Sunday, November 28, 2010

Robot Journalists-A Case Of Structural Unemployment?

In macroeconomics, the definition of "structural unemployment" is usually something like "unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs." One example is when machines replace workers. Now there is a company that has created computer programs that will look at the statistics in the box score of college basketball games and then write a story about it. If any sports writers lose their jobs, they will be structurally unemployed.

See When the Software Is the Sportswriter by Randall Stross of The New York Times. It explains how StatSheet, the company involved, does it: "it just uses template sentences and a database of phrases that numbers about 5,000 for now." Here is one story written by the computer software based solely on the statistics of the game:

"Ohio State has already started living up to monumental expectations with a good first game. On November 12th on their home court, the Buckeyes waxed the Aggies, 102-61. The game lacked a lot of drama, with Ohio State up 52-25 at halftime and never letting up.

Ohio State was able to win by overpowering North Carolina A&T in rebounding and assists.

Ohio State used a big advantage on the boards to win the possession battle with 60 rebounds to 22 for North Carolina A&T. Ohio State spread the ball around and got 24 assists compared to 8 for North Carolina A&T.

Deshaun Thomas was the leading scorer for the Buckeyes with 24 points in 20 minutes. Jared Sullinger contributed 14 big rebounds.

Ohio State has incredible expectations for this season, and this victory over the Aggies was a good start.

When we look to our next game, we see a tenacious team in Florida on November 16th."

Some researchers at Northwestern University have been working on this, too. It was mentioned in a The Robots Are Coming! Oh, They’re Here
. by David Carr. Sportswriter King Kaufman had some interesting observations in the comments section.

This is okay as long as computer programs can't write blog entries:)

The Robots Are Coming! Oh, They’re Here

Friday, November 26, 2010

Who Was Alex P. Keaton's Favorite Economist? Milton Friedman

Click on the following video link to find out:

Who Was Alex P. Keaton's Favorite Economist?

You will only have to watch a few minutes to find out. It is from the 1980s sitcom "Family Ties." Michael J. Fox played Alex Keaton. In this episode he tells another character that Milton Friedman was his favorite economist.

Friedman came up in macro recently while discussing the money supply and the differences between Keynesians and monetarists.

Here is what IMDB has to say about the show:

"A couple who were ardently leftwing political activists in the sixties face the problems of raising a family with children who have strongly conservative views."

Click here to go to the IMBD page about the show.

Wednesday, November 24, 2010

Were The Pilgrims Capitalists Or Socialists?

See The Pilgrims Were ... Socialists? from The New York Times. There seems to be some controversy. One story has them owning property in common and not doing well until they went with private property. Not everyone agrees with that version of history. Here is what seems to be the most interesting thing from the report:

"Historians say that the settlers in Plymouth, and their supporters in England, did indeed agree to hold their property in common — William Bradford, the governor, referred to it in his writings as the “common course.” But the plan was in the interest of realizing a profit sooner, and was only intended for the short term; historians say the Pilgrims were more like shareholders in an early corporation than subjects of socialism.

“It was directed ultimately to private profit,” said Richard Pickering, a historian of early America and the deputy director of Plimoth Plantation, a museum devoted to keeping the Pilgrims’ story alive."

So when you eat turkey tomorrow, you might really be celebrating that great American institution...the corporation. Makes me feel real patriotic.

This part was interesting too.

"The competing versions of the story note Bradford’s writings about “confusion and discontent” and accusations of “laziness” among the colonists. But Mr. Pickering said this grumbling had more to do with the fact that the Plymouth colony was bringing together settlers from all over England, at a time when most people never moved more than 10 miles from home. They spoke different dialects and had different methods of farming, and looked upon each other with great wariness."
"“One man’s laziness is another man’s industry, based on the agricultural methods they’ve learned as young people,” he said."
"Bradford did get rid of the common course — but it was in 1623, after the first Thanksgiving, and not because the system wasn’t working. The Pilgrims just didn’t like it. In the accounts of colonists, Mr. Pickering said, “there was griping and groaning.”"

