Wednesday, September 30, 2009

Maybe Exercise Can Help Improve Your GPA

There was an interesting article in the New York Times Sunday magazine a couple of weeks ago by Gretchen Reynolds called What Sort of Exercise Can Make You Smarter? Here are some key experpts:

"...exercise changes the structure of the brain and affects thinking."

"...exercise stimulates the creation of new brain cells."

"In an experiment published in the journal of the American College of Sports Medicine, 21 students at the University of Illinois were asked to memorize a string of letters and then pick them out from a list flashed at them. Then they were asked to do one of three things for 30 minutes — sit quietly, run on a treadmill or lift weights — before performing the letter test again. After an additional 30-minute cool down, they were tested once more. On subsequent days, the students returned to try the other two options. The students were noticeably quicker and more accurate on the retest after they ran compared with the other two options, and they continued to perform better when tested after the cool down. “There seems to be something different about aerobic exercise,” Charles Hillman, an associate professor in the department of kinesiology at the University of Illinois and an author of the study, says."

"Why should exercise need to be aerobic to affect the brain? “It appears that various growth factors must be carried from the periphery of the body into the brain to start a molecular cascade there,” creating new neurons and brain connections... For that to happen, “you need a fairly dramatic change in blood flow,” like the one that occurs when you run or cycle or swim."

Sunday, September 27, 2009

Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of)

Adam Smith's "other" book was called The Theory of Moral Sentiments. One point he made there was that we are able to sympathize with other people by trying imagine what they are going through. Here is a key passage:

"As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. Though our brother is upon the rack, as long as we ourselves are at our ease, our senses will never inform us of what he suffers. They never did, and never can, carry us beyond our own person, and it is by the imagination only that we can form any conception of what are his sensations. Neither can that faculty help us to this any other way, than by representing to us what would be our own, if we were in his case. It is the impressions of our own senses only, not those of his, which our imaginations copy. By the imagination we place ourselves in his situation, we conceive ourselves enduring all the same torments, we enter as it were into his body, and become in some measure the same person with him, and thence form some idea of his sensations, and even feel something which, though weaker in degree, is not altogether unlike them. His agonies, when they are thus brought home to ourselves, when we have thus adopted and made them our own, begin at last to affect us, and we then tremble and shudder at the thought of what he feels. For as to be in pain or distress of any kind excites the most excessive sorrow, so to conceive or to imagine that we are in it, excites some degree of the same emotion, in proportion to the vivacity or dulness of the conception."

Modern science is saying something similar now (although I am not sure if it is the same thing exactly). It was written about in a recent Wall Street Journal article called Tracing the Origins of Human Empathy. Here are some key exerpts:

"our ability to identify with another's distress -- a catalyst for compassion and charity -- has deep roots in the origin of our species"

"our brains are built to feel another's pain"

"we may be hard-wired for empathy"

"our ability to put ourselves in another's place [may be seen in] how chimpanzees and other primates console each other, prefer to share, and nurse the injured...primates are reminders of empathy's antiquity."

"Dr. de Waal contends that empathy, sympathy and compassion are traits shared by every species with a rudimentary capacity for self-awareness."

"All mammals have some degree of it, and I think the origin is in maternal care," Dr. de Waal says. "I think mammals need a mechanism like this because a female needs to be very sensitive to emotional signals that come from offspring."

"Empathy draws us into the life of another's mind. Synapses fire to marshal sensory cues, muster memories and weave intuitions that our conscious minds could never articulate. As a visceral response to others, empathy can manifest in unexpected ways -- through contagious yawning, for instance."

"people better able to identify with another's state of mind also yawn more readily in response to others."

"Emotions are contagious, too."

"empathy arises from the interaction of our oldest and newest brain structures."

"Among our synapses, we do feel another's pain as our own, these brain imaging studies show."

