Another Semester Has Started

Welcome to any new students. I usually post something three times a week on Wed., Fri. and Sun. The next post should be next Wed. The entries usually have something to do with a basic economic principle that is related to a recent news story. If you want to learn more about me go to Why is college so hard?

Cartoon Teaches Economics "By Word Of Mouse"

It has Sylvester the cat but the real star is a little mouse who is an econmics professor. It is called "By Word Of Mouse." It was produced by Warner Brothers in 1954. Here is what IMDB says about it:

"This was the first of three cartoons on economic subjects underwritten by the Alfred P. Sloan Foundation. It was followed by Heir-Conditioned and Yankee Dood It."

Here is what Wikipedia says about it:

"Starting in 1950, New York University’s Institute of Economic Affairs received annual grants for projects concerned with educating the public on economics issues, including a series of educational animated short films through Warner Bros. Animation starring Sylvester and Elmer Fudd and directed by Friz Freleng that illustrate basic elements of capitalism. This series includes By Word of Mouse (1954), Heir-Conditioned (1955) and Yankee Dood It (1956)."

Great New Book On Neuroscience By Economist Paul Zak

It is called The Moral Molecule: The Source of Love and Prosperity. Zak coined the term neuroeconomics but this book seems to be about so much more than the title suggests. I doubt I can convey how interesting and well written this book is (I may not be totally objective since I am among the people thanked for their help in the acknowledgements).

Zak wrote a good summary article in The Wall Street Journal. See The Trust Molecule.

The "moral molecule" is oxytocin and the book explains many experiments that show that we tend to be more trusting when it is present or increases (how oxytocin affects us and works with other hormones and neurotransmitters is alot more complex than this, though, as Zak's work shows). How this is related to empathy is discussed and this is where Adam Smith comes in (his theories on sympathy).

The book examines when and why people are nice and when they are not. When are we altruistic and when are we selfish? The role that evolution played is examined. How this all affects us socially and politically is discussed. Zak is an expert on how trust is a key ingredient to the success of economies and trust is related to oxytocin. His experiments show what happens when people have their amount of oxytocin increased. How this is all related to relgion is discussed.

The book is also full of humorous anecdotes and personal stories. It is highly entertaining and thought provoking. The insights into human nature are amazing. I especially liked the discussion of "in-groups" and "out-groups." You don't have to be a neuroscientist or economist to understand it and it might be a great book for professors to assign to undergraduates.

It received an excellent review in The Wall Street Journal. See Kin and Kindness by MICHAEL SHERMER, publisher of Skeptic magazine and a monthly columnist for Scientific American.

Here are two articles about professor Zak's 2010 Mind Science Foundation 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 (these are two short articles by Zak that give you some idea of what he does in his experiments):

Neuroeconomics Explained, Part One

Neuroeconomics Explained, Part Two

Adam Smith vs. Bart Simpson. (A post of mine from last year and it also has a link to a video of Zak lecturing on all of this)

Joseph Campbell Meets Joseph Schumpeter (The Entrepreneur As Hero)

(Published in The New Leaders: The Business Bulletin for Transformative Leadership, November/December 1992.)

Entrepreneurs are heroes. They are not like heroes, they are heroes. Heroes and entrepreneurs are called to and take part in the greatest and most universal adventure that life has to offer: the simultaneous journey of self-discovery, spiritual growth, and the personal creativity they make possible. In fact, the entrepreneur’s journey closely resembles the journey of the “hero” in mythology, as outlined in the book The Hero With a Thousand Faces, by Joseph Campbell. There is an amazing and profound similarity between not only the journey that entrepreneurs take and the adventure of heroes but also in their personality traits. The comparison is profound because the myths are about universal human desires and conflicts that we see played out in the lives of entrepreneurs. 

But what is the hero's adventure? Campbell writes "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." How is the hero's adventure similar to the entrepreneur's adventure?

The hero's journey begins with a call to adventure. He or she is awakened by some herald which touches his or her unconscious world and creative destiny. The entrepreneur, too, is "called" to the adventure. By chance, he or she discovers a previously unknown product or way to make a profit. The lucky discovery cannot be planned and is itself the herald of the adventure.

The entrepreneur must step out of the ordinary way of producing and into his or her imagination about the way things could be to discover the previously undreamt of technique or product. The "fabulous forces" might be applying the assembly line technique or interchangeable parts to producing automobiles or building microcomputers in a garage. The mysterious adventure is the time spent tinkering in research and development. But once those techniques are discovered or developed, the entrepreneur now has the power to bestow this boon on the rest of humankind. 

