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Freakonomics Blog

White House Economist Alan Krueger Answers Your Questions

We recently solicited your questions for Alan Krueger, chairman of the President’s Council of Economic Advisers. Below are Krueger’s answers, in which he talks about the Bush tax cuts, the American Jobs Act, and why NFL coaches should go for it on fourth down. Thanks to everyone for participating.

Q. The recovery from the recent recession has been great for corporate profits, but not so great for employment. I think that this is a natural result of the fact that when demand is insufficient, corporations focus on improving productivity rather than on producing more goods and services.

What can be done to increase employment? –Adam


How the NBA Takes Money From People Who Don’t Like Basketball

The Sacramento Kings will continue to exist. This week, the City Council approved a plan to finance a new home for the Kings in Sacramento. The price tag, though, is pretty steep.  The arena will cost $391 million, and $255.5 million will be coming from the city of Sacramento.   

Opponents of this plan – and there were just two on the nine-member Council – noted that sports arenas don’t provide much economic benefit. Furthermore, they questioned why public money should be given to a private business. 

As Councilwoman Sandy Sheedy – who voted no – observed: “This city is on the verge of insolvency. As far as I know, we still technically qualify for bankruptcy under federal law.”

Proponents of this plan, though, argued that this plan will create jobs and economic benefits.  And it was this argument that apparently persuaded the majority.

So we have two perspectives and one question: Do sports generate jobs and economic growth? 


Opera Toilet

Sometimes what might not seem like complements become such because of location. I came across a restroom in a Vienna underground station that had the sign “Opera Toilet” above the entrance. Clearly, the City must believe that natural bodily functions and listening to arias are complements, at least for customers in this most operatic of cities, the residence of Beethoven, Mozart and many Strausses. Presumably in Nashville now or soon, one will find the “Country Music Toilet.” What other such complements exist?


Women, Thinking About Relocating?

In honor of International Women’s Day, Foreign Policy has a roundup of five surprisingly good places to be a woman.  The Philippines, Spain, South Africa/Lesotho, Latvia, and Cuba all make their list. While it may be hard to believe that women fare well in the very same country that hosted a “Blonde Weekend” back in 2009, Latvian women are excelling . . .


What’s Hanging in Your Cubicle?

Last week, in honor of our “Dilbert Index” podcast about workplace morale, we asked readers to submit photos of their office spaces. Here’s what’s inside some of your cubicles: [slideshow auto=”on” thumbs=”on”]


Are We Living in a Loss-Averse World?

Three years ago today, the S&P 500 closed at 676.53.

Today, it opened at 1366.50.

As Businessweek asks: where’s the party for this bull market?

The article, by Whitney Kisling, is interesting throughout, exposing the massive pessimism still attached to the markets despite this steep recovery. It is well worth a read for anyone who believes (or wants to believe) that behavioral economics has a lot to teach us about real-world investing behavior.


Daylight Savings Time and "Cyberloafing"

New research suggests that people “cyberloaf” (i.e. websurf instead of working) more when they are tired. Some people may find this surprising. (We do not.) If nothing else, this is another argument against Daylight Savings Time. As the BPS Research Digest explains:

The investigators recognised an event that affects everyone’s sleep: when the clocks go forward for Daylight Saving Time. Prior evidence suggests we lose on average 40 minutes of sleep per night following the switch, as our body rhythms struggle to adjust.


How High Gas Prices Triggered the Housing Crisis

Republican presidential candidate Rick Santorum made headlines last week when he suggested that high gas prices made mortgages unaffordable, causing the recent housing bubble to burst and sending the economy into recession. It may sound far-fetched, but it is precisely the theory that I and a pair of coauthors presented in a working paper released five days before Santorum’s remarks.

We are actually a bit more nuanced, arguing that unexpectedly high gas prices triggered the collapse of the housing market — igniting a fire fueled by easy credit, lax lending practices, and speculation. It is a provocative claim and one with broad implications, but it is also a claim supported by economic theory and empirical evidence.