"we respond more readily to those with whom we already feel a bond, either through kinship, community or racial group"

This might also be related to "mirror neurons" in our brains. One exerpt from this article says:
"These data strongly suggest that the insula contains a neural population active both when an individual directly experiences disgust and when this emotion is triggered by the observation of the facial expression of others. Similar data have been obtained for felt pain and during the observation of a painful situation in which was involved another person loved by the observer. Taken together, these experiments suggest that feeling emotions is due to the activation of circuits that mediate the corresponding emotional responses."

Thursday, September 24, 2009

To Arthur (Guinness, That Is)

Today, 250 years of Guinness brewing is being celebrated. So I thought I would mention that Arthur Guinness was profiled at the Heroes of Capitalism blog (unfortunately the blog is no longer active). But you can see that entry by clicking on Arthur Guinness, Hero of Capitalism.

He was also a philanthropist, which you can read about here: The Man: Arthur Guinness: Innovator, campaigner and philanthropist. Here is an exerpt:

"A renowned campaigner and social philanthropist, from the beginning Arthur Guinness ensured his business continually gave something back to his employees, the local community, and Dublin. [Something that has continued as the GUINNESS brand has expanded around the globe]. From healthcare and social benefits for employees to contributing to disaster relief projects around the world, Arthur Guinness' philanthropic legacy is something that defines the GUINNESS brand to this day and will be further enhanced and celebrated in 2009."

Tuesday, September 22, 2009

The Spirit Of My Favorite Economist, Joseph Schumpeter, Will Guide National Economic Policy

To read about this, go to A Vision for Innovation, Growth, and Quality Jobs by Lawrence H. Summers, head of the National Economic Counsel. Here are some brief exerpts:

"During the past two years, the ideas propounded by John Maynard Keynes have assumed greater importance than most people would have thought in the previous generation.

An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not [Adam] Smith or Keynes, but Joseph Schumpeter.

One of Schumpeter’s most important contributions was the emphasis he placed on the tremendous power of innovation and entrepreneurial initiative to drive growth through a process he famously characterized as "creative destruction." His work captured not only an economic truth, but also the particular source of America’s strength and dynamism."

"Why is this blog called The Dangerous Economist? Back in the early 1990s, I wrote a paper called "The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?" It compares the entrepreneur in capitalism to the hero in mythology. I was never able to get it published in an academic journal. One referee even said the idea was dangerous. I doubt much harm would have befallen the U.S. economy had this paper been published. It is now online at

Creative Destroyers

A shorter version is at

Shorter Version

If you clicked on the link about why I chose this name for my blog and then these articles and read them you would have discovered some of the things that I list below and they would have pointed you to Schumpeter.

The process whereby innovations occur was called "Creative Destruction" by Schumpeter in his bookd Capitalism, Socialism, and Democracy. "Creative Destruction" was

"The opening of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation if I may use that biological term-that incessantly revolutionizes the economic structure from with in, incessantly destroying the old one, incessantly creating the new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in" (p. 83).

In his book The Hero with a Thousand Faces, Joseph Campbell described the action of the hero with

"The standard path of the mythological adventure of the hero is a magnification of the formula represented in the rites of passage: separation-initiation-return: which might be named the nuclear unit of the monomyth. A hero ventures forth from the world of common day into a region of supernatural wonder: fabulous forces are there encountered and a decisive victory is won: the hero comes back from this mysterious adventure with the power to bestow boons on his fellow man. "(p. 30)

Campbell (1968) also has a section called "The Cosmogonic Cycle" which "unrolls the great vision of the creation and destruction of the world which is vouchsafed as revelation to the successful hero" (p. 38). The connection to Schumpeter's theory of creative destruction is clear. A successful entrepreneur simultaneously destroys and creates a new world, or at least a new way of life. Henry Ford, for example, destroyed the horse and buggy age while creating the age of the automobile. But even more to the point is the fact that the hero finds that the world "suffers from a symbolical deficiency" (p. 37) and that "the hero appears on the scene in various forms according to the changing needs of the race" (p. 38). The changing needs and the deficiency may directly correspond to the changing market conditions or the changing desires for products. The entrepreneur IS the first person to perceive the need or opportunity for market profits.

