Econstudentlog

David Copperfield (1.5)

First post here.

We were very pleasant, going down, and Mr. Spenlow gave me some hints in reference to my profession. He said it was the genteelest profession in the world, and must on no account be confounded with the profession of a solicitor; being quite another sort of thing, infinitely more exclusive, less mechanical, and more profitable. We took things much more easily in the Commons than they could be taken anywhere else, he observed, and that set us, as a privileged class, apart. He said it was impossible to conceal the disagreeable fact, that we were chiefly employed by solicitors; but he gave me to understand that they were an inferior race of men, universally looked down upon by all proctors of any pretensions.

I asked Mr. Spenlow what he considered the best sort of professional business. He replied, that a good case of a disputed will, where there was a neat little estate of thirty or forty thousand pounds, was, perhaps, the best of all. In such a case, he said, not only were there very pretty pickings, in the way of arguments at every stage of the proceedings, and mountains upon mountains of evidence on interrogatory and counter-interrogatory (to say nothing of an appeal lying, first at the Delegates, and then to the Lords); but, the costs being pretty sure to come out of the estate at last, both sides went at it in a lively and spirited manner, and expense was no consideration. Then, he launched into a general eulogium on the Commons. What was particularly admired (he said) in the Commons, was its compactness. It was the most conveniently organized place in the world. It was the complete idea of snugness. It lay in a nut-shell. For example: You brought a divorce case, or a restitution case, into the Consistory. Very good. You tried it in the Consistory. You made a quiet little round game of it, among a family group, and you played it out at leasure. Suppose you were not satisfied with the Consistory, what did you do then? Why, you went into the Arches. What was the Arches? The same court, in the same room, with the same bar, and the same practitioners, but another judge, for there the Consistory judge could plead any court-day as an advocate. Still you were not satisfied. Very good. What did you do then? Why, the Ecclesiastical Delegates were the advocates without any business, who had looked on at the round game when it was playing in both courts, and had seen the cards shuffled, and cut, and played, and had talked to all the players about it, and now came fresh, as judges, to settle the matter to the satisfaction of everybody! Discontented people might talk of corruption in the Commons, closeness in the Commons, and the necessity of reforming the Commons, said Mr. Spenlow solemnly, in conclusion; but when the price of wheat per bushed had been highest, the Commons had been busiest; and a man might lay his hand upon his heart, and say this to the whole world – ‘Touch the Commons, and down comes the country!’

I listened to all of this with attention; and though, I must say, I had my doubts whether the country was quite as much obliged to the Commons as Mr. Spenlow made out, I respectfully deferred to his opinion. That about the price of wheat per bushel, I modestly felt was too much for my strenght, and quite settled the question…

April 29, 2009 Posted by | Books | Leave a comment

Baumol’s law and the welfare state

Baumol’s law says that a two-sector economy with a permanent difference in productivity
growth has no steady state.2 That is, a Baumol-problem will always emerge.

[…]

The analysis in the paper deals with a simple two sector model, which is in perfectly balance, if the two sectors grow at the same rate. However, as the public sector has lower productivity growth than the private one, no steady state growth is possible. This is shown in general, and in two policy cases, where the government adopts a policy fixing a major ratio. A Baumolproblem occurs in both policy cases.

The problem is only in the order of 7-10% of GDP in a 20-years perspective. Within one election period, it is just 1-2% of GDP. So, it is small and easy to neglect – also, it is difficult to explain to people and to busy policy makers. One of the most well established results in modern political economy is that political processes enforces myopia on the decision making process. Consequently this theory predicts that Baumol’s law is ignored by the political decision process, as is indeed the case. But still, it never stops growing.

The problem can be delayed in several ways: (a) The most obvious is to try to increase productivity in the public sector, i.e., by privatization and outsourcing. (b) It also helps to run a public sector surplus that tilts the tax pressure curve to a lower slope, by increasing taxes now and permitting lower taxes later.
Furthermore, luck in the form of good, but transitory events, may occur. (c) Unemployment may fall below its natural level reducing public expenditures and increasing the tax base. (d) Variations in the population age structure may cause the dependency ratio to fall below its long-run value. (e) Conditions may allow a relative reduction in public sector wages.