The federal government’s Financial Crisis Inquiry Commission asserted in its 2010 report that “it was the collapse of the housing bubble . . .that was the spark that ignited a string of events that led to a full-blown crisis in the fall of 2008.” And a broad, if not unanimous, consensus among economists suggests that the ongoing economic malaise was induced by a financial crisis caused by the housing crisis. Relatively less well-understood is what caused the housing crisis in the first place.


Why Aren't There More Female Patent-Holders?

We’ve blogged before about gender inequality and the persistent male/female wage gap.  A new working paper by Jennifer Hunt, Jean-Philippe Garant, Hannah Herman, and David J. Munroe highlights another arena where women are lagging: commercialized patents. Only 7.5 percent of regular patent and 5.5 percent of commercial patent holders are female.  The authors explored various explanations for the gap:

Using the National Survey of College Graduates 2003, we find only 7% of the gap is accounted for by women’s lower probability of holding any science or engineering degree, because women with such a degree are scarcely more likely to patent than women without.


The Thinking Jacket: A New Trend

A new paper in the Journal of Experimental Social Psychology finds that elementary school teachers worldwide might want to start encouraging students to put on their “thinking coats” instead of “thinking caps.”  

Researchers Hajo Adam and Adam D. Galinsky found that “wearing a white lab coat — a piece of clothing associated with care and attentiveness — improved performance on tests requiring close and sustained attention.”


What can Eeyore and Tigger Teach Bernanke About Monetary Policy?

What can Eeyore and Tigger tell us about the current state of monetary policy?  A lot.  At least that’s the argument that Betsey Stevenson and I make in our new column for Bloomberg View.

The Fed is now engaged in the game of “forward guidance”—they’ve announced that they anticipate keeping interest rates at zero, until late 2014—and hope that it will shape the recovery.  But what effects will this announcement have?  To figure this out, let’s visit two of the greatest ever Fed Chairmen: Eeyore and Tigger.


“AI: Adventures in Ideas”: Getting to “Yes (I’ll Participate in Your Survey)”

Freakonomics readers may know that I’m not the most qualified person to talk about using surveys. My first attempt — asking street gang members “How does it feel to be black and poor? Very bad, bad, good, …” — was met with laughter, disbelief and, scorn. (I suppose it was all uphill from that point!)

A basic question social scientists confront is: Why would you want to participate in our survey? Interviews can be long and boring; who wants to sit on the phone or stand on a streetcorner answering questions? A few bucks may not be worth the time. In fact, you have likely already perfected methods of avoiding telemarketers and sidewalk interviewers. From a data standpoint, your skilled avoidance is our problem: the views of respondents can differ from non-participants. From political races to consumer habits to opinion polls … we love numbers, and we need participation to get an accurate reading.


Question of the Day: Does a Lack of Exposure to the Arts Lead to Disaster?

A reader named Matt Radcliffe writes:

I’ve been working on a project concerning musical theater performance. I have a hypothesis which seems intuitive enough to me — that a lack of exposure to creative arts can lead to disastrous results for individuals (lack of education, poverty, etc).

I can find a plethora of research that proves the opposite (exposure to creative arts can lead to success), but I can’t find anything towards my hypothesis.


Does Studying Economics Teach You to Lie?

A new paper by Raúl López-Pérez and Eli Spiegelman investigates “truth preferences” — i.e., preferences for being honest versus lying. Their goal was to study whether economics students lie more as a result of their education. Or do liars self-select? From the paper:

Does studying economics give people “maximizing” habits of thought, and thus cause them to  behave more in line with its own predictions, or do people already inclined towards such behavior tend to self-select into economics?

A computer test structured with a slight incentive to lie was administered to 258 students at The Autonomous University of Madrid. The screen showed two colors, and participants were paid 14 euros for declaring blue and 15 euros for declaring green to another person, regardless of the actual color shown on screen. So what happened? According to the authors, the business and economics (“B&E”) majors gamed the system.


Surviving "the Tyranny of E-mail"

Like a plague of locusts, they give us no rest. They gobble our irreplaceable asset: our time. The faster we swat them away, the faster they arrive. Our modern locust plague is email.

Fortunately, I found The Tyranny of E-mail: The Four-Thousand-Year Journey to Your Inbox by John Freeman a week ago at the Harvard Bookstore, one of the few surviving independent bookstores in Cambridge, MA. Alas, the book was discounted to $5.99 — which probably means that it is on remainder. That is a shame, for it is a rich and thoughtful book, mixing history, analysis, outrage, and remedy.