Joseph Campbell's book inspired George Lucas to make the Star Wars movies.

Monday, September 21, 2009

Free Markets vs. Regulation

There were two opposing views in the New York Times a week ago. Here are the articles

Flaw in Free Markets: Humans by Robert Frank

Where Politics Don’t Belong by Tyler Cowen

Frank argues that markets don't work the way alot of people think they do because people are not always rational. Cowen argues that regulations can do more harm than good.

Sunday, September 20, 2009

Determining The Cost Of Pollution Is Hard (Which Makes Finding The Right Government Policy Hard, Too)

This past week in my principles classes I talked about areas where economists generally agree that the government needs to intervene in the economy and that the free market does not give us the best outcome (although economists will disagree about how much intervention we should have). One was the area of negative externalities, that is, things like pollution. One solution is to tax pollution (or the activities that cause them). The ideal would be to tax each unit of pollution exactly as much as the damage it causes in dollars. If each ton of steel causes $100 in environmental damage, then we should tax each ton of steel $100. There is a danger that we tax steel too much and we end up with too little steel produced.

But how do we figure out the cost of each ton of steel produced? Apparently, this may not be easy as the article Hate Calculus? Try Counting Cow Carbon shows. Here is the intro:

"Shoppers soon will be able to buy everything from meat to moccasins based on a number that purports to tell them the products' environmental impact.

Manufacturers and retailers across the globe are working to measure their products' carbon footprints for a variety of reasons, and all of the efforts have one thing in common: The results have the appearance of precision.

But all the decimal points in the world can't hide the fact that measuring carbon footprints is inexact. It is clouded by varying methodologies and definitions -- not to mention guesses."

Friday, September 18, 2009

Monopoly (The Board Game) Helped British POWs Escape During World War II

The article is Get Out of Jail Free: Monopoly's Hidden Maps. From the article:

"During World War II, as the number of British airmen held hostage behind enemy lines escalated, the country's secret service enlisted an unlikely partner in the ongoing war effort: The board game Monopoly.

It was the perfect accomplice.

Included in the items the German army allowed humanitarian groups to distribute in care packages to imprisoned soldiers, the game was too innocent to raise suspicion. But it was the ideal size for a top-secret escape kit that could help spring British POWs from German war camps.

The British secret service conspired with the U.K. manufacturer to stuff a compass, small metal tools, such as files, and, most importantly, a map, into cut-out compartments in the Monopoly board itself."
The maps may have been the key. The article also said:

""It was really exciting," he said [Victor Watson, who helped make the maps]. Although it's impossible to know precisely how many prisoners escaped with the help of the hidden maps, experts estimate that about 35,000 members of the British, Commonwealth and U.S. forces who were taken prisoner during the war returned to Allied lines before the end of the war.

"We reckon that 10,000 used the Monopoly map," Watson said."

Wednesday, September 16, 2009

Should The United States Allow People To Sell Their Kidneys?

In one of my classes we read an article about this from the book The Economics of Public Issues. The authors suggest that we should allow this because thousands of people die every year waiting for a donor. There was a very good article about this recently in The Atlantic Monthly by Virginia Postrel called With Functioning Kidneys for All. The article is excellent, in depth and explains all the problems the system has now.

There have been some alternatives to the completely volunteer system we have had and the payment method. One involves an exchange of donated kidneys between friends of people who need a kidney transplant but who are not compatible with their friend (or relative). Here is how it would work:

"Over the past decade, however, a more promising trade has become possible. In its simplest form, known as “paired exchange,” incompatible pairs are matched. For example, a husband with type A blood wants to give a kidney to his wife, who has type B blood. Meanwhile, a mother with type B wants to donate to her son with type A. So the mother gives to the wife, and the husband gives to the son. As originally developed at Johns Hopkins, paired exchanges involved not only swaps but simultaneous surgeries, so that no one could back out."

