Monthly Archives: May 2008

This is interesting:

Portugal’s parliament has voted to introduce contentious changes to the Portuguese language in order to spell hundreds of words the Brazilian way.
The agreement standardises numerous spellings and adds three letters – k, w and y – to the alphabet.
A large majority of lawmakers backed government proposals to phase in the changes during the next six years.
But a petition against the move was signed by 33,000 people who argue it is a capitulation to Brazilian influence.

I can’t speak for the Portuguese – or the Brazilians – but spelling reform for English never struck me as terribly sensible. (Here’s a debate on the subject.) That’s not what interests me about this: what’s interesting is to what extent a government can effectively change the way a language is spelt.

Whether we write “colour” or “color” or even “kulla” is simply a matter of coordination on different focal points. Government action might successfully shift the equilibrium, or might fail completely to do so, or might just confuse matters (surely the worst of all worlds). I have heard that German spelling reform has largely achieved the miserable third outcome, which is not a huge surprise. Governments can, at least, legislate what is taught in schools. I am not convinced that this would be very effective. Any thoughts?

Ed Castronova writes to inform me that:

With generous support from the MacArthur Foundation, we have created a fun game environment and used it to conduct a month-long experiment. Our experimental question (kept secret up to now) was: Are fantasy game players economically “normal”? Or on the contrary, when they make themselves into elves and dwarves and hobbits, do they stop taking economic decisions seriously? We created two virtual worlds, one an exact copy of the other, except that in the experimental world the price of a simple healing potion was twice as high as in the control. If people are taking prices seriously in this fantasy environment, they should buy fewer of the potions when potions are more expensive.

At stake here is the entire idea of using virtual worlds as a Petri dish. If fantasy gamers behave in ways that violate our most basic assumptions of economic normalcy, then it makes no sense to use virtual worlds to study large-scale economic behavior. If, conversely, fantasy gamers seem to be normal economic agents, then perhaps some of the behavior in virtual worlds does indeed generalize to the real world. If so, then we can consider using virtual worlds to conduct controlled experiments at the macro scale of society, where our most pressing problems seem to live (natural resource management, intercultural mistrust, information security, disease).

The initial findings of the Arden experiment will be released during the International Communications Association meetings in Montreal next weekend. The session we’re part of is this one:

“High Density Session: The Web 1.0, 2.0, and Beyond”
Time: Sat May 24, 3:00 – 4:15pm
Place: Le Centre Sheraton / Drummond West

See the entire schedule for Saturday here:
http://convention3.allacademic.com/one/ica/ica08/index.php?click_key=3&cmd=Multi+Search+View+Program+Load+Scheduled+Times&schedule_day=2008-05-24+00%3A00%3A00&PHPSESSID=e76b3aa3a0d5c7b574ab10b60c31733e

I would be mightily surprised if the answer is not “yes”, but let’s see. And the question strikes me as foundational. More on Castronova here and here and especially (in this context) here. More information when I know it.

In response to my criticism of the poor economics of the practice of automatic service charges, a loyal reader comments:

The system of “optional” service charges being added to restaurant bills is in fact in our (as customers) interest. If the restaurateur operates the scheme properly and with due regard to HMRC’s guidance notes (see http://www.hmrc.gov.uk/helpsheets/E24.pdf) the tips effectively form part of the staff’s wages but are not liable to National Insurance deductions. Similarly, the extra (discretionary) charge to us the customer is not liable for VAT.
This means that the system of discretionary service charges enables the restaurateur to avoid an element of VAT and NIC payments and keep his prices lower than they would otherwise have to be.

Hm – not only are such charges a bad pricing strategy, they appear to be tax-inefficient. Colour me baffled as to why they are catching on. Tim Worstall directs me to a post from a way back where he explores all this in much more detail.

Today’s “More or Less” looks at whether the media and aid workers inflate the risk of death from epidemics after natural disasters. (The answer seems to be yes: most deaths occur from the immediate impact. But there is lots more to the story – and Burma, sadly, is one case where the risks are probably not exaggerated.)

And in the wake of accusations that Franco did Sir Cliff out of the Eurovision title in 1968, what determines who wins the world’s most prestigious award? Do doctors’ strikes save lives (postponed from last week – sorry). And an interview with Nassim Taleb, author of “The Black Swan”.

4.30pm BST, Radio 4 – or thereafter streaming from the website.

Economic forecasting is a long-standing joke, but the laughter has turned harsh and bitter in the wake of the credit crisis. The conventional wisdom seems to be that economic forecasting is impossible, and that economic forecasters are charlatans.

“In that case,” asked Professor David Hendry in a spring lecture at the Royal Economic Society, “why am I wasting my time on this?”

