The 10 Most Affordable Housing Markets

You can find out where they are by reading the following article:

The 10 Most Affordable Housing Markets

But if more people move to these cities, prices in those cities will rise and they won't be very affordable anymore. This illustrates what economist Steven Landsburg calls the "Indifference Principle."

"Except when people have unusual tastes or unusual talents, all activities must be equally desirable."

So unless you really like where you live or you have no interest in moving to these "affordable places," they will not stay very affordable for long. All the people who don't care about where they live and only want to minimize cost will start moving there. But that will drive up costs. If people don't move there because they don't want to move to those cities (like Youngstown, OH or Indianapolis, IN), finding out that they are "affordable" won't have any effect on them.

Texas economy stronger than most

That is what a current government report says. It does not say, but most likely Texas is doing better than the rest of the country because of higher oil prices. Here is the article:

Fed survey shows Texas economy stronger than most

High Gas Prices Spur Sales Of Electric Bikes

This is what economic theory predicts. With higher gas prices, people will seek a better deal somewhere. Here is the link to the article. Electric bikes selling briskly as gas prices climb. Here is a brief exerpt:

"Official sales figures are hard to pin down, but the Gluskin-Townley Group, which does market research for the National Bicycle Dealers Association, estimates 10,000 electric bikes were sold in the U.S. in 2007, up from 6,000 in 2006. Bert Cebular, who owns the electric bike and scooter dealership NYCeWheels in New York, said his sales are up about 50 percent so far this year over last. Amazon.com Inc. says sales of electric bikes surged more than 6,000 percent in July from a year earlier, in part because of its expanded offerings."

How Much Money Does It Take To Be Rich?

This was the topic of a recent article in the Houston Chronicle called Got $5 million? Consider yourself rich, experts say. Here is a brief exerpt of the article:

"most people in finance use the $5 million mark, and apparently others agree. In a January telephone survey of 253 people with at least $500,000, 45 percent said it takes at least $5 million to qualify as rich.

Another 25 percent said $25 million, and 8 percent picked $100 million, according to the Spectrem Group, a consulting firm that specializes on research about wealth. For the Internal Revenue Service, earning $349,700 qualified for the top-tier 35 percent tax bracket in 2007.

The Securities and Exchange Commission, meanwhile, requires individuals to earn $200,000, couples $300,000 or households to show they have $1 million in the bank before they're considered wealthy enough to safely invest in lightly regulated instruments like hedge funds.

The U.S. Census Bureau, which in its most recent annual Current Population Survey in 2006, estimated that 2.3 million households — or 1.9 percent — brought in at least $250,000, the highest figure it measures."

Colbert bump' benefits Democrats

It seems that when Democrats appear on the Colbert Report, they get an increase in campaign contributions. But this does not happen to Republicans who appear on the show. Here is the link:

Colbert bump' benefits Democrats

Should We Pay Students To Study?

I am curious to see what my students think of this. But before I get to it, here are links to stories about "Obamanomics" (which also have some info on McCainonomics, I guess).

New York Times

Barrons

Here is the link to the Wall Street Journal article on the studying issue and its intro. I also have a link to another story about this in case anyone can't get into the WSJ link.

When Schools Offer Money As a Motivator

"More and more school districts are banking on improving student performance using cash incentives -- a $1,000 payout for high test scores, for example. But whether they work is hard to say.

In the latest study of student-incentive programs, researchers examining a 12-year-old program in Texas found that rewarding pupils for achieving high scores on tough tests can work. A handful of earlier studies of programs in Ohio, Israel and Canada have had mixed conclusions; results of a New York City initiative are expected in October. Comparing results is further complicated by the fact that districts across the country have implemented the programs differently."

Pay for grades — does it work?

Is tax 'rebate' doomed to fail?

That is the title of an article that you can read here. People need to spend the money if the rebate is going to help the economy (so AD can increase, if we are below the full-employment GDP). They might not. And how much they spend might depend on what you call it. Calling it something else and not a rebate might make a difference.