Heroes bring change. Campbell refers to the constant change in the universe as "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." This is similar to Joseph Schumpeter's theory of entrepreneurship called “creative destruction.” 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. The hero also finds that the world "suffers from a symbolical deficiency" and "appears on the scene in various forms according to the changing needs of the race." The changing needs and the deficiency correspond to the changing market conditions or the changing desires for products. The entrepreneur is the first person to perceive the changing needs. 

Regarding personality traits, the hero and entrepreneur are risk-takers and creators. But what is the source of their creativity? People become creative when in the words of Campbell, they "follow their bliss." This is the message of mythology. It means you should engage in an activity, pursue a career or entrepreneurial venture because it is what you love to do and it gives you a sense of personal importance and fulfillment, not because the social system dictates that you do so. The drive comes from within. It is this courageous action that opens up doors and creative possibilities that did not previously exist. This is the journey of self-discovery and spiritual growth. Although it may be long, painful, and lonely, it is very rewarding.

Both the entrepreneur and hero are aided by mentors, are humble enough to listen to others in order to learn (and thus become creative), and face a road of trials where they must continually slay the demons and dragons of their own unconscious (such as fear, their egos) in order to discover their creative ability which ultimately comes from giving themselves up to a higher power. 

Ultimately, they become selfless and can see the creative possibilities that the universe offers. They become masters of two worlds, one of imagination and creativity and the other of material things and business. This mastery makes it possible for them to bestow the boon.

Here is a link to a longer, more academic version.

The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?  

A transcript of an interview when Joseph Campbell called entrepreneurs heroes

Is There A Tradeoff Between Helping The Poor And Protecting The Environment?

See Brazilian Forestry Legislation Advances By JOHN LYONS of The Wall Street Journal. It is about a law that Brazil just passed. Excerpts:

"The law, which eases restrictions for forest set-asides on farms and waives some fines for past clear-cutting, was backed by a new generation of lawmakers with links to Brazil's economically vital rural hinterlands. Farmers there long complained that existing laws were so strict as to classify the majority of farms as illegal and their owners as criminals."

"At the heart of the bid to update the law is an unsettling fact for environmental groups: Much of the Amazon forest slashed and burned in past decades is today extremely productive farmland."

"The controversies reflect a broader political dilemma for President Dilma Rousseff. Many of her left-wing Workers Party supporters also back environmental causes. At the same time, her administration is seeking to develop Brazil's vast natural resources to speed growth and help fund programs to lift millions of poor into the middle class."

Does Neuroscience Prove That You Should Follow Your Bliss?

The Freakonomicis guys, STEPHEN J. DUBNER and STEVEN D. LEVITT wrote an article in 2006 in the NY Times magazine called A Star Is Made. In it, they discussed the research of Anders Ericsson, a 58-year-old psychology professor at Florida State University. Here is a relevant passage:

"Ericsson's research suggests a third cliché as well: when it comes to choosing a life path, you should do what you love — because if you don't love it, you are unlikely to work hard enough to get very good. Most people naturally don't like to do things they aren't "good" at. So they often give up, telling themselves they simply don't possess the talent for math or skiing or the violin. But what they really lack is the desire to be good and to undertake the deliberate practice that would make them better."

See Never Too Late to Learn. It is a book review from Saturday's WSJ. The book reviewed was Guitar Zero by Gary Marcus. Here is the passage:

"Brain scans show that musicians' new neuronal connections vary according to the instrument they play. Violinists have their signature brain changes, brass players theirs. Loving what we do helps to form these new connections, because the same dopamine chemistry that gives us the pleasurable rush of reward consolidates new brain connections."

Of course, mythologist Joseph Campbell said "follow your bliss."

What does it mean to follow your bliss? In general, it means three things:

1. Money and material things are secondary (Campbell, 1988, pp. 148,229). The following is dialogue between Joseph Campbell and Bill Movers from The Power of Myth (1988,p. 148):

C: My general formula is "Follow your bliss." Find where it is, and don't be afraid to follow it.

M: Is it my work or my life?

C: If the work you're doing is the work that you choose to do because you are enjoying it, that's it. But if you think, "Oh, no! I couldn't do that!" that's the dragon locking you in. "No, no, I couldn't be a writer," or "No, no, I couldn't do what So-and-so is doing."

M: In this sense, unlike heroes such as Prometheus or Jesus, we're not going on our journey to save the world but to save ourselves.

C: But in doing that, you save the world (emphasis added).

