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Posts Tagged ‘Economics’

The Comparative Advantage Juice

We came close to overturning comparative advantage last night with our new juice-squeezer. Using it requires peeling the oranges, which involves rolling them around, making two circumferential cuts, and then stripping the flesh out. Only then can the flesh be thrown in the squeezer. After doing this together, my wife announced that I was so incompetent that the elapsed time in the first three steps would be less if she did everything and I watched. What she really meant was, “Daniel, your marginal productivity is very low! (But it wasn’t negative: I was able to put the oranges in the squeezer, but she could have done that too, and the “assembly line” would have moved faster.)
How many household production activities are there where even the second cook “spoils the broth”?



How to Destroy a University

A colleague elsewhere, who wishes to remain nameless for fear of retribution, has illustrated how easy it is to destroy a university. His is abolishing its economics graduate programs; introductory economics will be taught in sections of 1,000 students; professors do their own purchasing of supplies; and upper-division courses are being sharply reduced in number.
All this is a response to calls for greater efficiency in higher education. Is this really greater efficiency? Or is it a move to a different point on the production possibility frontier, essentially choosing to convert a research institution into a mediocre equivalent of a two-year college? Calls for professors to teach more to save higher-education money have consequences—there ain’t no free lunch here. Of course, too, such policies drive away faculty members who might be interested in doing research. Fortunately, not all public universities are following this troglodyte approach.



A Reader Debate: Economists-Turned Parents Vs. Parents-Turned Economists

On Friday I speculated that perhaps becoming a parent changed how I approach economics. To broaden the discussion, I posed the following thought experiment: what kind of economists would we be if we learned our economics only after we were parents?
The always-interesting Robin Hanson responded:

I don’t need to speculate – I am exactly that kind of economist. I started econ grad school with two kids, ages 0 and 2, and had no undergrad econ… But none of that makes me doubt the value of neoclassical econ. How could it? First, econ makes sense of a complex social world by leaving important things out, on purpose – that is the point of models, to be simple enough to understand… Having an emotional parenting experience is as irrelevant to the value of neoclassical econ as having a mystical drug experience is to the validity of basic physics.



Why Economics Falls Down in the Face of Fatherhood

I’ve been a dad now for a little less than two years, and I’m still trying to figure out how it is shaping my approach to economics. I think the answer is: A lot.
I learned economics in my twenties, before I became a dad. You know the drill: We learned hard math and complex models. Forget the Greek letters, they are just complicated ways of exploring the basic idea informing economics—that people are purposeful, analytic decision makers. And this idea just seemed entirely natural to me. I had always believed in the analytic self; I was rational, calculating, and tried to make smart decisions. Of course real people don’t use math, but I figured that we’re still weighing costs and benefits just as our models say. Or at least that was my understanding of the world.
Today, I’m not so sure.



The Rich vs Poor Debate: Are Kids Normal or Inferior Goods?

Are you likely to have more kids if you are rich or poor? Or to put this in econo-jargon: Are kids normal or inferior goods? (Reminder: When you get rich you buy more of a “normal good,” and less of an “inferior good.” And yes, the language of economics can be a bit cold.)
This is a question that’s central to a debate between Betsey Stevenson and Bryan Caplan. Recall, Bryan is the guy who argues that having kids needn’t be as expensive or time-consuming as we make them. Fair enough. But he then makes the leap to arguing that we should all have more kids. In her response, Betsey noted:

Caplan is entirely focused on the substitution effect: having kids becomes cheaper relative to buying TVs. So he says buy more kids, and fewer TVs. But what about the income effect? As people become richer, they tend to “buy” fewer children, not more. So there’s an offsetting income effect.

In a follow-up, Bryan runs some regressions that he thinks suggest that Betsey is wrong to say that the rich have fewer kids than the poor. It’s a brave person who debates Betsey on the data. And I think he’s tying himself in regression knots, rather than getting at the issue.



Do Paid Chores Pay for Themselves?

My son now travels three days a week, and my daughter-in-law has knee problems. What to do about such tasks as gardening, lawn mowing, leaf raking, etc.? They could hire a gardener; but their kids, now teenagers, are confronting scarcity: Their allowances no longer cover the things they want to buy—they have become economic people.
To solve both parental and offspring problems, the kids have offered to engage in household production in return for extra pay. The garden now looks better, leaves are raked more quickly and the lawn is mowed on time—and the kids have more spending money. I have no doubt that paying the kids is cheaper than hiring a gardener—cheaper than the market solution. Of course, my son could order the kids to do the tasks, but paying them is a nice way to give them spending money. I wonder, though: Does their pay of, say $10, represent a $10 increase in income? Or does my son cut back on the things he used to pay for and now makes the kids pay for themselves? If so, do teenagers understand this kind of fiscal substitution?



