What's the word?

Tim Hartford wonders why the Cameroon is 30 times poorer than the US, when it should be only about 4 times poorer.

We still don’t have a good word to describe what is missing in Cameroon and in poor countries across the world. But we are starting to understand what it is. Some people call it “social capital,” or maybe “trust.” Others call it “the rule of law,” or “institutions.” But these are just labels. The problem is that Cameroon, like other poor countries, is a topsy-turvy place where it’s in most people’s interest to take actions that directly or indirectly damage everyone else. The incentives to create wealth are turned on their heads like the roof of the school library.

Maybe "civilization" is the right word.

Biases and assumptions

I very much enjoyed this post on happiness research, which details the Fallacy of Assymetric Idealization. It's in response to the conclusions some people jump to when reading about behavioral economics, and the very real limitations of the forward looking rational utility maximizer used in neo-classical (or Chicago school) economics.

This article, for example, is a good summary of behavioral ec. Even allowing for some artistic license, it concludes with this clunker:

There are many political implications. We have had 30 years of deregulation in the United States, freeing up markets to work their magic. “Is that generally welfare-enhancing, or not?” Wanner asks. “Framing can call that into question. Everyone agrees that there’s informational asymmetry—so we have laws that ensure drugs are tested, and truth-in-advertising laws. Still, there are subtle things about framing choices that are deceptive, though not inaccurate. We have the power of markets, but they are places where naive participants lose money. How do we manage markets so that the framing problem can be acknowledged and controlled? It’s an essential question in a time of rising inequality, when the well-educated are doing better and the poorly educated doing worse.”

The fallacious assymetric idealization here is that individual actors in a government committee will be wiser and better than individual actors in the market because individual actors make bad choices. The assumption is that government committees somehow raise intelligence and produce better decisions, when evidence to the contrary is only as far as the next visit to the DMV. Or FEMA. Or any major bill passed in the last 40 years. &c.

Behavioral economics is interesting and the points it raises are quite valid. However, they are neutral on the subject of government intervention because they talk about the limits of human beings, and last I checked, human beings operate government as well. That said, paying close attention to behavioral details will, I think, have a big impact on how people behave -- certainly larger than neo-classical economics would predict. Behavioral ec is good for implementation details, but I don't think it helps us consider well being, or makes a case for centralized decision making.

Opinions on P2P

I do not believe in surveys, or in what people say -- too often it is contradicted by what they actually do. So I am not moved by this Canadian survey which argues that P2P music sharing does not impact CD sales. Instead, I would look at the fact that while downloading mp3s off the internet has become normal, mainstream activity, CD sales have barely budged. For reasons which honestly are quite beyond me, a downloaded mp3 seems to be a very pure substitute for the CD. This must be because most mp3 downloads are substituting for CDs that were never bought.

Folly

The recent crash in Dubai's stock market suggests that the investment spree there has been folly. A combination of an implicit government promise to make good all capital losses, and a flush of oil money with nowhere else to go, had pushed regional indices up to record levels. But the investors were a homogeneous bunch, which means that very different regional markets are acting in concert as prices tumble.

Dakkak attributed the regional loss to action by Saudi dealers, who invest heavily in all Gulf stock markets, and have recently pulled out to cover losses back home.

“It is a chain reaction. Saudi investors have withdrawn much of their money from stock markets in the Middle East, including Egypt and Jordan, causing them to decline.”

Gulf markets have increased six to seven fold since 2001 due to abundant liquidity generated from a sharp rise in oil revenues. The upward trend and lucrative profits lured millions of small investors including women.

“Almost 60 percent of Saudi investors are small dealers. They depend mainly on speculation and whenever a decline happens they try to exit, causing the market to slide,” Saudi economist AbdulAziz al-Daghestani said.

The funding behind the real estate boom there is similarly speculative.

Folly or Consumption

I recently posted on Assymetrical Information wondering whether the current boom in Dubai was folly, consumption, or investment. I've removed investment from the consideration set.

Secret Dubai Diary says:

The financial losses suffered by investors in tumbling regional stockmarkets is likely to have repercussions far beyond a few now-empty dishdash pockets.

First: thousands of often inexperienced, first-time local investors have taken out huge, unsecured bank loans to speculate in the markets. Most will now presumably default on these loans.

Secondly: GCC nationals aren't used to losing money. They're used to the government bailing them out if they don't have enough money or don't save any money. They're used to the courts bailing them out with favourable verdicts if they can't pay their bank loans, or if they have a dispute with their foreign partner. They're not used to having access to things like gambling, since that's banned in most Islamic countries. Hence the fever - to the point of violent stampedes - that broke out over many recent IPOs, with the markets effectively becoming a legitimised casino.

Leverage, the belief that prices never go down, and moral hazard do not support investment.

Print on Demand

Print on Demand books never really appeared -- maybe it was not particularly cost effective, or maybe it would take too long to print a book for it to be useful -- but Slate makes a good argument for DVDs on Demand.