But it can be hard to find two pairs of people where the donors match for the exchange. There can be all kinds of medical reasons why one person can't donate a kidney to another. Here is the problem:

"Bartering kidneys has the same problems as bartering anything else. What each side needs has to match perfectly. “In economics, for maybe a hundred years, people have talked about why money is important—because of the difficulties of barter. The phrase that’s come to signify that in economics is The trouble with barter is, you have to find a double coincidence of wants,” says Alvin Roth, a Harvard economist who has designed algorithms for kidney exchanges. “When you think about regular kidney exchange, what that means is, not only do we have to want your kidney; you have to want our kidney—a double coincidence of wants.” Worse, the need for simultaneous operations, requiring four operating rooms and four transplant teams, severely limits where such exchanges can be done. Paired exchange can’t significantly reduce the waiting list."

So there is another system, called "donor chains." It starts with an altruistic person donating a kidney to be used for anyone who is a match. Then a friend or relative of the recipient donates a kidney that goes into the pool of available kidneys. Then a friend or relative of the next recipient donates a kidney and so on. It helps, but it is logistically very hard and the chain can be broken. And these other methods still leave us way short on kidneys. So we still have the question of allowing payments to get more people to give up a kidney. The Economics of Public Issues mentions that Iran has had a system of payments for 20 years and seems to work well. So maybe it is worth looking into.

Update Sept. 17, 10:22 am: A poll of economists included the question "The U.S. should allow payments to organ donors and their families." Here are the results:

DISAGREE(2) 10.9%
AGREE(4) 45.3%
MEAN 3.75

This is from the article The Policy Views of American Economic Association Members: The Results of a New Survey by Robert Whaples.

Sunday, September 13, 2009

Are Your Friends Making You Fat?

That question was on the cover of today's New York Times magazine. The article was titled Is Happiness Catching? and was by CLIVE THOMPSON.

This article touches on somethings that have already come up in my classes this semester. One has to do with tastes and preferences. This article, although very long, gives us at least one way tastes can be formed, through friends and social networks (as I said in class, economists don't normally try to explain where tastes come from but the article does quote an economist). The other has to do with correlation (or association) vs. causality. As you will see below and in the article, there is some disagreement over whether or not the researchers found a causal link (for example, my friend getting fat caused me to get fat) or if it was just an association (or correlation) if both friends lived near a McDonalds that just opened up (one friend did not cause the other to get fat-they both got fat for the same reason). Also, my last post raised the question of why we have been getting more obese.

Social scientists Nicholas Christakis and James Fowler found that

"...good behaviors — like quitting smoking or staying slender or being happy — pass from friend to friend almost as if they were contagious viruses... [friends] influenced one another’s health just by socializing. And the same was true of bad behaviors — clusters of friends appeared to “infect” each other with obesity, unhappiness and smoking."
Here are some examples:

"A 2000 study of dorm mates at Dartmouth College by the economist Bruce Sacerdote found that they appeared to infect each other with good and bad study habits — such that a roommate with a high grade-point average would drag upward the G.P.A. of his lower-scoring roommate, and vice versa."
"When a Framingham resident (whose residents were part of a long term health study) became obese, his or her friends were 57 percent more likely to become obese, too. Even more astonishing to Christakis and Fowler was the fact that the effect didn’t stop there. In fact, it appeared to skip links. A Framingham resident was roughly 20 percent more likely to become obese if the friend of a friend became obese — even if the connecting friend didn’t put on a single pound. Indeed, a person’s risk of obesity went up about 10 percent even if a friend of a friend of a friend gained weight."
It is not just weight or obesity that can be affected this way. Drinking, smoking, how altruistic you are and how happy you are might also be due to social networks. Gender has an impact. How men and women affect each other can be different. Also, how co-workers affect you can be different from how friends or relatives affect you.