"“Bachelors didn’t want to feed the wives of married men, and women don’t want to do the laundry of the bachelors,” he said.

The real reason agriculture became more profitable over the years, Mr. Pickering said, is that the Pilgrims were getting better at farming crops like corn that had been unknown to them in England."

Sunday, November 21, 2010

Adam Smith vs. Ace Ventura

Well, sort of. See 'Liar Liar,' 'Nutty Professor' Director's Life Has Taken Quite The Turn. It is about Tom Shadyac who also directed "Ace Ventura: Pet Detective." He stopped liking what was going on in Hollywood. Here is an exerpt:

"So he sold his Pasadena mansion and most of his possessions, moved to a trailer park in north Malibu and began work on his documentary "I Am." What's "I Am" about? It's about how human beings are too competitive, about whatever is hard-wired in our brains that makes us want to work against each other rather than cooperate."

That last part, about competition and cooperation, is something that "neuroeconomics" studies.

Earlier this year, I attended a lecture by Paul Zak, a neuro-economist from Claremont Graduate University, at the Mind Science Foundation. He has studied how our behaviors are affected by the presence in our brains of a chemical called oxytocin, which can affect how generous we are. The more oxytocin you have have, the more generous and empathic (or sympathetic) you are. So he calls oxytocin "the moral molecule." It helps us identify with others and understand their feelings and situatons. Oxytocin can also increase when people trust you or are generous to you.

What does this have to do with Adam Smith? He wrote a book 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. This is directly related to oxytocin. In September 2009, I had a post on this called Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of). That will provide you with more details.

To watch a lecture by professor Zak (very similar to the one he did here in San Antonio), go to The Moral Molecule.

Oxytocin also facilitates trust. Economies need trust because not everything can be put into a law, a contract or be monitored. Your boss can't watch you every second to make sure you don't slack off on the job. We trust banks and our pension funds not to take the money and blow it all in Vegas. We trust our government officials not to accept bribes. Yes, we have rules and regulations against these things. But if we had to have a rule for everything and if everyone was being watched constantly, it would be too costly to our economy. Trust helps quite a bit.

Here are two articles about professor Zak's lecture from the San Antonio Express-News:

Emerging field offers insight into human virtues

Humans release ‘niceness' chemical

More information about neuroeconomics can be found at:

Neuroeconomics Explained, Part One

Neuroeconomics Explained, Part Two

Click here to read the latest findings from the Center For Neuroeconomics Studies

Wednesday, November 17, 2010

Coming Soon To A Theater Near You: Night Of The Living Shopping Zombies!

See Making Ads That Whisper to the Brain from this past Sunday's New York Times. Here is the opening:

"WHAT happens in our brains when we watch a compelling TV commercial? For one thing, certain brain waves that correlate with heightened attention become more active, according to researchers who have used EEGs, or electroencephalographs, to study the brain’s electrical frequencies."

"Neuromarketers" are studying what happens to people's brains when they look at ads and watch commercials to see how they react unconciously. This will allow them to find out what we all really like, deep down. It is hard for us to express in words our unconcious desires. Now the companies will be better able to figure out what we like. Will this make us all happier? Who knows. Maybe companies will make less of what we don't want and more of what we really do want.

The article goes on to ask:

"But should we worry that a technique that probes subconscious brain patterns might be used to unduly influence consumers, turning them into shopping robots without their knowledge and consent?"

Some feel that neuromarketing should be regulated to prevent "brand washing." Other experts think that neuromarketing may not be that affective and will not turn us into shopping zombies.

Sunday, November 14, 2010

What Do Vampires And Innovation Have In Common?

Maybe not much. But a paper on vampires and a book on innovation both use an article I wrote as a reference. The article of mine that they both cite is "Mythology, Joseph Campbell, and the Socioeconomic Conflict”, from The Journal of Socio-Economics, Volume 23, No.4, 1994.

The paper on vampires is "Shadow of the Vampire: Understanding the Transformations of an Icon in Popular Culture" by Michelle Bohn of Texas State University. It is very interesting, using history and psychology to explain when and why vampire stories become popular. It even occassionally mentions economics (the Industrial Revolution, for example).