The beginning of wisdom, it was said, is to call things by their right names. By that venerable standard, this is a wise book.


Ed Glaeser Argues Against Food Stamps

Over at Bloomberg View, Ed Glaeser argues that the shift in government aid from cash payments to in-kind transfers like food stamps is a mistake:

We should ask for two things from any redistribution system. It should do as much as possible for society, especially the poor. It should do as little as possible to encourage permanent poverty. And, whenever possible, it should help poor Americans find a path toward self-sustaining prosperity.


My Target-Date Fund Is Bigger Than Yours

We’ve banged the drum quite a bit on the need for greater financial literacy. If you care about such things, you might want to take a look at a new working paper by Pierluigi Balduzzi and Jonathan Reuter called “Heterogeneity in Target-Date Funds and the Pension Protection Act of 2006” (abstract; PDF).

That isn’t the sexiest title ever, and if you don’t care at all about personal finance or investing then you probably shouldn’t go near it. But if you care even a little bit, the paper has some interesting lessons even beyond the fairly narrow focus of Target-Date Funds. A Target-Date Fund is, in a nutshell, a mutual fund whose asset allocation automatically shifts over time as the target date approaches.


The Economics of the Vegetarian Option

Went to a one-star Michelin restaurant in Bonn last night.  One of the best meals I’ve ever eaten. Three of the four of us ordered the five-course prix fixe all-vegetarian menu.  As we left, I thanked the chef-owner — who responded “Despite it being vegetarian!”

He seemed slightly upset about serving this menu. Was it because his revenue from it was only €63 compared to €91 for a five-course regular menu (which had one meat and one fish course)?  Maybe. But I don’t believe the vegetarian menu used less labor, nor was there a €28 difference in materials cost. 


Can Single-Sex Education Make Women Less Risk-Averse?

Research indicates that women are generally more risk-averse than men, and this risk-aversion is often cited as a partial explanation for the shortage of women in high-level corporate positions. A new essay by Alison Booth, Lina Cardona Sosa, and Patrick Nolen suggests that single-sex education may change women’s risk preferences.  In a recent paper, the researchers conducted a controlled experiment:

[W]e designed a controlled experiment using all incoming first year economics and business students at a British university. The subjects were asked to make choices over real-stakes lotteries at two distinct dates – the first week of term and the eighth week of term…

Prior to the start of the academic year, students were randomly assigned to classes. Our ‘nurturing’ environment is the experimental peer-group or class to which students were randomly assigned by the timetabling office. The class groups were of three different types – all female, all male, or mixed gender.


Should the Government Be Targeting a Different Kind of Discrimination?

A new working paper from Uri Gneezy, John List, and Michael K. Price looks at discrimination via a variety of field experiments and more than 3,000 individual transactions:

In certain markets, the observed discrimination is not bigotry or animus-based, but consistent with the notion of profit-maximization, or Pigou’s (1920) “third-degree price discrimination”: in their pursuit of the most profitable transactions, marketers use observable characteristics to make statistical inference about reservation values of market agents. In others, the discrimination is more in line with Becker’s (1957) taste based theory of discrimination, or animus.

Interestingly, the nature of discrimination is less driven by particulars of the market or institutions, rather the nature of the disparate behavior is driven by whether the object of discrimination is a choice of the individual or is uncontrollable.


The Wealth Effect: It Ain't Pretty

A fascinating Boston Globe article by Britt Peterson reviews the research on the far-reaching psychological effects of wealth. “Rich people have a harder time connecting with others, showing less empathy to the extent of dehumanizing those who are different from them,” writes Peterson. “They are less charitable and generous. They are less likely to help someone in trouble.”  Even more depressing: These traits are “developed,”  not “inherited.”

While money may not be the root of all evil, it can make people “insensitive” according to Kathleen Vohs, one of the researchers whose work was profiled in the article. “When people are reminded of money, they get better at pursing their personal goals,” she explains. “On the negative side, they become poor at interpersonal functioning. They’re not all that nice to be around. They’re not openly mean or disagreeable, but they can be insensitive.”  