Higher Food Prices May Be Here to Stay

That was the title of an article in the Wall Street Journal on April 14. You can read it here. The wages farmers have to pay are rising, land prices are rising, energy prices are up, chemical prices are up. Here is an excerpt:

""Diesel, fertilizer, insecticide, grass-killing chemicals, they're all going up -- just like a shadow," says Samear Ruengrit, a 57-year-old farmer who grows rice about 45 minutes north of Bangkok. His average costs are now about 50% higher than last season, he says.

Farming costs are climbing for several reasons. Higher fuel prices make it more expensive to run tractors and other equipment, while pricier natural gas -- needed to make some fertilizers -- has also played a role. Equipment prices are rising because of strong demand for farm machinery in China and other developing countries, along with rising costs for raw materials like steel.

Wages are up in some parts of the world because many farms are expanding to meet higher demand, putting pressure on labor supplies, especially in countries like Australia where many workers are already occupied in commodity-based trades like mining."

Male sex hormone may affect stock trades

That is the name of an article you can read here. Here is an excerpt:

"Coates and Joe Herbert studied male financial traders in London, taking saliva samples in the morning and evening. They found that levels of two hormones, testosterone and cortisol, affected traders.

Those with higher levels of testosterone in the morning were more likely to make an unusually big profit that day, the researchers found. Testosterone, best known as the male sex hormone, affects aggression, confidence and risk-taking. Cortisol is tied to uncertainty, novelty and unpredictability, "which pretty much describes a trader's life," Coates said in a telephone interview.

Coates and Herbert's study comes less than two weeks after U.S. researchers reported that young men shown erotic pictures were more likely to make a larger financial gamble than if they were shown a picture of something scary, such as a snake, or something neutral, such as a stapler."

Does Or Can Money Buy Happiness?

You might think I am kidding. But some research says yes and some no. The article is Maybe Money Does Buy Happiness After All from the NY Times. Post World War II opinion polls seemed to show that Japanese people were not getting any happier even though their economy grew. Here is an exerpt from the article:

"This contrast became the most famous example of a theory known as the Easterlin paradox. In 1974, Richard Easterlin, then an economist at the University of Pennsylvania, published a study in which he argued that economic growth didn’t necessarily lead to more satisfaction.

People in poor countries, not surprisingly, did become happier once they could afford basic necessities. But beyond that, further gains simply seemed to reset the bar. To put it in today’s terms, owning an iPod doesn’t make you happier, because you then want an iPod Touch. Relative income — how much you make compared with others around you — mattered far more than absolute income, Mr. Easterlin wrote."

Anthropology, Cell Phones, Economics and World Poverty

Yes, they do all go together. The NY Times Magazine today had an article about an anthropologist who works for Nokia who visits lots of poor countries trying to find out the kind of cell phones that they would like and could afford. But cell phones can be vital to people in these countries, improving their well being in lots of surprising ways by helping them find jobs and customers and creating an informal banking network. This fascinating article is titled Can the Cellphone Help End Global Poverty?.

The World's Oldest Profession Uses The Latest Technology

Prostitution is sometimes called the world's oldest profession. I don't know if that is true, but they are certainly innovative when it comes to technology. They use cell phones for text messaging, website allow you to rate the prostitutes and they use anti-bugging devices. It makes me wonder what kind of industry it is. It could be competitive if there are no barriers to entry and the competition would force all the suppliers in the industry to keep up with by innovating and adopting the latest technology. But it could be monopolistic competition since not all suppliers are the same-there could be product differentiation. Anyway, the article is Prostitution Advances in a Wired World. Here is an excerpt:

"There are a host of online message boards where clients or potential clients can discuss, rate and exchange information about individual women. Technology also eases the business-end of things, Weitzer says. While clients are surveying potential companions, escort-service managers can look into clients with a background check or even a simple Google search. Payment is easier, too. "It's often convenient to have an account established with a balance, so if you have the last-minute urge, you don't have to worry about getting money into the account," says Norma Jean Almodovar, executive director of the sex workers' rights organization COYOTE ("Call Off Your Old Tired Ethics") in Southern California."

and

"Not only can prostitutes and escort services now run more efficient businesses, but they can leverage word-of-mouth advertising in new ways to build their brands and troll for clients. Online social communities built around the escort and sex worker industries can solidify customer loyalty."