The book is Unleashing Innovation: How Whirlpool Transformed an Industry by Nancy Tennant Snyder & Deborah L. Duarte.

Vampires have been linked to economics before. Here is a passage from Crisis and Leviathan: Critical Episodes in the Growth of American Government by Robert Higgs:

"Without embarassment, Karl Marx wrote about the capitalists' "were-wolf hunger for surplus-labour" and their "vampire thirst for the living blood of labour."

There is an article called THE POLITICAL ECONOMY OF THE DEAD: MARX’S VAMPIRES by Mark Neocleous. Here is the abstract:

Abstract: This article aims to show the importance of the vampire metaphor to Marx’s work. In so doing, it challenges previous attempts to explain Marx’s use of the metaphor with reference to literary style, nineteenth-century gothic or Enlightenment rationalism. Instead, the article accepts the widespread view linking the vampire to capital, but argues that Marx’s specific use of this link can be properly understood only in the context of his critique of political economy and, in particular, the political economy of the dead.

Friday, November 12, 2010

World War I Finally Ends

Yesterday was Veteran's Day. But at one time it was called Armistice Day because World War I ended on Nov. 11, 1918. Once the war was over, the allies made Germany pay war reparations, which turned out to be fairly expensive. Just last month, they made the last payment. See Why Did World War I Just End? from Time magazine (Hat Tip: Devon of the The 1982 Topps Baseball Card Set blog). Here is an excerpt:

""Large parts of Belgium and France were so destroyed by trench warfare that they looked desolate, like moonscapes, just huge areas of land where nothing remained," explains Stephen Schuker, professor of history at the University of Virginia and author of American "Reparations" to Germany, 1919-33. "They needed money to help rebuild the area."

But how do you put a price on war? Is it the property value of destroyed buildings? Rounds of ammunition shot? The cost in human life? It took two years for the international Reparations Commission to assess damages in relation to Germany's national wealth — after all, the payment plan needed to be affordable — and decide how much the government owed. The first reparation demands were 266 gold marks, which amounted to roughly $63 billion then (close to $768 billion today), although this was later reduced to $33 billion (about $402 billion today)."

The economist John Maynard Keynes said this would cripple the German economy. The Germans simply printed money to pay the first installment. That lead to hyper-inflation. Charles Dawes, an American banker, came up with a plan to convert the debt to bonds. He won the Nobel Peace prize but not long after that Germany defaulted on the bonds. Then Hitler decided not to pay. In the 1950s, West Germany said they would repay the money if their country was ever again united. Well, the Berlin wall fall and in the 1990s they started paying again and finally made the last payment in October.

Here is the "Pepper ... and Salt" comic from the 11-11 Wall Street Journal.

Tuesday, November 09, 2010

A Good Spanish Blog On Economics By Noé Hernández Cortez

Noé Hernández Cortez is a professor at Universidad del Valle de México, Campus Coyoacá. Here is the link to his blog: Noehernandezcortez's Blog. A recent entry dealt with the "2010 Human Development Index." To read a traslation of that entry (translated by google), click on this link: 2010 Human Development Index.

The index takes into account life expectancy, education and gross national income per person. The top ten countries were:

1. Norway 0.938
2. Australia 0.937
3. New Zealand 0.907
4. United States 0.902
5. Ireland 0.895
6. Liechtenstein 0.891
7. Netherlands 0.890
8. Canada 0.888
9. Sweden 0.885
10. Germany 0.885

To read the Wikipedia article on this go to Human Development Index.

Sunday, November 07, 2010

How Can The Average Major League Baseball Player Salary Be $3.3 Million A Year?

In my microeconomics class this week I talked about monopsony, when there is only one buyer. Before 1976, baseball players could only play for one team, the one they were currently under contract to. Starting in 1965, each player coming out of high school or college was drafted by one of the teams. That player could never leave that team and try to make a deal with another team. Before 1965, they could sign with the team that gave them the best offer. But then they were tied to that team for as long as they played baseball or until they were traded.

