Sunday, September 30, 2007

Can it be Fair to Cheat?

A September 23 article in the Boston Globe by Drake Bennett called Bad sports: Why people cheat when they don't have to. He mentions some research by economists and psychologists. One thing that kept coming up is that people will cheat if they think others are cheating and that if they don't cheat, they will be at a competitive disadvantage. Like if players on other teams are taking steroids, if you don't, you will have a harder time winning. So you are just trying to level the playing field.

Other issues that come up in the article include the possibility that favored teams in NCAA basketball win by less than expected, implying that the winning players hold down the score and take payoffs from gamblers, vote trading among figure skating judges, that people will cheat less if they know others are not cheating, sometimes people cheat even if they know there is a chance they will get caught and that if people have to write down as many of the Ten Commandments as they could remember before taking a test, it virtually eliminated cheating.

Friday, September 28, 2007

The Economics of Leaving a Low Carbon Footprint

An article called A Green Revolution for Your Budget, gives the thoughts of Colin Beavan on how to save money and help the environment at the same time.

He lives in New York with his wife and his 2 year old daughter. They use no electricity. The article does not say how they stay warm in the winter. Gas? I guess they don't use air conditioning in the summer either. I suppose if you get hotter with no AC, you need to drink more water. Is that good for the environment?

They do eat expensive cheese. But I guess their daughter does not drink much milk if they don't have a fridge. Unless they go buy a bottle of milk and drink it right away. But then that means grocery stores would have to use more power to keep more milk cool if we did not all have fridges. The milk has to be kept cool some place. So this does not seem to help the environment.

The don't buy anything new except socks and underwear. They buy alot of stuff at flea markets. Do they brush their teeth? But not many people can do this since there is a small amount of used stuff available. If we all went to flea markets, most of us would come up with nothing and then have to go buy new stuff.

They used to eat out or order out all the time. They figured out that cost alot of money (STOP THE PRESSES!). So now they don't eat out at all and save.

They ride bikes and scooters to work. I hope that is not dangerous in New York. They once road two and a half hours to get to the beach. I guess that built up their appetites, meaning they needed to eat more. Whoops, that leaves a carbon footprint.

Appliances use energy even when turned off. So you should unplug them. You can save 6 to 26 percent of your bill. So if your bill is $100 a month, you could save $26. That is less than a dollar a day and you have to go around and unplug everthing. Then plug it back in when you want to use it. And constantly reset the time on your alarm clocks.

They say buy food that is grown close to home (within 250 miles). So I guess people in Alaska can't eat bananas or drink orange juice. What if the stuff grown in your area is just not that good?

Tuesday, September 25, 2007

What Does John "Cougar" Mellencamp Mean in that Chevy Commercial?

Maybe you have seen the Chevy commercial with John "Cougar" Mellencamp singing. One of the lines in the song is "the dream is still alive, some day it will come true."

First of all what is "the" dream? Is it the American dream? And what is that exactly? Is it the same for everyone? Does it mean a zero percent unemployemnt rate? We have never had that. In fact, as my students will learn later in the semester, the umeployment rate that is considered "full employment" is at least 4%, maybe even 5%. We have rarely been below 4%. There is always some unemployment because workers are switching jobs, some industries are in decline while others are on the rise, etc.

Is the dream a zero percent poverty rate? The first year the federal government calculated an official poverty rate was 1960. It was 22%. The lowest ever was around 11% in 1973. Right now it is around 12%. So going for a zero percent poverty rate is probably not a realistic goal, either.

Then there is the line where he sings "This country, it belongs to folks like me and you." Which folks is he talking about? 300 million people live in the USA. Does it belong to all of us? Or are there some people not included on the owners list? What does it mean for a country to belong to a group of people? If I am in that group can I just walk into anyone's house and say "hey, I am one of the owners of American, I can go wherever I want?"