Elsewhere, Campbell says that the savior is the one who can transcend the pairs of opposites (Briggs & Maher, 1989, p. 45). This means going beyond the duality of individual and group that is stressed in socio-economics (Campbell 1988, p. 229):

C: Each incarnation has a potentiality, and the mission of the life is to live that potentiality. How do you do it? My answer is, "Follow your bliss." There's something inside you that knows when you're in the center, that knows when you're on the beam or off the beam. And if you get off the beam to earn money, you've lost your life. And it you stay in the center and don't get any money, you still have your bliss.

Finally, Leeming sums up the Jungian importance of myths:

The person who lives without myths lives without roots, without links to the collective self which is finally what we are all about. He is literally isolated from reality. The person who lives with a myth gains 'a sense of wider meaning' to his existence and is raised 'beyond mere getting and spending" (Leeming, 1973, p. 321).

2. If you follow your bliss, doors (opportunities) will open up for you where they would not have opened up before. They will also open up for you where they would not have opened up for anyone else (Cousineau, 1990, p. 214). This echoes one of Campbell's favorite writers, Goethe:

Concerning all acts of initiative and creation, there is one elemental truth-the ignorance of which skills countless ideas and splendid plans: that the moment one definitely commits oneself, the Providence moves, too. All sorts of things occur to help one that would never otherwise have occurred (Catford & Ray, 1991, p. 5).

3. Following your bliss has to be contrasted with following a system or a social system. A system creates roles for us that are not of our own choosing. This dehumanizes us (Campbell, 1988, p. 143-144). The following is also dialogue between Joseph Campbell and Bill Movers from The Power of Myth (pp. 143-144):

M: Do movies create hero myths? Do you think, for example that a movie like Star Wars fills some of that need for a model of the hero?

C: I've heard youngsters use some of George Lucas' terms-"the Force" and "the dark side.' So it must be hitting somewhere. It's a good sound teaching, I would say.

M: I think that explains in part the success of Star Wars. It wasn't just the production value that made that such an exciting film to watch, it was that it came along at a time when people needed to see in recognizable images the clash between good and evil. They needed to be reminded of idealism, to see a romance based upon selflessness rather than selfishness.

C: The fact that the evil power is not identified with any specific nation on this earth means you've got an abstract power, which represents a principle, not a specific historic situation. The story has to do with an operation of principles not of this nation against that. The monster masks that are put on people in Star Wars represent the real monster force in the modern world. When the mask of Darth Vader is removed, you see an unformed man, one who has not developed as a human individual. What you see is a strange and pitiful sort of undifferentiated face.

M: What is the significance of that?

C: Darth Vader has not developed his own humanity. He's a robot. He's a bureaucrat, living not in terms of himself but in terms of an imposed system. This is the threat to our lives that we all face today. Is the system gong to flatten you out and deny you your humanity, or are you going to be able to make use of the system to the attainment of human purposes? How do you relate to the system so that you am not compulsively serving it? It doesn't help to try to change it to accord with your system of thought. The momentum of history behind it is too great for anything really significant to evolve from that kind of action. The thing to do is to learn to live in your period of history as a human being. That's something else, and it can be done.

M: By doing what?

C: By holding to you own ideals for yourself and, like Luke Skywalker, rejecting the system's impersonal claims upon you.

M: When I took our two sons to see Star Wars, they did the same thing the audience did at that moment when the voice of Ben Kenobi says to Skywalker in the climactic moment of the last fight, "Turn off your computer, turn off your machine and do it yourself, follow your feelings, trust your feelings." And when he did, he achieved success, and the audience broke out into applause.

C: Well, you see, that movie communicates. It is a language that talks to young people, and that's what counts. It asks, Are you going to be a person of heart and humanity-because that's where the life is, from the heart-or are you going to do whatever seems to be required of you by what might be called "intentional power"? When Ben Kenobi says, "May the Force be with you," he's speaking of the power and energy of life, not of programmed political intentions.

In the movie Star Wars, Luke Skywalker turns off his computer (the impersonal system) and relies on the "Force" or his intuition to destroy the Death Star.

Generally speaking, following your bliss unlocks your creative potential because you separate from your community or system. "You can't have creativity unless you leave behind the bounded, the fixed, all the rules" (Campbell, 1988, p. 156). Attaining the joy of being a creative, spiritually fulfilled person is probably the best thing we can do for ourselves.

Sources:

Briggs, D., & Maher, J.M. (1989). An open life: Joseph Campbell in conversation with Michael Toms. New York: Harper and Row.