For one of Britain’s most respected economists, Hendry gives the strong impression of a man ploughing a lonely furrow.

His choice of field – the theory of economic forecasting – is to blame. It is viewed with scepticism not only by laymen but by most academic economists, too. But his research – a heady mix of bewildering computer-assisted mathematics and straightforward common sense – has convinced me that economic forecasting shouldn’t be consigned to the realm of quackery quite yet.

The remainder of this column can be read here. Please post comments below.

Dear Economist,
I have been trying to discourage the practice of “service” being added to restaurant bills. Where it’s added I ask for its removal and don’t leave a tip, and where it isn’t I tip a fair amount plus the saved service charges from other restaurants.What else can I do?
Patrick Gillett

Dear Patrick,

Discard any question of whether the service charge is aimed at the staff or at the restaurant managers. It makes no difference. Because staff are not stupid, lower tips must mean higher wages, otherwise the waiters will find somewhere else to work.

Similarly, higher service charges will have to mean lower up-front prices, or commercial disaster will surely follow.

That noted, it seems to me that optional tips are an attractive way of doing business. By leaving the customers some discretion, the restaurant manager creates a way of charging less to stingy customers and more to fat-walleted ones. Huge marketing databases are interrogated to achieve the same effect; the tip system is easy by contrast. The American reputation for excellent service may also owe something to a culture of high and variable tipping.

In short, I have no idea why restaurants are abandoning this most excellent, business-friendly custom. If you wish to stamp out the practice, perhaps management consultancy would be an influential place to start?

Questions to economist@ft.com

I’m reading Stefan Klein’s excellent “The Secret Pulse of Time“. Recommended – Klein’s style is charming, if rather German, and his grasp of the science is strong. He covers the biology, psychology and physics of time and yes, it really is all relative. One observation that struck home was that we do not remember time as a continuum but as a series of events; that is why a fortnight recuperating in bed seems like an eternity (because we have no events to observe) but almost vanishes from the memory (because there are no events to remember). That is also why a wonderful day’s sightseeing can fly by, yet when looking back over an evening drink, that morning’s coffee can seem impossibly distant. Much to enjoy.

…Taxi Driver, claims Robert Mundell. John Authers has the scoop:

John Hinckley, the deranged would-be assassin who attempted to kill Ronald Reagan in 1981, claimed that he was inspired by [Taxi Driver]… According to Mundell, the wave of sympathy for President Reagan that was engendered by the assassination attempt deterred Democrats in Congress from voting against his proposed tax cuts. Due to this accident of history, the US administered a big fiscal stimulus at the same time that Paul Volcker at the Federal Reserve was administering tight money. This, for Professor Mundell, was vital in creating the era of prosperity that followed.
“Taxi Driver is the most important movie ever made from the standpoint of creating GDP,” Mundell told delegates. “It’s the movie that made the Reagan revolution possible. That movie was indirectly responsible for adding between $5 trillion and $15 trillion of output to the US economy.”

John’s despatches from Vancouver are well worth reading, by the way.

Those in shouting distance of London may be interested in this:

‘Why Economics Matters’: The New Palgrave Public Lecture 2008

Chair: Evan Davis
Speakers: Tim Harford, Martin Wolf, Professor Klaus Nielsen and Professor Franscesco Caselli

Date: Tuesday 20 May 2008
Time: 6.30-8pm
Venue: Old Theatre, Old Building, London School of Economics and Political Science

My experience suggests that the place will be full long before the start time – do turn up early. The New Palgrave dictionary of economics website is here.

Clay Shirky reports on a conversation with a TV producer, after describing a flurry of activity on the Pluto page:

She heard this story and she shook her head and said, “Where do people find the time?” That was her question. And I just kind of snapped. And I said, “No one who works in TV gets to ask that question. You know where the time comes from. It comes from the cognitive surplus you’ve been masking for 50 years.”

So how big is that surplus? So if you take Wikipedia as a kind of unit, all of Wikipedia, the whole project–every page, every edit, every talk page, every line of code, in every language that Wikipedia exists in–that represents something like the cumulation of 100 million hours of human thought. I worked this out with Martin Wattenberg at IBM; it’s a back-of-the-envelope calculation, but it’s the right order of magnitude, about 100 million hours of thought.

100 million hours sounds like a big number, but as Clay goes on to describe, it’s tiny. 100 million hours is about 20 minutes per US citizen – roughly the amount of time collectively spent watching advertisements in a typical weekend. (That’s Clay’s number: I’d have guess it only took an evening for each American to watch 20 minutes of adverts, but I am clearly a TV-pessimist and out of touch.) HT: Virtual economics.

Update: My TV pessimism was correct – see Comment No 2 from Gerald, below. Thanks, Gerald!

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
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