Wal-Mart, which recognizes the same virtue in price elasticity as the Shanghai pirates do, is moving to further reduce the price of DVDs with a plan to burn its own copies of DVDs in kiosks in its stores. Like the Shanghai pirates, the retail giant would buy huge quantities of blanks discs and cheap boxes (probably made in China) at a cost of pennies, but, unlike the pirates, pay a licensing fee to the studios for each copy it burns. The advantage to the customer would be that he could choose a title from among the tens of thousands of movies in the studios' libraries, and also possibly have it in the language and rated-version (G, PG, R, or NC-17) he prefers, while the studios would save the cost of manufacturing, packaging warehousing, and returns.

Unfortunately, the article suggests that WalMart sees this as a ploy to keep customers in the store longer. That would increase the real cost of the service, but the "time rich" may not mind. I'm not sure how many of WalMart's customers are "time rich", but I do not see the value in keeping this segment in stores for longer.

Easy to use mobile phones

I recently wrote about how I thought mobile phones for old people were going to be surprise breakout hits with everyone who simply uses their cell to call their friends.

Japan has had old people's phones for a while now, but honestly, I don't think this phone looks very simple at all. This other phone seems much more like it.

Gootodo and GTD

My buddy (and boss, I guess) Mark Hurst has finally released Gootodo to the broader public.

Gootodo is an online todo list, and it's *great*. (I first wrote about it here, and you can read more about the concept here.)

The Gootodo list works best when you are also using bit literacy, a system of personal organization and workflow that I have found tremendously useful.

There are similarities between bit literacy and David Allen's Getting Things Done. Personally, I find bit literacy very useful for the online world, while a slimmed down version of GTD has tamed the paper in my life.

The broader economy and housing

Housing prices in the US have appreciated dramatically over the past few years, adding billions of dollars to American paper wealth. The question is, once those prices flatten (or fall) what will happen to consumer spending, and the broader economy?

St. Louis Federal Reserve Bank President William Poole thinks the impact will be slight

"I base this forecast on the belief that the FOMC (policy-setting Federal Open Market Committee) will keep underlying inflation low and stable, and that the growth of real household income will recover nicely due to the waning influence of last year's spike in energy prices.

Calculated Risk argues against this saying that

I think the substantial mortgage equity withdrawal (MEW) in recent years contributed significantly to GDP growth, and declining MEW will be a significant drag for the next few years.

I don't know who is right. It is true that homeowners are taking equity out of their houses (growth in debt in Q42005 was matched only by growth in 1985), but I get the sense that most of that money is going right back into houses. I have not seen people splurging on luxuries or consumer goods like they did in the 90s Internet boom, but I have seen people load up with debt to get into a house. When the Internet bubble collapsed, the fallout was most acutely felt by people who worked at Internet companies, or for companies that served Internet companies. If housing prices fall, it will hurt homeowners who are long housing, but it will help the marginal homebuyer as prices are now much lower. I do expect mortgage issuers, real estate agents, and builders to take a big hit, but many people in those industries should clearly be working somewhere else. (By this I don't mean they are incompetent, I just mean that they are unnecessary in the same way Pets.com was unnecessary).

Bigger problems

People who drive automatics with two feet should not be allowed to own Porches.

Good experiences with kitchen tools

I am sure many of you are familiar with Oxo kitchen products. They make attractive, clever peelers, spinners, mashers etc. that are much easier, and more pleasant to use, than those of other brands.

They began by making easy grip versions of common products for older people with arthritic hands. It turned out that everyone appreciated more comfortable, easy to use items.

Strangely enough, this is similar to what I think will happen in the cell phone market -- a company will make a simple "old person's" cell phone and then be shocked to see that it is popular with everyone.

This article details how Oxo goes about the design process, how they integrate customer feedback into product development, and all the attention to tiny detail that goes into creating good customer experiences.

Cooking steak

I agree with some things in this article about cooking steak, but not others.

Agree:
- Let the steak warm up to room temperature first
- Use *lots* of salt (coarse, kosher) and pepper (fresh ground)
- Cook the steak on its ends. Do this first if you don't oil the meat, do it whenever if you do.

Disagree:
- He goes about and flipping the steak lots of times. Don't bother. If you like steak rare, one flip is plenty. If you want it more done, 3 flips are fine, but you'll want to put it in a hot oven after flip 1.
- I've also found that basting meat does nothing.

Missed point:
Buy really fat steak.

Mmm. Now I'm hungry.

Back in Boston

Just as I get back home, I read that the Dubai Ports Deal is dead. My hometown paper says differently however, suggesting that the deal will go ahead and threatening all sorts of direness in case it does not.

'It's American double standards. Do you think that businesses and governments here won't react and even retaliate?' said Wadah Al Taha of the National Bank of Abu Dhabi.

He said the issue was likely to feature prominently in trade talks later this month between the United States and the UAE, a federation of seven emirates that includes Dubai.

The Dubai Ports row has reinforced fears in the Middle East that investments in the United States have become politically risky for Arabs and Muslims. Some Arabs say the US opposition to the deal smacks of racism.

While the political furor over the deal in the US is paranoid, Dubai (at least on paper) seems to be in deep denial over the whole thing. US concerns over having an Arab state control its ports are as clear as they are muddy: Muslim Arab terrorism.

In the final analysis, Dubai's inability to acknowledge, let alone tackle, US concerns made it impossible for them to make their case. Reading through the article, all you get are threats ("we will retaliate") and insults ("the US is racist").