When luck runs out the problem returns with a vengeance: (c) Unemployment rises above its natural level; (d) the dependency ration rises above its long run-value; and (e) the public sector wage arrears leads to strikes and compensations. Consequently, Baumol’s law will turn up in one period as one concrete problem and in another period as another problem. It will then be ascribed to the concrete problem. This blurs the underlying “creeping” character of the fundamental Baumol-problem: The welfare state has no steady state.

From this brand new working paper by Martin Paldam. Given the self-reported mathematical skill level of my readers, I found it prudent to exclude the model itself and the underlying assumptions from the post – but if you are even the least bit curious, and you think you know enough mathematics and economics to understand the model in question, which ie. most undergrad econ students ought to do, you really should read this paper.

April 28, 2009 Posted by | Economics, Papers | 4 Comments

A few numbers: Federal spending during the Bush Era

Spending under Bushjoanna.xls

derugy_gwb_figure2_federalbudgetannualgrowth

Spending under Bushjoanna.xls

joanna.xls

From this mercatus publication. The conclusion:

Republicans often claim to be the party of smaller government. Many Republicans would express support for Ronald Reagan’s observation: “Growth, prosperity and ultimately human fulfillment, are created from the bottom up, not the government down.”2 Unfortunately, once Republicans are elected to political office, they tend to fall into the Washington trap of assuming that more federal spending will solve the nation’s problems. Certainly, President Bush appears to have fallen into this trap. So did the Republicans in Congress.

Well, that’s one way of putting it. I might have put it a bit differently.

April 27, 2009 Posted by | Data, Economics | Leave a comment

Quote of the day

{David is 8-9 years old at this point in the story. He is travelling alone, heading for a boarding school in London, and he has just sat down for dinner in a local public house. At this moment, he is just about to start eating:}

‘There’s a half a pint of ale for you. Will you have it now?’ I thanked him and said: ‘Yes’. Upon which he poured it out of a jug into a large tumbler, and held it up against the light, and made it look beautiful.
‘My eye!’ he said. ‘It seems a good deal, don’t it?’
‘It does seem a good deal,’ I answered with a smile. For it was quite delightful to me to find him so pleasant. He was a twinkling-eyed, pimple-faced man, with his hair standing upright all over his head; and as he stood with one arm a-kimbo, holding up the glass to the light with the one hand, he looked quite friendly.
‘There was a gentleman here yesterday’ he said — ‘a stout gentleman, by the name of Topsawyer — perhaps you know him?’
‘No,’ I said, I don’t think –‘
‘In breeches and gaiters, broad-brimmed hat, grey coat, speckled choker,’ said the waiter.
‘No,’ I said bashfully, ‘I haven’t the pleasure—‘
‘He came in here,’ said the waiter, looking at the light through the tumbler, ‘ordered a glass of this ale–would order it–I told him not—drank it, and fell dead. It was too old for him. It oughtn’t to be drawn; that’s the fact.’
I was very much shocked to hear of this melancholy accident, and said I thought I had better have some water.
‘Why, you see,’ said the waiter, still looking at the light through the tumbler, with one of his eyes shut up, ‘our people don’t like things being ordered and left. It offends ’em. But I’ll drink it, if you like. I’m used to it, and use is everything. I don’t think it’ll hurt me, if I throw my head back, and take it off quick. Shall I?’
I replied that he would much oblige me by drinking it, if he thought he could do it safely, but by no means otherwise. When he did throw his head back, and take it off quick, I had a horrible fear, I confess, of seing him meet the fate of the lamented Mr. Topsawyer, and fall lifeless on the carpet. But it didn’t hurt him. On the contrary, I thought he seemed the fresher for it.
‘What have we got here?’ he said, putting a fork into my dish. ‘Not chops?’
‘Chops,’ I said.
‘Lord bless my soul!’ he exclaimed, ‘I didn’t know they were chops. Why a chop’s the very thing to take off the bad effects of that beer! Ain’t it lucky?’
So he took a chop by the bone in one hand, and a potato in the other, and ate away with a very good appetite, to my extreme satisfaction. He afterwards took another chop, and another potato; and after that he brought me a pudding, and having set it before me, seemed to ruminate, and to become absent in his mind for some moments.
‘How’s the pie?’ he said, rousing himself.
‘It’s pudding,’ I made answer.
‘Pudding!’ he exclaimed. ‘Why, bless me, so it is! What!’ looking at it nearer. ‘You don’t mean to say it’s a batter-pudding?’
‘Yes, it is indeed.’
‘Why, a batter-pudding,’ he said, taking up a tablespoon, ‘is my favourite pudding! Ain’t that lucky? Come on, little ‘un, and let’s see who’ll get the most.’
The waiter certainly got the most. He entreated more than once to come in and win, but what with his tablespoon to my teaspoon, his dispatch to my dispatch, and his appetite to my appetite, I was left far behind at the first mouthful, and had no chance with him. I never saw any one enjoy a pudding so much, I think; and he laughed, when it was all gone, as if his enjoyment of it lasted still.
Finding him so very friendly and companionable, it was then that I asked for the pen and ink and paper, to write to Peggotty. He not only brought it in immediately, but was good enough to look over me while I wrote the letter. When I had finished it, he asked me where I was going to school.