How can a country belong to anyone? Is there a deed of ownership? I know what it means if a car belongs to me. I pay for it and get a title. What do I get if I "own" America? How do I know if I am one of the people who the country belongs to according to John "Cougar" Mellencamp?

But I guess I should not be surprised if a commercial with a rock star makes no sense.

Sunday, September 23, 2007

When it Comes to the Economy, It looks Like Politics as Usual

There is a theory called "the political business cycle" that posits that the party in the White House will try to get a little extra growth out of the economy in the year before the election to improve their re-election chances. Whatever they do policy wise about a year ahead of time might not be good in the longer run, after the election. But that is okay, the theory also says that voters have short memories.

So last week, when the Federal Reserve Board cut a key interest rate (the Federal Funds Rate) by half a percentage point and the stock market soared, my cynical self said, "hey, that sounds like the political business cycle I always talk about near the end of the semester in macro." The cut in interest rates will help stimulate demand. It could lead to higher inflation, but that increase could come after the election.

In the 24 years including 1981-2004, there were 6 election years. In those six election years, the average increase in real GDP (adjusted for inflation) was 4.41%. In the 18 non-election years, it was 2.74%. That may not seem like alot, but the 4.41 is actual 61% higher than 2.74 (since 4.41/2.74 = 1.61). Also notice that 4.41 - 2.74 = 1.67. So that means that if the per capita GDP were going to be, say, $40,000, it will be 1.67% more than that. And that means an extra $668. Would you sell your vote for that much?

Friday, September 21, 2007

Statistical detectives, including economists, are changing the world

The New York Times had a review of the book Super Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart by Ian Ayres. The basic idea is that if you do it right, it is better to make decisions based on using numbers than your feelings or expertise or experience.

Here is a brief exerpt:

"What is it about math that can make people so angry? In the late 1980s, a wine lover named Orley Ashenfelter began publishing a newsletter called Liquid Assets that predicted how good each Bordeaux vintage would turn out to be. Instead of basing his judgments on the taste or smell of the wine in its early stages, Ashenfelter, an economist at Princeton, preferred data. He had come to believe that the weather during a growing season in Bordeaux was a remarkably accurate predictor of the eventual price of the wine. A hot, dry year seemed to make for great Bordeaux.

As you might expect, wine critics didn’t take very kindly to the professor’s ideas. A British wine magazine denounced their “self-evident silliness.” Robert Parker called Ashenfelter “an absolute total sham.” Eventually, Wine Spectator stopped accepting advertisements for newsletters, apparently because of Liquid Assets.

Ayres’s point is that human beings put far too much faith in their intuition and would often be better off listening to the numbers. Ashenfelter, using data, predicted that the 1986 Bordeaux vintage would be ordinary, while Parker, relying on expertise, said it would be exceptional. Ashenfelter was right."

Click here to read the reivew. You might have to register and allow cookies to read it.

Tuesday, September 18, 2007

Should the Government Pay People to Have Sex?

Sounds crazy, but a Russian Governor thinks that it is a good idea. To fight a dwindling population married couples are given time off from work to have sex. On the officially named "Day of Conception" in Ulyanovsk, people are allowed to stay home. Any couples that have a baby nine months later will be rewarded with gifts ranging from money, to refrigerators and cars. They have done this for three years and it has increased the birth rate. As we say in economics, incentives matter. You can read all about it at Residents Of Ulyanovsk Russia Get Day Off Work To Have Sex.

Sunday, September 16, 2007

Environmentalists vs. . . . other environmentalists? Or, are birds more important than clean, cheap energy?

The San Antonio Express News had an article on the front page yesterday called It's down to the wire for bird lovers to make a bid to halt wind farms.

It seems that although wind power is clean and if not now, someday might be cheaper someday than other power sources, migrating birds can be killed by wind turbines. This is another example of there being no free lunch. There are always tradeoffs. Want less dependence of fossil fuels (especially the imported kind) and a cleaner environment? There may be fewer birds. Here is one passage from the article:

"The debate has become nasty at times, with local Audubon societies and the famous King Ranch facing off against the John G. and Marie Stella Kenedy Memorial Foundation and the John G. Kenedy Jr. Charitable Trust, which own the land where the turbines would be built."