More key exerpts:

"...the simple peer-pressure explanation doesn’t work as well with happiness or obesity: we don’t often urge people around us to eat more or implore them to be happier. (In any case, simply telling someone to be happier or unhappier isn’t likely to work.) Instead, Christakis and Fowler hypothesize that these behaviors spread partly through the subconscious social signals that we pick up from those around us, which serve as cues to what is considered normal behavior."

"...[it] might be driven partly by “mirror neurons” in the brain that automatically mimic what we see in the faces of those around us — which is why looking at photographs of smiling people can itself often lift your mood. "

"...a behavior can skip links — spreading to a friend of a friend without affecting the person who connects them."

"But they theorize that people may be able to pass along a social signal without themselves acting on it. If your friends at work become obese, even if you don’t gain weight yourself, you might become more accepting of obesity as a normal state..."

"This might all be due to "evolutionary roots" "Tribal groups that were tightly connected were likely more able to pass along positive behaviors than those that weren’t.""

Not everyone agrees with the study's findings. Some scienticists say that maybe fat or happy people like to hang out together because in general, we like to be around people who are like us, so it might just be correlaton (or association), not causation. Also, it could be the environment that causes friends to get fat at the same time. Maybe they all live to close to a McDonalds that just opened up. One counter study found that if a high school student was tall, his or her friends were more likely to be tall. You can't catch height from someone else.

But Nicholas Christakis and James Fowler have an answer for that. They say other studies used a "looser" mathematical model (not sure what that means here). But they also found that if person A considered person B a friend but not vice-versa, if person B got fat, then it increased the chance of person A getting fat. But if person A got fat it did not affect the chances of person B getting fat. So if something in the environment caused one person to get fat (like a new McDonalds), it should affect both people. But it did not always do so. That means there has to be another reason. Maybe what you do is affected by what you think other people think is okay.

Friday, September 11, 2009

Should Overweight People Pay More For Health Insurance?

That is the question raised in an article from the New York Times magazine called Fat Tax by David Leonhardt. Here are the key exerpts:

"For all the miracles that modern medicine really does perform, it is not the primary determinant of most people’s health. J. Michael McGinnis, a senior scholar at the Institute of Medicine, has estimated that only 10 percent of early deaths are the result of substandard medical care. About 20 percent stem from social and physical environments, and 30 percent from genetics. The biggest contributor, at 40 percent, is behavior."

"people in their 50s are about 20 pounds heavier on average than 50-somethings were in the late 1970s."

"Obesity is different. A recent article in Health Affairs estimated its annual cost to be $147 billion and growing. That translates into $1,250 per household, mostly in taxes and insurance premiums."

"And yet it turns out that the obese already do pay something resembling their fair share of medical costs, albeit in an indirect way. Overweight workers are paid less than similarly qualified, thinner colleagues, according to research by Jay Bhattacharya and M. Kate Bundorf of Stanford. The cause isn’t entirely clear. But the size of the wage difference is roughly similar to the size of the difference in their medical costs."

"The question of personal responsibility, then, ends up being more complicated than it may seem. It’s hard to argue that Americans have collectively become more irresponsible over the last 30 years; the murder rate has plummeted, and divorce and abortion rates have fallen. And our genes certainly haven’t changed in 30 years."

"What has changed is our environment. Parents are working longer, and takeout meals have become a default dinner. Gym classes have been cut. The real price of soda has fallen 33 percent over the last three decades. The real price of fruit and vegetables has risen more than 40 percent."

Wednesday, September 09, 2009

Sex, Booze and Drugs

Hope that got your attention. It is actually the title of chapter 5 of the book The Economics of Public Issues. There have been some recent news items that touch on some of the issues raised in this chapter.

One has to do with methamphetamines. It is now getting even easier to make it yourself. Read New formula has junkies mixing their own drugs.