More Depressing News on America's Financial Literacy (or Lack Thereof)

I’ve written on the woeful state of Americans’ financial literacy a few times in the past. There is probably no academic researcher more attuned to the problem than Annamaria Lusardi of Dartmouth. This week’s NBER e-mail blast describing the latest crop of economics working papers includes nine papers; of those, four are written or co-written by Lusardi on this topic.
Among the highlights (or, I should say, lowlights); the bolding is mine:

Americans’ Financial Capability
This paper examines Americans’ financial capability, using data from a new survey. Financial capability is measured in terms of how well people make ends meet, plan ahead, choose and manage financial products, and possess the skills and knowledge to make financial decisions. The findings reported in this work paint a troubling picture of the state of financial capability in the United States.
The majority of Americans do not plan for predictable events such as retirement or children’s college education. Most importantly, people do not make provisions for unexpected events and emergencies, leaving themselves and the economy exposed to shocks.



Festival Economia: A SxSW for Economics

I’m giving a speech at the 6th annual Festival Economia in Trento, Italy, this week — a huge street fair financed by the provincial government and large corporations. As with Austin’s South by Southwest Music Festival, visitors buy badges and can attend any event. The only difference is that this is economics for the masses instead of music (and film) for the masses.
Why should a government spend tax dollars on this? I would argue that it educates the citizenry; but also, and much more importantly, it creates social capital — it creates cohesion among the citizenry that might otherwise be missing. That it also brings in thousands of visitors who pay for lodging and meals probably makes it attractive to local businesses too.



How I Self-Published a Book, And How You Can Too

I just self-published a book called How to Be the Luckiest Person Alive! I published it in paperback form, Kindle form, and free PDF (see directions below to get free PDF). The entire process took me three weeks. Using an established publisher would’ve taken over a year. [If you want Kindle version, click directly on kindle link above.]
I’ve written a prior post on my sales and advances on my first five books which were all published with major publishers. But I’m never going to publish in the morgue of the publishing industry again. This post today is about why I did it and how you can do it.
The book publishing industry is dead but they don’t know it. It’s like how the typewriter industry died. And the reason companies like Blockbuster and Borders can’t survive. And the entire music industry is dying. And broadcast television might be on the way. And the tablet industry is the first sign that companies like Dell might be in major trouble. And companies like Sirius mean the radio industry is dead.



Etsy for Economists

Economists may think there’s nothing for them on Etsy, the website that sells handmade and vintage arts and crafts items, usually made by grandmas or some overeducated Brooklyn mom. But they would be wrong. Dork out with these statistical distribution pillows: Log Distribution? Continuous Uniform? Even Chi-Square! It’s all here. And it also turns out, Normal Distribution makes a really good doorstop
(HT: Flowing Data)



How Predictable Are Nobel Prizes in Economics?

I was going through a pile of old papers in my office when I found a sheet entitled “Blackboard at the University of Chicago October 5, 2005: Future Nobel Laureates.” I have no idea who brainstormed the list that was written up on the board, or why. I can’t even remember whether I took part in the exercise, although seeing how good the predictions have turned out, I’m going to assert (rightly or wrongly) that I was one of the predictors.
For your entertainment, here is the list of names that were on the board, in their original order.



A Prophet Who Dares Admit the Limits of Prophecy

Fill in the blanks. I dare you. And then read the rest of the post to see who wrote this, and what it’s about.
We’re currently finishing up an hour-long radio program called “The Folly of Prediction,” and I have to say that it was bracingly refreshing to read this paragraph and the column that follows it.

After more than a quarter-century as a professional _________, I have a confession to make: There is a lot I don’t know about _________. Indeed, the area of __________ where I have devoted most of my energy and attention — the ups and downs of _________ — is where I find myself most often confronting important questions without obvious answers.



The Globalization of the Economics Profession

The globalization of the economics profession is remarkable. I was chatting with a new Ph.D. from the Technical University of Dortmund, Germany. He did his undergraduate work in Shanghai, China; he went to Denver, USA, to attend the American Economic Association job market; and he just had a job visit to Monash University in Australia. Thus, his educational background and job activities span 4 continents!



