In his new book The Myth of the Rational Market Justin Fox traces the lineage of the noise-trade assumption to an unpublished paper by Larry Summers that began, THERE ARE IDIOTS.

From Krugman’s post outlining a model that endogenously produces Minsky moments.

Read the cake first

Okay, so this is how I imagine this conversation went :

Dunnes Stores Employee:
Hello. Dis Dunnes Stores, how can I help you?

Customer:
Yes, I would like to order a cake for a going away party this week

Dunnes Stores Employee:
Whatchu want ondacake?

Customer:
‘Best Wishes Suzanne’ and underneath that ‘We will miss you’

I’ve already posted about my latest musical discovery on facebook, but for those of you who are still stuck in the dark ages of web 1.0 and those that prefer the more elaborate exposition of a blog post over a quick link, here goes:

I went to a concert by the Youngblood Brass Band in Cologne on Sunday and while these guys are worth a recommendation of their own, they are not what left me most impressed that evening. There was a DJ at the concert that entertained the audience in the short break in between sets by making awfully hip-hoppy noises and playing a few tunes and one of those tunes intrigued me so much that I went and asked him what it was. As it turned out, the band whose song I had been listening to was Hocus Pocus, a French group that specializes in hip hop set to easy, mellow, jazz-infused samples. I have since gotten my hands on the two recordings these guys have put out and haven’t been able to stop listening to them since.

News from Ben Folds, the man whose early works I still count amongst my favorite music of all time, but whose more recent work has tended to disappoint: On 28 April he is set to release an album full of recordings of his songs performed by university a capella groups from all over the United States. You can already listen to the album in its entirety on iLike and the few songs I just sampled sound pretty good. Not amazing, but many of them are quite nicely arranged and adapted to the format.

Update: You can check out the making-off documentary on Ben’s myspace page

Back in 2003, Rhino/Atlantic planned on releasing a Donny Hathaway retrospective entitled ” Donny Hathaway- Love, Love, Love – The Anthology. It contained 35 songs including all of his hits and his signature duets with Roberta Flack. It also contained rarities incuding the following demos:

“Extension Of A Man- demo”

“What a Woman Really Means” since released on a compilation entitled ” Atlantic Unearthed”

“I Could Love No Other One”

“You”?

“Make It On Your Own”

“Speak Easy”

A 9 minute live cover of Stevie Wonder's “Superwoman”

The liner notes were done by A Scott Galloway. It was a worthy tribute to Donny.

Roberta Flack would not give permission for Rhino to use any of her duets with him. Maybe there was a royalty issue. As a result, it remains unissued.

There was also talk of a live album featuring both artists. Roberta denied permission.

I hope one day these releases will see the light of day.

I hope so, too!

I’ve long tried to simply ignore Walter Mixa, the Bishop of Augsburg, head Catholic military bishop for the German army and common guest on German talk shows, but I can’t any longer. He’s long been saying things that I considered to be outrageous and morally offensive, but during his recent Easter sermon, he spoke his mind on an issue that is quite dear to me, my agnosticism:

“Die Unmenschlichkeit des praktizierten Atheismus haben im vergangenen Jahrhundert die gottlosen Regime des Nationalsozialismus und des Kommunismus mit ihren Straflagern, ihrer Geheimpolizei und ihren Massenmorden in grausamer Weise bewiesen.” In genau diesen Systemen seien “Christen und die Kirche besonders verfolgt” worden.

Der Bischof weiter: “Wo Gott geleugnet oder bekämpft wird, da wird bald auch der Mensch und seine Würde geleugnet und missachtet.” Und: “Eine Gesellschaft ohne Gott ist die Hölle auf Erden.”

[“The godless national socialism and communism regimes, with their penal camps, their secret police and their genocides have been the cruel proof positive of the inhumanity of practiced atheism.” In precisely these systems “Christians and the church were persecuted particularly harshly.”

The Bishop continued: “Wherever God is denied or antagonized, soon human dignity will be denied and violated.” And: “A society without God is hell on earth.”]

I will not even dignify Mixa’s bold distortions (to put it charitably) about the role of the Catholic church during the Third Reich with a comment, other people have already done a far better job of this than I ever could. Rather it is the claim that without God, “anything goes” and that a godless society is therefore a terrible prospect that really riles me.