Campbell, J. (1988). The power of myth. New York: Doubleday.

Catford, L., & Ray, M. (1991). The path of the everyday hero. Los Angeles: Tarcher.

Cousineau, P. (1990). The hero's journey: Joseph Campbell on his life and work. San Francisco: Harper.

Leeming, D.A. (1973). Mythology: The voyage of the hero. Philadelphia: J. B. Lippincott.

You've Heard About Death And Taxes, But What About Taxes And Death?

See Fatal car wrecks jump on tax day by Aaron Smith of CNN. Excerpts:

"The odds of getting into a fatal crash increase by 6% on tax filing day, according to a study published Wednesday in the Journal of the American Medical Association."

""One explanation is that stressful deadlines lead to driver distraction and worsen short-term human error," Dr. Redelmeier told CNNMoney. He said that sleep deprivation, greater use of alcohol, lower tolerance for other drivers, and the "unwanted distraction" of filing taxes could all contribute to a jump in accidents."

Are rich taxed less than secretaries?

Click here to read the article

Should the unemployment rate be lower given the current job-vacancy rate?

See On Jobs, No Time for a Celebratory Beveridge by JUSTIN LAHART of The Wall Street Journal. Excerpt:

"There were 3.5 million job openings at the end of February, the Labor Department said Tuesday, up from three million a year earlier. The job-vacancy rate, which measures job openings as a percentage of total jobs in the U.S., was 2.6%.

In the seven years before the recession, a vacancy rate of 2.6% was associated with an unemployment rate of about 5.7%. Now, the unemployment rate is much higher—it was 8.2% in March, down from 8.3% in February. That may augur a disturbing shift in the labor market that will keep more people out of work, slow the economy and make U.S. companies less profitable.

High job-vacancy rates come about because employers are having a hard time filling jobs. So they are associated with low unemployment rates. When vacancy rates are low, the opposite is true. Plot out unemployment rates against vacancy rates, and you get what is called the Beveridge curve, a downward-sloping line named after the late British economist William Beveridge.

But the Beveridge curve, nearly three years after the economy began to recover, looks different than it did before the recession struck in late 2007. Unemployment rates are much higher versus vacancy rates than they used to be. Shifts like that in the Beveridge curve suggest the labor market has become less efficient at matching workers with jobs, something that can happen when workers don't have the skills that employers need."

The problem could be a mismatch between the skills of the unemployed and the skills employers want (this is an example of structural unemployment). For those workers, they could be unemployed for a long time.

What’s the Easiest Way to Cheat on Your Taxes?

Click here to read this NY Times Magazine article. The easiest way is:

"Run your own company. More specifically, as Greg Kyte, a Utah C.P.A., puts it, be the sole proprietor of a Schedule C business. Then you can buy stuff for yourself and probably write it off as a business expense."

Other excerpts:

"When the modern income tax was created in 1913, the code was 27 pages long. Last year, it was 5,296 pages."

"“I’ve seen people with infant children claiming that their kids are doing work,” says Howard Rosen, a St. Louis-based C.P.A. “I’m talking about a 3-year-old doing filing,” Rosen says. “He didn’t even know the alphabet.”"

"For 2006, the most recent year for which data are available, the I.R.S. collected 86 percent of what it was owed in taxes. Most of this $385 billion shortfall came from underreporting income, which is often more creative than it sounds. Gambling winnings, for example, are taxable..."

"Loop­holes will cost the gov­ern­ment rough­ly $1 tril­lion in lost rev­e­nue this year..."

"The mortgage-interest deduction, which lets people deduct the interest they pay on their mortgages, requires the government to essentially write an annual check to everyone with a mortgage. The incentive was supposed to encourage more people to buy houses, but there’s not much evidence for this..."

"It does, however, encourage people to take out even bigger mortgages. It will cost the government an estimated $84 billion this year."

"Why is the tax code so complicated? The answer, according to most accountants, is simple: “exceptions to the exceptions,” which, typically, are extremely complicated."

Keynes As An Investor

See Keynes: One Mean Money Manager by Jason Zweig of The Wall Street Journal. This generated many comments and Zweig's response to them is at Keys to Thinking About Keynes. But not everyone thought Keynes was a great investor. See Was Keynes really a savvy investor? by Greg Mankiw of Harvard.

Here are excerpts from Zweig's article:

"From 1924 through 1946, while writing numerous books and overhauling the global monetary system, Keynes also found time to run the endowment fund of King's College at Cambridge.