An economist in the 1970s, Gerald Scully, wrote an article showing that players were getting paid alot less than the revenue they generate (their "marginal revenue product"). Why would teams pay less? They could get away with it since they had monopsony power. Other teams could not outbid them for the player. But after players with seven years in the major leagues were allowed to become "free agents" and could negotiate deals with other teams, salaries shot up.

Where do teams today get the money to pay such high salaries? Major league baseball had about $7 billion in revenue in 2010. With 30 teams, that works out to about $233 million each. Each team has 25 players. At $3.3 million per player, that is an average payroll of $82.5 million. Subtract that from $233 million, and the average team has about $150 million left over. See Baseball's picture bright amid economic gloom.

During the World Series, FOX was able to charge $450,000 for each 30-second commercial. New team owners are willing to pay alot to buy a ball club. The Cubs were sold for $845 million and the Rangers were sold for $593 million.

Friday, November 05, 2010

How Our Brains Help Create Financial Bubbles

See Microscopic Microeconomics. It was in last Sunday's New York Times magazine. It described research where people were given money to invest in a stock market simulation (that actually mimicked real history). How people felt about the changes in the market and the money they were making was monitored. Here is a description of the expirement and the results. It seems like we get excited about the gains, the primitive part of our brains get a little fearful, realizing that the stock prices are too much, but the rational part of our brain tries to come up with reasons to explain why (it reminds me of the book This Time Is Different: Eight Centuries of Financial Folly-here is a review Recession, You Look Familiar)

"Montague’s experiments go like this: A subject is given $100 and some basic information about the stock market. After choosing how much money to invest, the player watches as his investments either rise or fall in value. The game continues for 20 rounds, and the subject gets to keep the money. One interesting twist is that instead of using random simulations of the market, Montague relies on real data from past markets, so people unwittingly “play” the Dow of 1929, the S&P 500 of 1987 and the Nasdaq of 1999. While the subjects are making their investment decisions, Montague measures the activity of neurons in the brain.

At first, Montague’s data confirmed the obvious: our brains crave reward. He watched as a cluster of dopamine neurons acted like greedy information processors, firing rapidly as the subjects tried to maximize their profits during the early phases of the bubble. When share prices kept going up, these brain cells poured dopamine into the caudate nucleus, which increased the subjects’ excitement and led them to pour more money into the market. The bubble was building.

But then Montague discovered something strange. As the market continued to rise, these same neurons significantly reduced their rate of firing. “It’s as if the cells were getting anxious,” Montague says. “They knew something wasn’t right.” And then, just before the bubble burst, these neurons typically stopped firing altogether. In many respects, these dopamine neurons seem to be acting like an internal thermostat, shutting off when the market starts to overheat. Unfortunately, the rest of the brain is too captivated by the profits to care: instead of heeding the warning, the brain obeys the urges of so-called higher regions, like the prefrontal cortex, which are busy coming up with all sorts of reasons that the market will never decline. In other words, our primal emotions are acting rationally, while those rational circuits are contributing to the mass irrationality.

This is a costly mental mistake. Montague notes that investors who listened to the prescient dopamine neurons would earn much more money than the typical subjects, largely because they would get out of the market before it was too late. “It’s crazy to think that there’s a signal in our head that’s so much smarter than we are,” Montague says."

Wednesday, November 03, 2010

Don't Forget That Today Is Day Of The Deadweight Loss

Has another year gone by already? Today is "Day of the Deadweight Loss." On this day, economists mourn all the social welfare that has been lost in the last year. That social welfare is lost and we will never get it back. The important question is what is the best way to commemorate this day? I'm open to suggestions.

Deadweight loss is the loss of social welfare caused by that dreaded demon, inefficiency. Examples are monopoly and externalities. To learn more, go the following links (which are all different)


One good way to commemorate this day would be to cut out the deadweight loss triangle from a monopoly graph (like the one shown below) and burn it, to symbolize all of the lost social welfare. Doing so is both a life-changing and life-affirming ritual.