I’ve heard the same argument countless time before, during my discussions with deeply religious people in the United States and every once in a while in discussions with much less religious people here in Europe. “Why,” the argument goes, “would people continue to behave well and virtuously if we abandoned the absolute moral truths of Scripture and the belief that violations of these moral principles will be sanctioned by the Lord?”

This does not seem to me to be a prima facie silly argument. Even if one did not believe in God, there might still be reasons, utilitarian or otherwise, in favor of religion as a social institution. To put it bluntly, if we really thought that without the threat of divine punishment people would start looting, stealing and raping, it might be worthwhile to keep religion around to keep people that are more easily fooled into believing in line.

But the thing is, I see precious little reason to believe that the premise of the argument is correct as an empirical matter. Others may judge my own behavior, but it does not seem to me from personal experience that people of faith are on average more virtuous and good than atheists, agnostics and the whole rest of the godless lot. And the few studies on the subject of which I am aware come to basically the same conclusion: there does not appear to be any systematic difference in moral behavior between believers and non-believers.

And taking a more birds-eye view, those countries in which religions already play a relatively minor role don’t look like “hell on earth” to me and I doubt they would descend into anarchy if even the last few percent of people abandoned their belief. Then again, maybe that just reflects my hope that, should I turn out to have bet on the wrong horse God-wise, hell will turn out to be like Sweden, Estonia or the Czech Republic, good beer, beautiful women and everything.

The idea of a life without absolute moral principles to guide life’s decisions may seem scary to some. And yet millions of people all over the world seem to lead happy lives of moral relativism and the places where this stance has been adopted collectively generally seem like pretty nice places to live. Mixa would do well to check them out sometime.

Woohoo:

Apple Corps Ltd. and EMI Music are delighted to announce the release of the original Beatles catalogue, which has been digitally re-mastered for the first time, for worldwide CD release on Wednesday, September 9, 2009 (9-9-09), the same date as the release of the widely anticipated “The Beatles: Rock Band” video game. Each of the CDs is packaged with replicated original UK album art, including expanded booklets containing original and newly written liner notes and rare photos. For a limited period, each CD will also be embedded with a brief documentary film about the album. On the same date, two new Beatles boxed CD collections will also be released.

It seems, prostitution really is the oldest profession. In fact, we don’t seem to be nearly the only species who engages in the practice. So, it turns out, do our close evolutionary cousins, the Chimpanzes:

Chimpanzees enter into “deals” whereby they exchange meat for sex, according to researchers.

Male chimps that are willing to share the proceeds of their hunting expeditions mate twice as often as their more selfish counterparts.

This is a long-term exchange, so males continue to share their catch with females when they are not fertile, copulating with them when they are.

Now that the German government seems set on increasing the cash pool from which the “Abwrackprämie”, a 2500 Euro subsidy paid to anyone who decides to send their car to the scrap yard and replace it with a shiny new one, is paid by another 3.5 billion is probably a good time to remind ourselves not just why this is a terrible way to stimulate the demand for cars (there’s a story about broken windows that comes to mind), but also why the rationale that replacing old cars with new ones is good for the environment (the German government prefers to the subsidy as “Umweltprämie”) is probably bunk in most cases. The ever eloquent Willem Buiter explains:

The most disingenuous argument for subsidising the early scrapping of cars and their replacement with new cars is the environmental one: new cars are likely to be less environmentally damaging than old cars.  Save the environment – buy a shiny new energy-efficient car.

Even if the new cars that are subsidised were just the most environment-friendly ones hybrids, 80 miles per gallon marvels etc. – which is not always the case – the production of these new vehicles is, when you put it through the appropriate global input-output matrix, an environmentally damaging affair, requiring lots of metals, plastics and energy.  You have to weigh the environmental benefits from running a new car a lower flow production of greenhouse gases, say against the one-off environmental cost of a higher volume of car production. 