The Best Economics Papers Ever?

In celebration of its 100-year anniversary, the American Economic Review asked six “eminent economists” (Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) to select the journal’s top 20 papers ever published.



The Demand for Econ Professors

My Department chairman is mystified: You would think that with the crisis in public budgets, the demand for new economics faculty members would have shifted leftward. Similarly, with graduate students having delayed entry into the market, the supply of new Ph.D.s this year would have shifted rightward. Together, these changes should have lowered the price (wage) that the market pays new Ph.D.s.



Is Islam Bad for Business?

In this week’s New Yorker, John Cassidy asks whether Islam may be to blame for slow economic growth in the Arab world.



What Happens to All Those Super Bowl T-Shirts?: A Guest Post by Dean Karlan

The Pittsburgh Steelers played in this year’s Super Bowl, but did not win it. Which means that, sitting in a warehouse somewhere, are lots of preprinted “Pittsburgh Steelers 2011 Super Bowl Champion” t-shirts. Ever wonder what happens to them? Dean Karlan, a development economist at Yale, is here to explain in a guest post.



Haiku and the Invisible Hand

The economist Stephen T. Ziliak is also a haikuist. As he writes in Poetry magazine, using haiku helps add “feelings to economics.”



A Quick Note on the AEA Conference

I had hoped to live-blog the American Economics Association sessions I attended over the past few days in Denver — and thanks for your suggestions — but, alas, it was nearly impossible to get a good internet connection in the (mostly) underground meeting rooms.




Economics Reading for the Kids

If you’re looking for ways to expose your kids to economics at an early age, Yana van der Meulen Rodgers, director of the Rutgers University Project on Economics and Children, has some suggestions. They are mostly picture books, geared toward children ages five to ten.



A Very Interesting Paragraph From …

… Economic Lives: How Culture Shapes the Economy, by Viviana A. Zelizer, an economic sociologist at Princeton: Suppose for a moment that this is the year 2096. Let’s take a look at American families: although by now money often takes postelectronic forms unfamiliar to the twentieth century, in the “traditional” home, “housewives” and “househusbands” receive monthly stipulated sums of money as salaries from their wage-earning spouses.




Exploring the Trust-Prosperity Link

The Big Think profiles Paul Zak, a neuroeconomist and Freakonomics guest blogger whose research has focused primarily on oxytocin, a chemical that’s “critical to creating and sustaining trust among people.” Zak has even explored the relationship between trust and national prosperity.



Another Financial Prophet Unearthed

In the wake of any financial crisis, a few people are always trotted forth (sometimes they do the trotting themselves) as having seen the particulars of the crisis in advance — but who, despite all their hand-waving and teeth-gnashing, were roundly ignored. In the Wall Street Journal, Jason Zweig profiles Melchior Palyi, an economist who seemingly predicted many of today’s big economic problems. But here’s the twist: he did it some 70 years ago.



Thinking Like an Economist

Previous research indicates that the more years of education a person has, the more he thinks like an economist. A new paper (summarized by the BPS Research Digest) by Bryan Caplan and Stephen C. Miller, however, attempts to separate the role of intelligence and education in “thinking like an economist.”



The Bigger the Group, the Less Likely Pareto Improvements?

All classes were canceled at the University of Texas one recent Tuesday because of a shooting at the main library. I already had a haircut appointment scheduled for 4 p.m. and suddenly had a lot of free time before then. I called the hairdresser and asked to come by at 2. She was free then. This gave me a preferable work schedule; and, as I had been her last appointment, she got off work early.



Betsey Stevenson Answers Your Questions

We recently solicited your questions for Betsey Stevenson, a sometimes Freakonomics contributor and newly minted Chief Economist of the Department of Labor. Your questions were excellent and varied, and Betsey’s responses cover everything from persistent unemployment to parental leave. Thanks to Betsey and everyone who participated.




What I've Been Thinking About

A few weeks back, I sat down with the Richmond Fed’s Aaron Steelman for a most enjoyable hour or two talking about my recent research projects and perspectives on economics generally. If you’re interested in learning more, click here for the full interview. Regular readers of this blog may even recognize a few themes that I’ve been hammering away at here on these pages. At the risk of quoting myself, here are a few favorite parts.