Another is the issue of what actually ends up in illegal narcotics. Sometimes cocaine contains rat poison. Not much you can do about that if you are a customer. You can't complain to the police. Now there is something new going into cocaine that you probably don't want. The article Tainted cocaine kills 3, sickens dozens says:

"Nearly a third of all cocaine seized in the United States is laced with a dangerous veterinary medicine — a livestock de-worming drug that might enhance cocaine's effects but has been blamed in at least three deaths and scores of serious illnesses."

And Russia is trying to get its citizens to drink less through govenment programs. It is not working well, just like prohibition in the USA during the 1920s, which was also discussed in the article. Read Russia president takes out after alcohol.

Sunday, September 06, 2009

Farmers Dump Cherries And Let Them Rot

The article is Bumper Cherry Crop Turns Sour: Tons of Unharvested Fruit Rots Under Government Program to Keep Prices Stable. Farmers are destroying their cherries to reduce supply and drive up the price under an old government program. Here are the key exerpts:

"Under a Depression-era federal program designed to keep prices from plummeting, tart-cherry farmers are being told by fruit processors to leave up to 40% of their crop unharvested."

"Thanks to ideal temperatures and fewer frosts, the crop is expected to be the biggest in eight years."

"But the big harvest is coming in just as the troubled economy has exacerbated weakening demand for tart cherries."

"The tart-cherry industry operates under a government-sanctioned plan called a federal marketing order that dates to 1933. It allows farmers and processors to legally regulate supply to keep prices stable."

"Some farmers say they would like to see their cherries donated to food banks, but the cost of processing them is too expensive."

One additional point. They sometimes put cherries on reserve in bumper years like this but there is so much surplus that only a small amount is being used for that. If they did not destroy cherries, the price would fall. But the government policy says the price has to be maintained. The farmers' gain, however, means higher prices to the consumer than would occur without the policy.

Friday, September 04, 2009

Toilet Paper Shortage? Don't Worry, Communist Party (And Granma) To The Rescue!

The article is Cuba faces toilet paper shortage. Here is the intro:

"There's good news and bad news in Cuba.

The bad news: There's a shortage of toilet paper, and officials in Havana say it will not ease until the end of the year.

The good news: Day-old copies of the Communist party's newspaper Granma, a traditional substitute, are available for less than a U.S. penny. And that's six to eight full, if rough, pages per day.

Cuban officials say the shortage is the result of the global financial crisis and three devastating hurricanes last summer, which forced cuts in imports as well as domestic production because of reductions in electricity and imports of raw materials.

But CNN commentator Fareed Zakaria says that ``at the bottom of this toilet paper shortage is Cuba's continuing commitment to its bizarro world of socialist economics.''"

A socialist economy is a command economy. That is one of the three economic systems my students learn about in the first week of the semester. The other two are the market and the traditional economy. Socialist economies often have problems like this when they rely on planning. When unforseen events happen they may not be flexible enought to adjust and adapt very quickly.

To learn more about these issues, go to Robert Heilbroner's article on Socialism. Here is a key exerpt:

"Through the 1960s the Soviet economy continued to report strong overall growth—roughly twice that of the United States—but observers began to spot signs of impending trouble. One was the difficulty of specifying outputs in terms that would maximize the well-being of everyone in the economy, not merely the bonuses earned by individual factory managers for “overfulfilling” their assigned objectives. The problem was that the plan specified outputs in physical terms. One consequence was that managers maximized yardages or tonnages of output, not its quality. A famous cartoon in the satirical magazine Krokodil showed a factory manager proudly displaying his record output, a single gigantic nail suspended from a crane."

Wednesday, September 02, 2009

Thanks To "Tarantula" You Can't Hide Your Money From The Government Anymore

It used to be that you could put your billions of dollars in a Swiss Bank account and the U. S. government would not know about it. That meant you would pay less in taxes. But a "disgruntled former UBS [bank] employee," code named Tarantula, has helped the U. S. government find out who some of the depositers are who have accounts in Switzerland. You can read all about it in the following NY Times article: A Privileged World Begins to Give Up Its Secrets