If the replacement incentive is sufficiently short-lived, there need not be any long run effect on the level of car production, and even little if any effect on the undiscounted cumumulative volume of car production.  A given cumulative volume of current and future car production would simply have its time-profile shifted from the future to the present.  But if the scrapping subsidy were longer-lasting, cumulative car production would increase, resulting in greater environmental damage.  The net balance of environmental benefits and costs is by no means obvious. 

I found two interesting articles from on one of my favourite areas of reseach, the economics of the underground economy (via Free Exchange):

The first on is an article from The Economist’s Intelligent Life, which you might have read already. It is concerned with the consequences of asymmetrical information in the market for escort services.

“I only charged $300 when I lived in San Francisco,” Andrea says. Unlike most industries, escorts can charge higher prices when they are in greater supply. This is because price is one of the few metrics sex suppliers can use to convey quality. (In this way it is not unlike the hedge-fund industry.) There are only about 30 VIPs in San Francisco, but nearly 100 in New York, so Andrea can charge more here. The customer demographic is also wealthier, and a higher price deters customers from bargaining, which is considered poor taste.

In any non-competitive industry, setting a price is a supplier’s way of communicating value to a customer. When information is imperfect or asymmetrical (ie, when customers don’t know enough about a product, or when suppliers are ignorant of their value relative to their competition), prices deviate from their market value and the market becomes riddled with inefficiency. This is why tourists in midtown Manhattan spend too much money on fake antiques, and why my local laundromat will wash and dry my clothing for half the price of rival cleaners across the street.

For a prostitute, the asymmetry is more profound. On the supply side, it is challenging for Andrea to price herself relative to her competition. Despite the publicly available listings of prices, photos and expertise of fellow escorts on Eros, it is impossible to know if these other women provide comparable services. On the demand side customers cannot be certain that the product resembles the advertising. And much of the value is merely hinted at, owing to the illegality of prostitution.

The article also draws parallels between the market for prostitution and Akerlof’s lemons-problem:

In cases of extreme uncertainty on the part of consumers, such as when shopping for a used car, the convention is to expect a “market for lemons”. Used-car salesmen are widely seen as a sleazy bunch owing to incentives they have to lie about a car’s quality. Because buyers presume a good chance of fibbing, most will only pay a low price for a used car. This could deter honest brokers, and ensure that only lemons are indeed on the market. Honest salesmen of quality cars can break this cycle and charge more, but only after building a reputation for good value.

Similarly, some assume that the only kind of women who would sell themselves at any price are of poor quality–ie, lemons. Especially valuable escorts who are exceptionally attractive, appealing and skilled, say (ie, in short supply), can break this perception of low value by charging exorbitant prices. (The high prices are also a factor of the illicit nature of the product.) Fees can reach astronomical heights as a supplier builds a reputation. In this way high-end prostitutes can escape the “market for lemons” perception.

I can’t remember though whether reputation-building was actually named in Akerlof’s original article as a way of preventing the break-down of markets.

The second article from Forbes is on a new project by Sudhir Venkatesh, the guy who as a graduate student spent six years hanging around with Crack dealers to learn about their business, and whose story ended up in Dubner and Levitt’s Freakonomics. Again he’s doing field work, this time out in the prostitution business.

He hired a group of former sex workers as research assistants and assigned each woman to track 25 to 50 active hookers, on street corners and in brothels, and record information about each transaction immediately after a customer left. What kind of sex was performed? Was there violence? Was the client black or white, a gang member or a cop? The project yielded data on 2,200 tricks performed by about 160 prostitutes.

“No one has really taken them seriously as workers before,” Venkatesh says. “They tend to either treat them seriously as victims or as self-empowered women, exercising agency over their bodies,” Venkatesh adds, referring to other social science literature. “I was interested in them as workers. We have to give them some credit. Why do they choose this? They don’t have a choice to do this over being a lawyer, but why do they choose this over fast food?”

Answer: Chicago streetwalkers earn $25 to $30 an hour, four times what they’d get in other jobs available to them. Venkatesh has also tried to assess the value of having a pimp versus self-managing, which he calls “a classic business school, industrial organization question.” Prostitutes who work with pimps, it turns out, appear to earn more and get arrested less frequently.

This latter story will be published in the sequel to Freakonomics, which apparently will be realeased in about a year from now.