The above is an excerpt from Charles Dickens’ David Copperfield, the complete and unabridged version (837 pages), which I’m currently reading – alongside Sun Tzu of course. This book is a real heartbreaker, this I know with certainty, even if I’ve still only read about a fourth of it. And yes, I do get out – I’ve been sitting outside (reading) between noon and 3 pm both today and yesterday. This is as close to an optimal afternoon as I’ve been for a long while, I think (yeah, I know: some people would probably think this was a bit sad).

I have also finished Said’s Orientalism (in a Danish translation) and Jacqueline Susann’s Valley of the Dolls (…likewise), as well as Lone Frank’s Det nye Liv since the last time I wrote about books I’ve been reading. I might write a bit about Said later, and maybe a line or two about Lone Frank’s book.

April 19, 2009 Posted by | Books, Quotes/aphorisms | Leave a comment

The art of war

A few passages from the book (and yeah, to those inquiring minds who wish to know; this is another one of those books I read solely because I knew beforehand that I would agree with everything the author says):

To see victory only when it is within the ken of the common herd is not the acme of excellence.

What the ancients called a clever fighter is one who not only wins, but excels in winning with ease.

Hence his victories bring him neither reputation for wisdom nor credit for courage.

He wins his battles by making no mistakes.

Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated.

Hence the skillful fighter puts himself into a position which makes defeat impossible, and does not miss the moment for defeating the enemy.

Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory.



The control of a large force is the same principle as the control of a few men: it is merely a question of dividing up their numbers.



The clever combatant looks to the effect of combined energy, and does not require too much from individuals.

Hence his ability to pick out the right men and utilize combined energy.



Whoever is first in the field and awaits the coming of the enemy, will be fresh for the fight; whoever is second in the field and has to hasten to battle will arrive exhausted.

Therefore the clever combatant imposes his will on the enemy, but does not allow the enemy’s will to be imposed on him.

You can be sure of succeeding in your attacks if you only attack places which are undefended.

[…]

Hence that general is skillful in attack whose opponent does not know what to defend; and he is skillful in defense whose opponent does not know what to attack.



The spot where we intend to fight must not be made known; for then the enemy will have to prepare against a possible attack at several different points; and his forces being thus distributed in many directions, the numbers we shall have to face at any given point will be proportionately few.

For should the enemy strengthen his van, he will weaken his rear; should he strengthen his rear, he will weaken his van; should he strengthen his left, he will weaken his right; should he strengthen his right, he will weaken his left. If he sends reinforcements everywhere, he will everywhere be weak.

Numerical weakness comes from having to prepare against possible attacks; numerical strength, from compelling our adversary to make these preparations against us.