Over that period, according to Messrs. Chambers and Dimson, Keynes outperformed the U.K. stock market by an average of eight percentage points annually, adjusted for risk.

Such great investors as Benjamin Graham, Peter Lynch, John Templeton and Warren Buffett beat the market by an annual average of three to 13 percentage points over their careers. Most of them, however, didn't have to cope with the Great Depression or World War II.

How did Keynes do it?

Flexibility, resilience and independence.

Keynes began as what we would today call a "macro" manager, relying on monetary and economic signals to rotate in and out of stocks, bonds and cash. He traded foreign currencies and commodities. As a director of the Bank of England, Keynes was privy to inside information about interest-rate changes, although there isn't evidence that he traded on it.

But Keynes wasn't a very good macro manager. He lagged behind the British stock market miserably until 1928, and he had 83% of his primary portfolio in stocks going into the fall of 1929.

"It's hard to time the markets," Mr. Chambers says. "Keynes struggled with it, and then he missed the 1929 crash—even with an unrivaled network of information sources."

So Keynes made a series of radical changes: He switched from being a "top down" asset allocator to a "bottom up" stock picker. He tilted sharply toward undervalued small and midsize companies.

Keynes also made titanic bets on industries he thought were cheap..."

Are Monkeys More Rational Than Humans?

See The Hard Science of Monkey Business by AMY DOCKSER MARCUS of The Wall Street Journal. It is about the research that Yale professor Laurie Santos and the economic experiments she does with primates (Capuchin monkeys). Excerpts:

"The primate lab is home to 10 "shockingly smart" brown Capuchin monkeys trained to trade tokens for food. It was a short leap for Dr. Santos and her team to decide to study how monkeys make decisions about money."

"In one experiment, they gave each monkey a wallet filled with 12 flat aluminum tokens, monkey money that the animals could trade for food. Right away, the scientists saw the similarities to human behavior. When researchers slashed the price on certain foods, the monkeys sought out the best deal. They also typically spent all their cash at once and didn't bother to save.

Then researchers decided to test a more complex economic theory which shows that people do not judge price in a vacuum. Sitting with the team at the coffee shop, Dr. Santos could see how the concept worked in her own life. Many days, she feels guilty about spending $2.20 on a cup of coffee. But when she looks up at the chalk board listing drink prices, the Nutella Latte goes for $3.85 and the Ginger Snap is $4.15. "My $2 cup doesn't seem as expensive anymore," she said.

Monkeys make similar assessments. In one experiment, a researcher showed a monkey two pieces of apple but handed over one in exchange for a token. A second researcher showed one piece of apple and gave the slice to the monkey for the token. The monkeys strongly preferred to trade with the second researcher. They did not like being offered two apple pieces and then only getting one."

"Researchers wondered whether monkeys, like humans, desire an expensive item more. For the same number of tokens, the monkeys could choose whether they got a tiny square of blue Jell-O or a big chunk of red Jell-O. Later, the monkeys were allowed to choose which kind they wanted. If the monkeys were like humans, they would have gone for the blue Jell-O, the more "expensive" choice. But the monkeys gorged happily on both.

The researchers are still gathering and analyzing the data. One possibility: Human taste preferences are based on many factors, whereas the monkeys' are not. Some might argue that human economic behavior is more advanced since it includes "culture and meta-awareness" in decision-making, said Dr. Santos. There's another, less flattering possibility too. "The monkeys," she said, "are more rational.""

Which Type Of Unemployment Is The Biggest Problem?

Ben Bernanke raised this issue in a recent speech. See Fed Signals Resolve on Rates: Cheap Credit Still Needed Despite Recent Employment Gains, Bernanke Says by JON HILSENRATH And KRISTINA PETERSON of the Wall Street Journal. Excerpt:

"The Fed chairman took on some thorny economic issues in making his case for low rates. Among them is the question of whether the nation's still-high unemployment rate represented a so-called cyclical problem that can be resolved simply by encouraging economic growth with low interest rates, or a fundamental structural problem in the labor markets that growth itself and the Fed can't fix.

Mr. Bernanke came down on the side of those who argue the problem is predominantly cyclical and low interest-rate policies are helping to alleviate it. But many economists disagree with him, and he acknowledged the matter isn't settled.

The debate about cyclical and structural unemployment has been going on for a couple of years. Economists generally say cyclical unemployment is caused when weakness in the overall economy pushes down demand for goods and services and therefore the need for workers that provide them. Structural unemployment reflects deeper problems, such as a gap between the skills workers have and those that employers want. Structural problems don't necessarily disappear as the economic recovery gains traction.