Placebos: The More You Think They Cost, The Better They Work

It is the miracle cure of the ages. Read all about it at Placebo Nation: Just Believe. You might see an ad first, but just close it. Here is an exerpt:

"Ariely's curiosity about the power of expectation—which he explores in his new book, "Predictably Irrational"—inspired a study of what affects those expectations. He and colleagues gave 82 volunteers a brochure explaining that they would be testing a new pain drug called Validone that worked like codeine, but faster. (It was actually a placebo.) Each then received a series of electrical shocks on their wrists, rating them from "no pain at all" to "the worst pain imaginable." Each then took a "Validone." Half were told it cost $2.50, the other half that it cost a dime. They then received shocks again. Of those who got the $2.50 pill, 85 percent felt less pain from the same voltage than before taking it; 61 percent of those taking the cheap pill felt less pain, the scientists reported last week in The Journal of the American Medical Association. The pricier the drug, the higher the expectation of efficacy, and the stronger the placebo effect."

The Flutie Effect: When The Teams Win, More Students Apply To The College

The article is called ‘Flutie Effect’ study shows success on fields and courts really does mean more applications. Back in 1984, Boston College quarterback (and Heisman Trophy winner) threw a miraculous pass to win a college football game against Miami. This caused more students to apply to Boston College. A couple of economists have studied this for both college basketball and football. Here are some of their findings:

— Schools that make it to the Sweet 16 in the men’s basketball tournament see an average 3 percent boost in applications the following year. The champion is likely to see a 7 to 8 percent increase, but just making the 65-team field will net schools an average 1 percent bump.

— Similarly, applications go up 7 to 8 percent at schools that win the national football championship, and schools that finish in the top 20 have a 2.5 percent gain

It was even better for George Mason last year when they made the final four.

Lighthouses Are Not Always Public Goods

This is really intersting. It comes from the Public Goods and Externalities entry at the Concise Encycopedia of Economics. It is by Tyler Cowen. It should also be mentioned that Nobel Prize winner Ronald Coase wrote an article about this that appeared in the Journal of Law and Economics in 1974. So here is the quote from the Tyler Cowen article:

"Lighthouses are one of the most famous examples that economists give of public goods that cannot be privately provided. Economists have argued that if private lighthouse owners attempted to charge ship-owners for lighthouse services, a free-rider problem would result. Yet lighthouses off the coast of nineteenth-century England were privately owned. Lighthouse owners realized that they could not charge shipowners for their services. So they didn't try to. Instead, they sold their service to the owners and merchants of the nearby port. Port merchants who did not pay the lighthouse owners to turn on the lights had trouble attracting ships to their port. As it turns out, one of the economics instructors' most commonly used examples of a public good that cannot be privately provided is not a good example at all."

Save 54 Cents A Gallon On Gas

How? Read Slow Down a Little, Save a Lot of Gas. Your car gets less efficient as you start going faster than 60:

"Traveling faster makes the job even harder. More air builds up in front of the vehicle, and the low pressure "hole" trailing behind gets bigger, too. Together, these create an increasing suction that tends to pull back harder and harder the faster you drive. The increase is actually exponential, meaning wind resistance rises much more steeply between 70 and 80 mph than it does between 50 and 60."

"Engineers at Consumer Reports magazine tested this theory by driving a Toyota Camry sedan and a Mercury Mountaineer SUV at various set cruising speeds on a stretch of flat highway. Driving the Camry at 75 mph instead of 65 dropped fuel economy from 35 mpg to 30."

That is about a 14% drop in efficiency. If you pay $3 per gallon, it costs you about 42 cents a gallon. The faster you go above 60 and/or the more you pay for gas, the bigger the decline in fuel economy. Truck drivers are now slowing down to save money. Read Drivers slow down their tractor-trailer rigs to save fuel.

Farmers In Argentina Protest In Favor (not against) Free Trade

Argentina is taxing the export of food. That makes it harder for farmers to sell their goods overseas. They will, on net, get less for what they sell. So they are blocking traffic as a protest. Maybe the government wants to keep food in the country to make sure everyone has enough to eat. But if farmers make a lower profit due to the tax, then they will have less incentive to grow food. That is the opposite of what the government probably intended. The article is called Argentine Farmers Restore Roadblocks After Talks With Officials .