Bring Your Questions for End of Illness Author David Agus

Here’s an obvious but sobering thought: every one of us will someday get sick and die. And here’s a happier thought: with ever-advancing medical technology and research, we can now avoid many kinds of illnesses and add more years to our lifespan.

The oncologist David Agus lives halfway between those two thoughts. He is a professor at USC, the founder of Oncology.com, a co-founder of Navigenics, and now the author of The End of Illness. Most impressively, perhaps, he was recently a guest on The Daily Show. 

The End of Illness is Agus’s take on how the body works and why it fails. Along the way, he challenges a lot of conventional wisdom about health with academic studies and his own medical experience. Arguments in the book include: that taking vitamins may increase the risk of cancer; that sitting at a desk all day may be as damaging as smoking; and that you can tell something about a patient’s health based on whether she wears high-heel shoes. One review of the book reads: “A ‘rock star’ doctor says throw away the vitamins, load up on baby aspirin, and keep moving.”


The Human-Rights Statistician

A Foreign Policy article by Tina Rosenberg profiles Patrick Ball, a human rights statistician. Rosenberg describes Ball’s testimony at the trial of  Slobodan Milosevic:

 “We find evidence consistent with the hypothesis that Yugoslav forces forced people from their homes, forced Albanian Kosovars from their homes, and killed people,” Ball said…

Could the movements of refugees have been random? No, Ball said. He had also plotted killings of Kosovars and found that both phenomena occurred at the same times and in the same places — flight and death, hand in hand. “I remember well the moment of astonishment that I felt when I saw the killing graph for the first time,” Ball replied to Milosevic. “I assumed I had made an error, because the correlation was so close.”


Question of the Day: What's Hanging in Your Cubicle?

Our recent podcast “The Dilbert Index” looked at offbeat ways to measure employee morale. Damon Beaven, a blog reader we interviewed, noted that a lot of Dilbert comics in cubicles tends to correlate with lower morale. “A lot of Dilbert comics seems to be a passive-aggressive way of an employee complaining,” he observes.

While that observation may not be very scientific, Adam Grant, an organizational psychologist at Wharton, says that signals from employees can indeed serve as powerful clues for managers.


How do the Times and the Journal Report a Drop in Wall Street Bonuses?

As a writer, I tend to think about media bias from a different perspective than the average media consumer, and also different from academic researchers who try to identify media bias via data analysis, as described in our recent podcast “How Biased Is Your Media?”

I tend to think about subtle but telling things like word choice and sentence structure — what is the journalist emphasizing, or downplaying, and why? — but also an article’s placement, inclusion or exclusion of outside quotes, and choice of headline (which, for the record, is usually written by an editor and not the reporter him/herself).

Above all, I tend to compare articles from different newspapers that are based on the same event. This is to me one of the simplest but most powerful ways to take the pulse of a newspaper’s culture. If, for instance, two newspapers publish articles based on a simple event — a state comptroller’s report about Wall Street bonuses, for instance — one can read a little bit of institutional attitude into the two papers’ resultant articles.


Can Consultants Improve Small Firms?

A few months ago I ran a contest here at Freakonomics (results here) to predict the outcome of a randomized trial on charitable giving.

Although we are long way from realization (and it may be a pipe dream), the idea is simple: imagine a market on results from research studies. This could help not just hold people accountable for their ex-ante stated views, but also serve as a guiding tool for investors, practitioners, policymakers and donors, to help make decisions and allocate resources using the collective wisdom of markets. Of course this requires liquidity, and a certain faith in markets. Anyhow, until that dream comes true, we are doing this the simple way: running contests!


Cues to Save Money

Americans have a notoriously low savings rate, a problem we explored in a podcast about prize-linked savings plans. In another podcast, “A Mouse in the Salad,” Richard Thaler (author of Nudge) discussed “anchoring,” a cognitive shortcut whereby we make decisions based on an anchoring number even if it is randomly generated.

A new NBER paper (ungated version here) by Yale’s James J. Choi and Cade Massey, along with Emily Haisley of Barclays Bank and Jennifer Kurkoski of Google, shows that anchoring very much affects how people save (or don’t save) their money.