Thursday, September 13, 2007

Pickup trucks are legal again in Coral Gables, Florida. Will property values fall?

The town of Coral Gables, FL has had an ordinance that bars people from parking pickup trucks on the street between 7 am and 7 pm. It seems that pick up trucks are not aesthetically pleasing. So this ban had been in effect for 4 decades and a man challenged a fine in court and won. The court ruled the ordinance was unenforceable. But now those ugly vehicles will be on the streets. I guess they will cause a negative externality, making the town less appealing. People will be less interested in moving there. With a fall in demand for housing, the property values fall. The town also regulates what color you can paint your house and how high your grass can be. Some believe the pickup truck law was in effect to keep out certain elements. Below is a link to the story

Pickup Trucks Now Allowed To Park On Coral Gable Streets

Monday, September 10, 2007

A Possible Invisible Hand "Sighting"

This was posted at The Internet Movie Database:

"Sales Boom for HDTV Sets, But Where's the Profit?

Consumer electronics stores may be doing a booming business in big-screen, high-definition TV sets these days, but they are seeing profit margins drop as a result of a supply glut and intense competition from mass merchants like Wal-Mart and Costco, the New York Times reported today (Tuesday). The newspaper cited research by iSuppli indicating that the price of 42-inch HDTVs has declined 23 percent to $1,655 from $2,140 last Christmas. The newspaper noted that Best Buy recently attributed a 6-percent drop in its gross profit rate in large part to "promotional environment in home video." Still, the price of big-screen HDTV sets remains beyond the means of many consumers, and, the Times observed, there are signs that sales are slowing. Morgan Stanley analyst Greg Melich told the Times: "For the past few months, growth in the total TV market has been zero or negative, because demand is not there at these price points.""

So I would like to hear from my students. Any experience with the HDTV market? Anyone getting good deals? Are they worth it? This little piece implies that the desire to profit from selling HDTVs is leading firms to lower the price.

Wednesday, September 05, 2007

The Magic Words in Economics

My students know this means "holding all other factors constant." This is part of what makes economics so powerful. For example, we know many factors influence how much of a product you will buy (like income, tastes, ect.) But if we assume that all of those are held constant, we can say that when price falls, ceteris paribus, that the quantity consumers wish to purchase rises. This is known as the Law of Demand. It allows us to describe how markets behave (along with the Law of Supply).

We also know how a market will be affected by a tax or a regulation since we will hold all other factors constant. We can make a reasonable prediction using supply and demand. For example, if sellers have to collect a dollar every time they sell one unit and give it to the government (an excise tax), we can easily show that price will rise and the quantity bought and sold in the market will fall. We can also determine how much of the tax the buyer will pay and how much the seller will pay (and it is not always an even split). Now that's magic.

Monday, September 03, 2007

Students: Make a mistake on purpose, its good for you!

This may sound surprising, but counselors advocate making a mistake on your college applications like an intentional typo. This makes you seem more "authentic." Too often all students look slick and identical. They got good grades, test scores, were on teams, did volunteer work, etc., all with the idea of getting into college. But is that who you really are if you do it just to impress the college? That is why counselors suggest making mistakes. Then your application makes you seem like a more real person, not too good to be true. Of course, colleges project an image, too with their pictures of the nicest parts of the campus and groups of smiling students in their catalogues to make you want to go their. Seems like everyone is trying to impress everyone else with an image. There is a very good article on all of this called
Colleges seek 'authenticity' in hopefuls

I also recommend a BusinessWeek article called
The Myth of Authenticity
. Here is a brief description of it:

"What do brands like Häagen Dazs, Baileys Original Irish Cream, Bombay Sapphire and Kerrygold all have in common? Each stretches the myth behind the brand to promote heritage and authenticity"