Don't Like The Price Tag At The Store? Try Haggling

There was an interesting article on this in The New York Times last Sunday. It was titled Even at Megastores, Hagglers Find No Price Is Set in Stone. Here is the intro:

"Shoppers are discovering an upside to the down economy. They are getting price breaks by reviving an age-old retail strategy: haggling. A bargaining culture once confined largely to car showrooms and jewelry stores is taking root in major stores like Best Buy, Circuit City and Home Depot, as well as mom-and-pop operations. Savvy consumers, empowered by the Internet and encouraged by a slowing economy, are finding that they can dicker on prices, not just on clearance items or big-ticket products like televisions but also on lower-cost goods like cameras, audio speakers, couches, rugs and even clothing. The change is not particularly overt, and most store policies on bargaining are informal. Some major retailers, however, are quietly telling their salespeople that negotiating is acceptable."

Basketball on Office Monitors Madness for Business

Here was a brief item at the Internet Movie Database. The NCAA basketball tournament will cause lost productivity since people will be watching at work. Also, with so many people watching on their computers at work, servers might crash.

"A leading business consultant has predicted that CBS's online "March Madness On-Demand," in which it is streaming all 63 final college basketball games free, will cost American businesses about $1.7 billion in lost productivity. Rick Cobb, a vice president at business consultants Challenger, Gray & Christmas, told Newsweek magazine that the estimate is based on the number of workers known to participate in office pools and CBS's figures showing that 1.4 million unique online viewers watched on average 1.9 hours of its coverage last year. Predicting that that number will rise substantially this year, Cobb said another source of lost productivity could be office servers unable to deal with demands for the webcasts -- and crashing. "When servers go down, most people want to head home," he observed."

Capitalism Has Entrepreneurs And The Soviet Union Had "Expediters"

In capitalism, alot of market activity is driven by entrepreneurs who start new businesses, create new products and innovative technologies. They see an unmet need and try to fill it. This makes the whole system work better.

But what if you have a planned or command economy? The government decides what needs to be produced and how much. The government also had to make sure the factories got all the resources they needed to produce the quantity of goods they had been told to produce. But having a plan that worked, so that each factory got exactly the resources it needed, no more no less, was practically impossible.

So how would a factory manager get what he needed? He would send an expediter. They would bribe or bargain the producers of needed resources to get what the factory needed. This article has a good description.

"Suppressing a market is a bit like squeezing a balloon—the trade will usually pop up somewhere else. The Soviet Union was full of markets. The factory in north Vladivostok would be allocated too much sheet metal but not enough coal. The factory in south Vladivostok had the reverse problem. Both factory managers would ask for extra resources, but in the command-and-control system the incentive was to ask for more of everything, with little hope of success. So, the managers would quietly, and illegally, do a deal with each other. Professional expediters would be sent out to barter for scarce inputs, and the informal market reached a high level of sophistication."

Economist Robert Heilbroner also has a good explanation of this. It is from his article Socialism.

"Through the sixties 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.

As the economic flow became increasingly clogged and clotted, production took the form of "stormings" at the end of each quarter or year, when every resource was pressed into use to meet preassigned targets. The same rigid system soon produced expediters, or tolkachi, to arrange shipments to harassed managers who needed unplanned—and therefore unobtainable—inputs to achieve their production goals. Worse, in the absence of the right to buy their own supplies or to hire or fire their own workers, factories set up fabricating shops, then commissaries, and finally their own worker housing to maintain control over their own small bailiwicks."

Report Says We Won't Have A Recession This Year

The article is Economy weak but not enough for recession: report. A recession means that we have two straight quarters of falling real GDP (a quarter is 3 months). But this forecast says that real GDP will grow 1.5% this year (even though it is projected to fall for one quarter). Unemployment is projected to be 5.3% this year and 5.6% next year. This not good news, but 5.6% is well below the average unemployment rate of the 1970s as well as the 1980s (6.21% & 7.27%, respectively). But if oil keeps going up (now $108 per barrell), we could have stagflation, meaning rising inflation at the same time we high have unemployment.

