Indonesia | Economics

Saturday, January 02, 2010

Soccer and social capital

So, this winter break, I packed up five books on my vacation and managed to finish (at least) two: Soccernomics and Unanticipated Gains: Origins of Network Inequality in Everyday Life. Both books are very rewarding at different levels.

Soccernomics, true to its title, is about soccer and economics. It also proves to be an engaging read, even for someone like me who pretty much knows very little about the former of the two topics. One of the blurbs from The Guardian calls it "a sort of Freakonomics for soccer". Well, not exactly. In many ways, it is superior than the book it's compared to.

For one, Soccernomics lacks the kind of attention-deficit disorder plaguing Freakonomics. The book is tightly organized around topics that (I'd imagine) soccer fans would be really interested in. An instance: It started with explaining what is going on with the English team which, as shown by their data, is the team with the most loyal fans worldwide (they also go on to show why).

But as the book's title is not "English Soccer", it only lingers a bit on the English before moving on to other topics that illustrate how the tools of economics can be used to understand what is happening in soccer worldwide. They use empirical approaches to show among others, why soccer clubs are probably the worst-managed business on earth, or why game theory can help (or not) goal keepers during penalty-shootouts (and that professional players are brilliant mixed-strategists!). Most of the insights are novel and well-supported by data.

Meanwhile, I picked up Unanticipated Gains: Origins of Network Inequality in Everyday Life because of a recent interest in social capital. Mario Luis Small, a sociologist, examines how the way childcare centers in poor neighborhoods are organized would affect the social ties formed by their members. One form of social capital is social networks that allow individuals access to resources -- such as information, informal support etc -- owned by members of the networks.

If social capitals are important especially for poor people, then understanding how (top-down) institutions may affect their formation might help facilitate policies that would be beneficial to them. Small shows the role of institutional rules (e.g., when parents can pick up their children), and resources (e.g., ties with other organizations) would differentially affect the formation of social ties. The book uses detailed interviews as well as large survey data.

I find the book thoroughly enjoyable, although I need time to process its implications for my own research, or whether some of the findings are "obvious". It presents how these institutions act as a broker of social ties, firstly between its clients (through its institutional rules) as well as with other organizations. The book is organized well, along with a methodological appendix that I definitely have to at least skim.

So, today, a week before the break's end, there are three more to go on my list: This Time is Different, Rational Decisions, and (at the recommendation of the Economist), The Crisis of Islamic Civilization. Oh, well, there's always Summer 2010.

Happy New Year everyone!

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Sunday, January 04, 2009

The fatal misconception of population control

For the holiday, I decided to finish Michael Connelly's Fatal Misconception: The Struggle to Control World Population. It's an excellent history of how a hypothesis -- that unchecked, population growth will result in all sorts of problems -- became an ideology that got translated into policies and spun out of control to ruin many lives of women, mostly in developing countries. From the book's concluding chapter:
The great tragedy of population control, the fatal misconception, was to think that one could know other people's interests better than they knew it themselves. But if the idea of planning other people's families is now discredited, this very human tendency is still with us. The essence of population control... was to make rules for other people without having to answer to them. It appealed to the rich and powerful because, with the spread of emancipatory movements and the integration of markets, it began to appear easier and more profitable to control populations than to control territory. That is why opponents were correct in viewing it as another chapter in the unfinished history of imperialism.

The book is full of examples of how good intentions is a poor substitute for good evidence when devising (and scaling up) public policies. Yet, this seems to be the default mode of policy-making -- not only in Indonesia, but also within many international organizations and NGOs. Personally, I find this rather scary.

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Wednesday, October 29, 2008

Roger Ebert: The rational film critic

Top film critic Roger Ebert understands the necessity of transitivity (and completeness) that makes up a rational preference:
Do the math. If one week you state, "'Mr. Untouchable' makes 'American Gangster' look like a fairy tale," and the next week we say, "American Gangster" was "Goodfellas" for "the next generation," then you must conclude that "Mr. Untouchable" is better than "Goodfellas."

See the rest of Ebert's critiquing rule book here.

