its marginal utility stays constant. As does marginal *and* total utility from leisure. Absolute utility, increased consumption and constant leisure seem to fit together.

((Internationally though, leisure varies widely in the OECD, both across countries and over time. It seems however that these variations are highly correlated with variations in effective marginal tax on labor. If these in turn are indicative of the progressiveness of the taxation - the absolute utility framework outlined above may still fit))

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