Get Around A Ban On Smoking In Bars By Turning Your Patrons Into Actors

Not kidding. This is going on in Minnesota. Read Theater of the absurd: Minnesota bars thwart smoking ban by declaring everyone an actor. Here is an exerpt:

"A new state ban on smoking in restaurants and other nightspots contains an exception for performers in theatrical productions. So some bars are getting around the ban by printing up playbills, encouraging customers to come in costume, and pronouncing them “actors.”"

This reminds me of the law of Unintended Consequences. It says

"The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or "unintended." Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it."

"For instance, the United States has imposed quotas on imports of steel in order to protect steel companies and steelworkers from lower-priced competition. The quotas do help steel companies. But they also make less of the cheap steel available to U.S. automakers. As a result the automakers have to pay more for steel than their foreign competitors do. So policy that protects one industry from foreign competition makes it harder for another industry to compete with imports."

What An Economist Said About The Movie "A Beautiful Mind"

In one of my classes this week we played "The Prisoner's Dilemma" game. The subject of the movie "A Beautiful Mind," the mathemetician John Nash, was an expert in game theory. To see what this game is about click here. It is another blog entry which has links to sites which explain a little about game theory. The economist Steven Landsburg reviewed the movie in the Wall Street Journal. That review was title "Mindless". Landsburg explains that the bar scene really does not disprove Adam Smith's idea of the Invisible Hand.

In Poland, It Is Death OR Taxes

To see the original story, click here. Here is the story from the Washington Post:

"Once you've been declared dead in Poland, it's not easy to convince officials that you're alive and well.

Piotr Kucy, 38, was listed as having drowned last summer. When he learned of the mistake, Kucy notified government officials. But he is still listed as dead in government files, which prevents him from working and having health insurance.

"This citizen does not exist," a Polish official said of Kucy.

On the bright side, he doesn't have to pay taxes."

Is There Economic And Political Meaning In "The Wizard of Oz?"

To get a handle on this, you can read Money and Politics in the Land of Oz By Quentin P. Taylor. Below is an exerpt:

"Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle Henry-is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?"

But not everyone agrees with this. Economist Bradley Hansen wrote an article titled The Fable of the Allegory: The Wizard of Oz in Economics in the Journal of Economic Education in 2002. Here is his conclusion:

"Rockoff noted that the empirical evidence that Baum wrote The Wonderful Wizard of Oz as an allegory was slim, but he compared an allegorical interpretation to a model and suggested that “economists should not have any difficulty accepting, at least provisionally, an elegant but controversial model” (Rockoff 1990, 757). He was right—we did not have any difficulty accepting it. Despite Rockoff’s warning, we appear to have accepted the story wholeheartedly rather than provisionally, simply because of its elegance. It is as difficult to prove that The Wonderful Wizard of Oz was not a monetary allegory as it is to prove that it was. In the end, we will never know for certain what Baum was thinking when he wrote the book. I suggest that the vast majority of the evidence weighs heavily against the allegorical interpretation. It should be remembered that no record exists that Baum ever acknowledged any political meanings in the story and that no one even suggested such an interpretation until the 1960s. There certainly does not seem to be sufficient evidence to overwhelm Baum’s explicit statement in the introduction of The Wonderful Wizard of Oz that his sole purpose was to entertain children and not to impress upon them some moral. The Wonderful Wizard of Oz is a great story. Telling students that the Populist movement was like The Wonderful Wizard of Oz does seem to catch their attention. It may be a useful pedagogical tool to illuminate the debate on bimetallism, but we should stop telling our students that it was written for that purpose."

A Solution To The Health Care Problem? Change In Behavior

We all know about rising health care costs. The health care industry is now about 17% of GDP. How behavior changes can help are in this article Gentlemen, 5 Easy Steps to Living Long and Well.

Here is an exerpt:

"Living past 90, and living well, may be more than a matter of good genes and good luck. Five behaviors in elderly men are associated not only with living into extreme old age, a new study has found, but also with good health and independent functioning.

The behaviors are abstaining from smoking, weight management, blood pressure control, regular exercise and avoiding diabetes. The study reports that all are significantly correlated with healthy survival after 90."