Mr. Bernanke—in making his case for primarily cyclical unemployment—pointed out that newly unemployed workers and long-term unemployed workers all experienced diminished prospects of getting new jobs during and after the downturn. That suggests the job market hasn't punished one group of people disproportionately to others. Instead, he said, there weren't enough jobs for a wide range of workers in a wide range of industries. "The fact that labor demand appears weak in most industries and locations is suggestive of a general shortfall of aggregate demand, rather than a worsening mismatch of skills and jobs," he said.

But some economists disagree and the stakes are high. "You could be seeing a policy error in the making," said Wells Fargo economist John Silvia, who lists an array of factors that he says point to structural problems in the job market, which he says faster economic growth can't resolve.

Employment of college graduates is up 5.8% in this recovery, while employment of high school dropouts is down 3.9%, according to Labor Department data. This suggests that low-skill workers are having a harder time finding work.

Mr. Silvia also notes that unemployment is especially high in certain occupations, such as construction. It is also high in places, such as Nevada, where many people can't move because they owe more on their mortgages than their homes are worth. He worries that the Fed's low-interest-rate policies might cause inflation and do little to resolve deeply embedded unemployment problems."

The WSJ also had an article called Time Not on Side of the Jobless. It mentions:

"But some economists argue that in the wake of a severe recession, the lines between cyclical and structural unemployment can become blurred. Workers who lose their jobs because of cyclical factors—a factory that lays off workers, a restaurant that closes, an office that decides to go without a front-desk receptionist—might stay out of work so long that they become effectively unemployable. Their skills erode, they fall behind on the latest technologies and industry trends, or they become stigmatized by employers who assume there must be something wrong with anyone who's been unemployed so long."

I discussed similar issues in one of my earliest posts from back in 2006. It was called Edmund Phelps, Meet Harry Hopkins. Phelps is a Nobel prize winning economist and Harry Hopkins was an adviser to FDR

Other related posts:

Structural Unemployment In The News

Untangling the Long-Term-Unemployment Crisis

A Reversal Of Structural Unemployment?

Robot Journalists-A Case Of Structural Unemployment?

Some Reasons Why Firms Are Not Hiring

Some Good Economic News

As a card carrying dismal scientist, I should not display optimism. But Google business news had 4 positive stories listed. Here they are:

S&P 500 Heads for Best First Quarter Since 1998. It is up 12% for the year!

Texas Unemployment Rate Down To 7.1 Percent. Excerpt:

"The state's jobless rate was down from 7.3 percent in January and has dropped a full percentage point since August, the Texas Workforce Commission said. February's unemployment rate is the lowest since March 2009." (The U. S. unemployment rate was 8.3% for February)

US consumer spending rises as unemployment falls. Excerpt:

"Consumer spending climbed 0.8pc in February, the Commerce Department said on Friday, following a 0.4pc increase in January.

The figure was better than the 0.6pc Wall Street economists had expected, and came as a separate survey put consumer confidence at its highest level since February last year."

Consumer sentiment index at highest rate since late 2007. Excerpt:

"High oil prices or not, American consumers are feeling more confident about conditions than at any time since the recession began in late 2007.

That's according to the latest survey by Thomson Reuters/University of Michigan, which reported Friday that its March consumer sentiment index climbed to 76.2 from 75.3 a month ago. That pushed up the average reading for the first quarter to the highest level since the fourth quarter of 2007.

What's been boosting sentiment? In a word, jobs.

The last three months have seen an acceleration of job growth, and the Reuters/Michigan survey found that more people heard news about employment gains than at any other time in the 60-year history of the survey. And only 19% said they thought the jobless rate would increase in the year ahead."

Economists see more reasons for optimism this year.

"Economists are increasingly confident that some pillars of the U.S. economy will improve this year, but they still remain cautious in their expectations on the overall pace of economic growth.

The National Association for Business Economics said Monday that forecasters have raised their expectations for employment, new home construction and business spending this year. But they held on to their average prediction that America's gross domestic product, or GDP, will grow at a rate of 2.4 percent. That's a slight improvement from 2011, when economists believe the economy grew 1.6 percent. Final economic growth numbers for 2011 are due out Wednesday.

GDP reflects the economy's total output of goods and services. The latest forecast is in line with one issued by the group in November that called for the economy to grow 2.4 percent this year. Forecasters predict growth will be stronger in the second half of 2012 than it will be through June."

