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.

As Greg Mankiw wittily observes, a young fogey reviews an old turk:

The excesses of the 1960s are forgotten and once again, the government is seen as society’s savior. For people of all political stripes, it is worthwhile returning to “The Affluent Society,” and pondering what Galbraith got right and what he got wrong.

While I am a staunch supporter of free markets, I agree with Galbraith that there is much the public sector needs to do. Private firms do not automatically provide safe streets, good roads, and clean water. Even more important, Galbraith was dead right in arguing that we need more effective schools. Human capital is our best tool against poverty and economic stagnation.

Galbraith’s great failure was that he never really understood how much society is strengthened by a free and competitive private sector. “The Affluent Society” argues that a lack of regulation made American homes inferior to those in European social democracies. That view was wrong in 1958 and is completely untenable today.

The whole review is here, and there is more of interest beyond the left-wing right-wing stuff I quote. My sympathies lie with Glaeser, who was a big influence on two chapters of “The Logic of Life“.

New Economist seems to be having a migration special, its impact on rural China, migration and innovation, and why people emigrate.

The full discussion is here; my final post is here, about climate change. Here’s the guts of it:

Standard economics has a solution: a carbon tax, or a tradable permit scheme, to raise the cost of emitting carbon. We’d all have an incentive to cut down by driving less and turning down the heating or air conditioning, and also by insulating our homes and finding more efficient cars and fridges. Businesses would also cut back, and would have an incentive to develop new technologies.

Behavioral economics draws attention to different considerations. For example, we’re not as smart as conventional economics assumes, which means that we might fail to notice ways to reduce our energy bills. We might also need to be reminded about what our neighbors are doing: psychologist Robert Cialdini showed that we’re more likely to recycle if we think everyone’s doing it. That may hold true for carbon-saving too. And although we’re reminded of high gas prices every time we fill up, we really need to be reminded of them when we’re buying a new car or a new fridge.

So which approach is right? That’s a strange question. They can both be right, and I think that they both are.

Of course, the economic incentives will work. I don’t think there’s any serious doubt that raising the price of carbon would persuade us to pollute less. The Logic of Life showed that we are sensitive to these simple incentives in the most unexpected situations. For instance, raising the risk of unprotected sex persuaded American teens to have more oral sex instead; and two Australian economists, Joshua Gans and Andrew Leigh, have found that tax incentives can persuade pregnant women to delay labor, and even deter people from dying too quickly. (It’s really true: the death rate in Australia dropped in the week before inheritance tax was due to be abolished, and then sharply rose the week immediately after. A lot of people were clinging on to life to avoid their estates being taxed.) If people will change their date of death or the day they have a baby in response to a tax incentive, I am quite sure that they will be more environmentally friendly, too.

But I am also sure the behavioral insights will produce results. Cass Sunstein and Richard Thaler report one dramatic success: people cut back dramatically if the electricity company gives them an “Ambient Orb” that glows red when they’re using a lot of power. There’s no standard economic theory that explains why that should be; and that is just one example.

Group hug in the end - sorry.

Via Economic Principals:

Myth: Given the growing retirement income challenge, people will have to work forever. Reality: If individuals worked full time until at least 66, they could enjoy a long and financially secure retirement, with incomes one-third higher than if they retired at 62.

Myth: Older workers will choose to work longer on their own. Reality: Most people retire as soon as benefits are available at age 62.

Myth: As baby boomers approach retirement, employers will embrace older workers. Reality: Many employers are lukewarm toward retaining older workers due to concerns that they cost too much, lack current skills, and don’t plan to stick around long.

Myth: Employers will quickly change their tune in response to labor shortage. Reality: Many employers with a high proportion of older workers are in declining industries. Others can tap global labor markets.

The original source is Working Longer: The Solution to the Retirement Income Challenge, by Alicia Munnell and Steven Sass. Update: Link fixed, thanks to a reader for pointing that out.

I read too many American blogs. They use words such as “smackdown”. Anyway, the debate between me and Dan “Predictably Irrational” Ariely continues - the collected posts are being gathered here.

In my reply to Dan’s first post, I finish by challenging him:

The weaknesses of laboratory experiments are not always quite so evident, especially when they are described as compellingly as in Predictably Irrational. So, let me point them out. While laboratory experiments are great for creating controlled conditions, they also create artificial conditions. There are several examples of important clashes between what happens in the laboratory and what happens outside. We know, for example, that procurement managers systematically screw up when bidding in a laboratory auction, but they do much better job in the (apparently identical) real life auctions situations they face everyday.
The economist John List has tried to replicate some famous “predictably irrational” results from the laboratory; the results tend to evaporate in more realistic settings. In one example I describe in The Logic of Life, List shows that the “irrational” result (which is that people given an unexpected raise work much harder than they could get away with) only lasts for ninety minutes. A gratitude effect that lasts ninety minutes is not the basis on which to rewrite your company’s human resources policy.
I’m not aware that any of Dan’s experiments have been challenged in this way, and I was pleased to see that he often tried to carry out his work in realistic settings such as restaurants and bars. So this isn’t an attack on his work–it’s more of a question. Dan, how can we be confident that these experimental results hold up in real life? And what further work would you like to see, to make us more confident in them?

Dan’s reply will be excellent, I am sure, and is due on Monday.

At the Royal Economic Society conference a couple of weeks back, I sat in on an interesting overview of the Mirrlees Review of taxation in the UK. Time constraints - and fire alarms - stood in the way of a detail discussion, but lots of early position papers are up here, and I am told that the latest drafts are to follow very shortly. Here is the original Meade Review.

I have stumbled upon Raghuram Rajan’s semi-popular writings from IMF mag “Finance and Development”. Ragu, co-author of “Saving Capitalism from the Capitalists” and former Chief Economist of the IMF, is a hugely impressive thinker. These articles, neither heavy peer-reviewed stuff nor fluffy newspaper journalism, are well worth a browse. (This is the one in which Ragu not only all-but forecasts the credit crunch, but also explains the mechanisms involved, back in 2005.)

The BBC reports:

US doctors have carried out what is believed to be the world’s first simultaneous six-way kidney transplant…
The hospital has been one of the pioneers of this system which matches up several groups of people at one time. It aims to circumvent the problem of altruistic donors ending up in arbitrary allocation systems where only a single patient’s needs are served. The hospital has been carrying out these simultaneous transplants for three years: in 2005, the first triple procedure was performed, a year later, the first five-way.

More about Al Roth’s work:

• My FT column on kidney exchange
• BBC documentary on repugnant markets
• Al Roth’s excellent home page

A longer piece from Scientific American on Eyjólfur Guðmundsson, virtual world economist:

Just as in real-world markets, in-game prices are sensitive to the law of supply and demand. Prior to Guðmundsson’s arrival, a new asteroid belt was seeded with an abnormally high level of the usually rare mineral zydrine. Prices dropped for six months until the ore sold for half its normal cost. The developers then updated the game so that less zydrine could be refined from other compounds. In the meantime, players began to stockpile the mineral until the price leveled out, which Guðmundsson points to as proof of a working economy.

Tyler Cowen of Marginal Revolution is quoted as a sceptic in the article:

“What makes experimental economics work is that you truly have a controlled experiment. When you have these virtual worlds, as I understand, people are not conducting controlled experiments. They’re running these onetime simulations. Whatever result you get is interesting, but you don’t know what to make of it. You’re stuck.”

That seems to be true of Guðmundsson’s work, at least. It is doesn’t have to be true - see my discussion of Ted Castronova’s virtual world experiments.

Picture: CCP Games