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Monday, October 20, 2008

Scholes on financial regulation

From Myron Scholes's opening statement on The Economist's debate on financial regulation with Joseph Stiglitz:
Economic theory suggests that financial innovation must lead to failures. And, in particular, since successful innovations are hard to predict, the infrastructure necessary to support innovation needs to lag the innovations themselves, which increases the probability that controls will be insufficient at times to prevent breakdowns in governance mechanisms. Failures, however, do not lead to the conclusion that re-regulation will succeed in stemming future failures. Or that society will be better off with fewer freedoms. Although governments are able to regulate organisational forms, they are unable to regulate the services provided by competing entities, many yet to be born. Organisational forms change with financial innovations. Although functions of finance remain static and are similar in Africa, Asia, Europe and the United States, their provision is dynamic as entities attempt to profit by providing services at lower cost and greater benefit than competing alternatives.

Thanks to Puspa Amri for the pointer.

On a side note: Rodrik put up a challenge in his blog for anyone to come up with financial innovations that have made us better off, and Steve Wadman took it up. HT: Dani Rodrik.

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Sunday, October 19, 2008

Clive Crook on the crisis and innovation

Growth economists will tell you that the key to long term growth is productivity improvement, driven by technical changes and innovations. Economic history suggests that technical changes create boom-and-bust cycles as people adapt to the new technology. One can say that the crisis is a consequence of technical changes and innovations.

So, what of the present crisis? Does it suggest the utter failure of market forces, hence a need for an overall greater regulation in the financial market -- and not just those related to the specific problems at hand? FT's Clive Crook on the crisis' impact on the regulatory regime:
There is a broader point. The financial crisis was indeed a failure of regulation. The system was overwhelmed by innovation. Regulators are going to have to catch up and, you could say, try to hold innovation back. But finance is not a normal industry. The question to ponder is this: in which other industries will curbing innovation - also known as market forces - strike governments or voters, in the US or anywhere else, as a good idea?

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Sunday, October 05, 2008

Easterly on the wrong lessons from the US crisis

William Easterly on what not to learn from the crisis, ie., "that development flows from all-knowing states rather than creative individuals". His last two paragraphs:
How much poverty has endured because individual entrepreneurs were shunned in favor of the likes of the $5 billion state-owned Ajaokuta Steel Mill in Nigeria, which never produced a bar of steel? Or because African governments spend their time preparing World Bank-required national Poverty Reduction Strategy Reports instead of freeing space for innovators?

We will never know. But we do know that the free market has a long-run track record of creating prosperity -- even with the occasional crash. The Depression's deceptive intellectual legacy is that development flows from all-knowing states rather than creative individuals. Here's hoping that the backlash to today's crash will not spawn another round of bad economics for the poor.

HT: Marginal Revolution

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Concise Encyclopedia of Economics online

The Concise Encyclopedia of Economics, explaining basic economics concepts, can be accessed here.

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Wednesday, October 01, 2008

On the economics of superstition

As part of my economic history class, I was required to do readings (with no symbols and very little graphs). Here is an interesting one, by Vernon Smith, Nobel Laureate in economics. He was talking about the economic principles in the emergence of humankind, and he has the following to say about superstition:
Another example of the hidden economic function of culture is the magical practice of the Naskapi Indians of Labrador, who, when the caribou were scarce and the tribe hungry, resorted to scapulimacy, a divination in which the shoulder blade bone of a caribou was heated by fire until it cracked. As cracks appeared they were interpreted by a diviner in terms of the local geography as caribou trails, one of which the hunter should follow if he was to be successful. All this is commonly interpreted as showing the capacity of Naskapi for belief in magic. But is scapulimacy functional? One function is to sharpen the hunter's concentration, and to impress upon all the need for great dedication. But another effect was to cause the hunter to choose a random route, steering him away from previously successful hunting routes, and preventing the caribou from being sensitized to regularities in hunter behavior. This is precisely the normative argument for using mixed strategies in certain games of conflict. What the Naskapi in effect seem to have discovered was that reading shoulder blades had survival value.

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The utility of math

David Colander, reviewing this book, observes:
Economists have a tendency to obfuscate and lose themselves in a maze of equations and statistical tests that often have little intuitive meaning to the researcher, let alone to policymakers. My quest in economics has been to fight against those tendencies in applied policy work. But despite econommists' faults, I have to admit that their medium -- equations and statistical tests -- places a limit on the obfuscation that occurs. Ultimately the equations have to parse. Language -- the medium of sociologists and science scholars -- imposes fewer limits, which makes it easier for them to obfuscate. (JEL, XLVI/3, 78)

...which, I think, explains why it's much easier to do good economics than other social sciences.

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Monday, June 16, 2008

Why a high oil price is a good thing...

Foreign Policy gives five very good reasons.

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