If you march fifty LI in order to outmaneuver the enemy, you will lose the leader of your first division, and only half your force will reach the goal.

If you march thirty LI with the same object, two-thirds of your army will arrive.

We may take it then that an army without its baggage-train is lost; without provisions it is lost; without bases of supply it is lost.

We cannot enter into alliances until we are acquainted with the designs of our neighbors.

We are not fit to lead an army on the march unless we are familiar with the face of the country – its mountains and forests, its pitfalls and precipices, its marshes and swamps.

We shall be unable to turn natural advantage to account unless we make use of local guides.

April 16, 2009 Posted by | Books, Quotes/aphorisms | Leave a comment

One of those videos you just have to share with someone…

This has to be one of the most impressive performances I have ever seen. And it has only 11.600 views! I hereby give you Grande sonate “Les quatre âges”, by Charles-Valentin Alkan, part 2 (“30 ans”), performed by Marc-Andre Hamelin:

April 10, 2009 Posted by | Music | Leave a comment

If TV Science was more like real science…

phd040609s

Link. Here are a few other guesses:

i) Related to picture a: Average episode length of programs would double. For instance, the scientists in the programs would suddenly spend a lot of time looking up stuff in books, articles or online. Stuff that they just knew before. Also, they’d spend a lot of time in front of a computer doing seemingly nothing whatsoever.

ii) Heroes would never have aired.

iii) Eureka-moments, with scientists suddenly figuring everything out or getting a brilliant idea, would pretty much disappear from tv. Almost all of the scientific discoveries and ideas that would be deserving of such a moment would be far too complicated and require way too much time to explain to ever be allowed to go on air.

iv) This comic would also apply to TV Science. Thus, a lot of people would suddenly have to drastically revise their perception of scientists and science. In the long run, it would probably cause government funding of scientific institutions to be more than halved.

April 6, 2009 Posted by | Science | Leave a comment

An interlude

How to deal with problems that you cannot solve, but which never the less troubles you? I usually answer questions like these with the word Beethoven. But of course if I had to give a more detailed answer, I’d have to include several of his friends and colleagues.

Here are a few pieces played by one of those colleagues, Dinu Lipatti, a wonderfully gifted Romanian pianist whose Chopin-interpretations were some of the first classical pieces I ever heard, and who died much too young, at the age of only 33. The second piece was recorded before either of my parents were even born – I’m pretty sure it’s no good trying to talk to the dead, but the dead can sometimes talk to you:

April 3, 2009 Posted by | Chopin, Music | Leave a comment

Financial sector reform: The North Korean (non-)experience

Financial sector reform is critical to achieving sustained economic growth. Park (2003) presents a comprehensive review of the North Korean financial system. The system is based on the same monobank system of the former Soviet Union and Chinese economies in which central bank and noncentral bank functions are controlled by the central bank. In North Korea the central bank is responsible for issuing notes, maintaining the payments system, maintaining the foreign exchange rate system, accepting deposits, making industrial loans, and providing insurance. Monobank systems are based on the supremacy of the production plan in which finance is merely used to bridge gaps between receipts and expenditures and financing is not predicated on credit evaluation or monitoring. Hence, there is no need for institutions separate from the central bank to accept deposits and make loans.

A banking sector separate from the central bank is required to evaluate creditworthiness, monitor performance, and impose financial penalties to achieve a rational allocation of the nation’s savings. The banking sector needs to be able to evaluate the creditworthiness not just of individual firms, but of specific projects. The banking sector needs to be able to enforce repayment of loans, not just to give managers incentive to invest wisely but also because this acts as a selection mechanism for better productive arrangements and superior technologies. Unless they are willing to shut down inefficient firms that cannot repay their bank loans without government support, then any reforms will still ultimately lead to the accumulation of inefficient firms and outdated methods of production and rising nonperforming loan problems.

From this paper. Of course we all know the Western world works differently. It’s only in North Korea total government control of the financial industry causes problems.

April 2, 2009 Posted by | Economics, North Korea | Leave a comment