I think this guy captures the excitement:

How can an economy that is growing so slowly produce such big declines in unemployment?

See Piecing Together the Job-Picture Puzzle by Jon Hilsenrath of The Wall Street Journal. Excerpts:

"Back in 1962, Yale University economist Arthur Okun described a long-running relationship between economic growth and jobs. When the economy grew faster than its long-run trend, the unemployment rate tended to fall by about half as much as the additional growth in percentage terms. So growth of 3.5% in a year—one percentage point above a long-run trend of 2.5%—would bring down the unemployment rate by a half percentage point in that year. And it worked the same way in reverse. Growth one percentage point below trend would push the unemployment rate up half a percentage point.

Economists called the relationship "Okun's Law." Forecasters still depend on this principle to make predictions about the future. But the law has been unreliable lately. Under the old rule of thumb, it would take growth between 4% and 5% to explain the improvements in unemployment in the past year—much more than the recovery has actually delivered."

"...Okun's Law also broke down in the other direction a few years ago..."

"Some of the miss was because the downturn turned out worse than expected and much of it was because unemployment rose more than Okun's Law predicted."

Why might Okun's Law not be working?

"...company managers were so shocked by the financial crisis in 2008 and 2009 that they fired workers more aggressively than they would in a conventional downturn."

"Over the past six months ... as fear and uncertainty have dissipated, firms appear to have reversed course and gone back toward more normal staffing levels."

One economist said

"these overshoots might soon run their course and that Okun's Law will reassert itself. When it does ... the unemployment rate could stall out at high levels because the economy isn't growing fast enough to justify more hiring.

"The only way unemployment will keep coming down is if GDP growth picks up substantially,"

But there are other potential sides to the story:

"Other story lines could be at play. The government's growth data are always a work in progress. Government statisticians regularly revise it as more information—such as more complete tax returns from businesses and households—becomes available. Revisions to the data could someday show the economy is actually growing more robustly than the data currently show. It is also possible that companies are on to something and they are hiring aggressively because they anticipate more growth than the data currently show.

A less sanguine explanation could be a dangerous productivity slowdown. It might be the case that the workers being hired aren't improving their productivity as much as workers had before. If they aren't as productive, companies need more of them."

Click here to read an earlier post about Okun's Law

Click here to read "Is Okun’s Law Really Broken?" by Justin Wolfers. It from 2010. A little on the technical side but very interesting.

Do Looks Help In The Job Market?

Maybe it is unfair, but it seems so. See The Beauty Premium by Christopher Shea of The Wall Street Journal. It describes a study done in Argentina where it is common for job applicants to include a picture with their resume. Here are excerpts:

"... attractive job candidates get called back 36% more often than unattractive ones,....

10.3 % of the attractive fictional candidates got called, compared with 7.6% of the unattractive candidates — and attractive people got called sooner. Attractive member of both sexes benefited from the beauty advantage."

Here are two earlier posts on related topics:

Do looks matter? (Yes, good looking workers get paid more even when taking other factors into account)

From The Life Is Not Fair Category: Better Looking, Tall, Thin People Make More Money

Bolivians fight over quinoa land

Not much I can add to this story. Click here to read it.

"LA PAZ, Bolivia (AP) — Bolivian authorities say at least 30 people have been injured in a fight between two communities over land for growing quinoa, the Andean "supergrain" whose popularity with worldwide foodies has caused its price to soar.

Oruro state police chief Ramon Sepulveda says combatants used rocks and dynamite against each other Wednesday and Thursday. A government commission was dispatched to the two high plains communities south of La Paz.

Farmland in the region is owned not by individuals but communities.

Authorities say the dispute is related to climate change because quinoa can now be cultivated in areas previously subject to frequents frosts.

Bolivia produces 46 percent of the world's quinoa, which has nearly tripled in price in the past five years."

Supply And Demand And Comic Books

See Man's childhood comic collection fetches $3.5M by Jamie Stengle of the Associated Press. Excerpts:

"A copy of Detective Comics No. 27, which sold for 10 cents in 1939 and features the debut of Batman, got the top bid at the New York City auction Wednesday. It sold for about $523,000..."

"Action Comics No. 1, a 1938 issue featuring the first appearance of Superman, sold for about $299,000..."

Why would a 10 cent comic from 1938 sell for so much now? There must be a great demand and it looks like there is not much of a supply since

"Of the 200,000 copies of Action Comics No. 1 produced, about 130,000 were sold and the about 70,000 that didn't sell were pulped. Today, experts believe only about 100 copies are left in the world..."

And barring fakes or forgeries or specially marked reprints, more copies of Action Comics #1 cannot be produced. So the price is not likely to fall very much.

DC Comics did issue some reprints in the 1970s, but they were over-sized and clearly marked as reprints. Click here to see some of them.

The CPI is about 16 times higher today than in 1939. That would make the price of Detective Comics #27 $1.60 instead of 10 cents. If you put $1.60 in an investment in 1939 and if it grew 19.29% per year for 72 years, it would end up being about $523,000 in 2011. If you put the $1.60 in the stock market and if it grew 10% per year for the 72 years, it would only end up being about $1,529 in 2011.

The Future Is Better Than You Think

That is the subtitle of a book recently reviewed in The Wall Street Journal. See Defying the Doomsayers: "Abundance" argues that growing technologies have the potential not only to spread information but to solve some of humanity's most vexing problems. The review mentions that some optimism might be good in these negative times although it discusses how over-optimism can be damaging. Perhaps the human race is always searching for the right or optimal amount of optimism.

The book they reviewed is called Abundance: The Future Is Better Than You Think by Peter H. Diamandis and Steven Kotler.

Here are excerpts from the review:

"Mr. Diamandis is the chairman and chief executive of the X Prize Foundation and the founder of more than a dozen high-tech companies. With his journalist co-author, he has produced a manifesto for the future that is grounded in practical solutions addressing the world's most pressing concerns: overpopulation, food, water, energy, education, health care and freedom. The authors suggest that "humanity is now entering a period of radical transformation where technology has the potential to significantly raise the basic standard of living for every man, woman, and child on the planet.""

"Given all the talk nowadays about income inequality, the authors' discussion of poverty is especially instructive. The number of people in the world living in absolute poverty has fallen by more than half since the 1950s. At the current rate of decline it will reach zero by around 2035. Groceries today cost 13 times less than 150 years ago in inflation-adjusted dollars. In short, the standard of living has improved: 95% of Americans now living below the poverty line have not only electricity and running water but also Internet access, a refrigerator and a television—luxuries that Andrew Carnegie's millions couldn't have bought at any price a century ago."

"Predictions of a rosy future have a way of sounding as unrealistic as end-is-nigh forecasts. But Messrs. Diamandis and Kotler are not just dreamers. They lay out a plausible road map, discussing, among other things, the benefits of do-it-yourself tinkering—like the work by geneticist J. Craig Venter in beating the U.S. government in the race to sequence the human genome—and the growing willingness of techno-philanthropists like Bill Gates to tackle real-world problems.

The biggest hurdles, however, are not scientific or technological but political. There are still too many corrupt dictators and backward-looking governments keeping millions in penury. But as we have seen lately, the misruled have a way of throwing off despotic governments. With ever more people reaching for freedom, countless millions are tacitly embracing the Diamandis motto: "The best way to predict the future is to create it yourself.""

Another book coming out now with a similar theme is The Coming Prosperity: How Entrepreneurs Are Transforming the Global Economy by Philip Auerswald.

Does high social class lead to unethical behaviors?

See New Studies Determine Which Social Class More Likely to Behave Unethically from the National Science Foundation. Excerpts are below but George Mason University economist Tyler Cowen had some interesting counterpoints. See How good are the upper classes?

"A series of studies conducted by psychologists at the University of California, Berkeley and the University of Toronto in Canada reveal something the well off may not want to hear. Individuals who are relatively high in social class are more likely to engage in a variety of unethical behaviors.

That is the finding of new research published in today's Proceedings of the National Academy of Sciences and it's a doozy.

"Our studies suggest that more positive attitudes toward greed and the pursuit of self-interest among upper-class individuals, in part, drive their tendencies toward increased unethical behavior," said lead researcher Paul Piff of UC Berkeley."

"Participants then played a "game of chance" in which a computer "randomly" presented them with one side of a six-sided die on five separate rolls. Researchers told participants higher rolls would increase their chances of winning a cash prize and were asked to report their total score at the end of the game. In fact, die rolls were pre-determined to sum up to 12. The extent to which participants reported a total exceeding 12 served as a direct behavioral measure of cheating.

Greed "is a robust determinant of unethical behavior," the researchers write in the report. "Plato and Aristotle deemed greed to be at the root of personal immorality, arguing that greed drives desires for material gain at the expense of ethical standards." For this study, the researchers conclude that, in part, due to their more favorable beliefs about greed, upper-class individuals are more willing to deceive and cheat others for personal gain."

(Hat Tip: Bruce Norton)