More Bad Economic News

Here are exerpts from an article:

"...factories get squeezed by rising prices for energy, materials and labor" and

"stricter enforcement of labor and environmental standards, are causing some manufacturers to leave for lower-cost markets" and

"Costs have climbed so much that three-quarters of businesses surveyed...believe [the country] is losing its competitive edge."

The country? Is it the USA? No, it is China. You can read about it in As business costs rise in China, some firms exit for cheaper markets.

Trees vs. Solar Power?

What is more important, having trees or using renewable energy like solar power? It seems that if your trees block the sun from getting through to your neighbor's solar cells, you have to cut them down. But if your trees were already there and then your neighbor put in the cells, you don't have to cut them down. This is a California law which says:

"The law requires homeowners to keep their trees or shrubs from shading more than 10 percent of a neighbor's solar panels between 10 a.m. and 2 p.m., when the sun is strongest. Existing trees that cast shadows when the panels are installed are exempt, but new growth is subject to the law."

You can read about this at Neighbors Clash Over Trees, Solar Power. My understanding of this case is that these Redwoods kept growing and are now casting a shadow over the solar cells that were installed after the Redwoods were there, but not as tall. This case reminds me of a blog entry I made last year called Environmentalists vs. . . . other environmentalists? Or, are birds more important than clean, cheap energy?. The idea there is that wind turbines might harm birds.

This all reminds me of The "COASE THEOREM" . It is an economic idea from the Nobel Prize winning economist Ronald Coase. It should not matter who has the property right in determining the most efficient outcome. In this case, the Redwoods owners could pay money to their neighbors so they would not have to cut them down. But the Redwood neighbors would have to care more about their trees than the neighbors care about renewable energy. If the court had ruled for the Redwood owners, and the solar neighbors cared more about their cause, they could pay the neighbors into cutting them down. So it does not matter who owns what. Whether the trees get cut down or not depends on who values their good or cause the most.

Unemployment Has Been Good Recently

The time chart below shows the U.S. unemployment rates since 1970. We are at 4.9% right now. That is low, but not as low as the 4% we had in 2000. But if you look back at the 1970s and 1980s, we are still doing well.



But, as my students know, unemployment could be low if there are alot of discouraged workers out there, people who are not looking for jobs (they have given up). They are not part of the calculation of the UE rate. But, in the graph below, the blue line is the labor force participation rate (the % of adults who are working or trying to find work). The pink line represents the % of the adult population that have a job. Although not as high as around 2000, both of these numbers are higher than for the 1970s and most of the 1980s. So alot of people are trying to find jobs and alot of them do have jobs, by historical standards.

Poverty Might Affect The Brain

Here is brief idea of what is going on:

"a deprived childhood may affect the physical development of the brain and render its owner less intellectually capable." That comes from The London Times article It’s just as you might think: being poor can damage your brain. Another article, Study shows stress affects brain growth, says "CHILDREN who suffer deprivation in early life show altered patterns of brain growth by the time they are teenagers." This article also said "the change in brain development might be a consequence of high blood levels of stress" and that "children who lived in poverty were likely to suffer more adverse consequences of stress." Another article, from the Financial Times, Poverty mars formation of infant brains, also discusses the issue.

But here is a quote from the Chronicle of Higher Education which tells a different story:

"While many of the researchers at the session supported the hypothesis that socioeconomic status plays a strong role in affecting brain development in children, Mabel L. Rice, director of the doctoral program in child language at the University of Kansas, described a new study that goes against the hypothesis, at least in the case of early verbal abilities. In tests of 1,766 children in Australia, Ms. Rice and her colleagues found no correlation between a child's verbal abilities at 24 months old and the parents' socioeconomic status or their education levels.
"The conclusion is that we don't want to assume too strongly that children of poverty are unable to acquire early vocabulary," she told The Chronicle."

That is not available online unless you subscribe to the Chronicle.

What the stimulus package means for you

I wanted my students to have some idea of how the economic stimulus plan might work and effect them. President Bush has signed the bill. So people will be getting rebate checks in a few months. How much you might get depends on your income, marital status and number of children. To read all about it go to What the stimulus package means for you. As I have explained in class, the hope is that people will spend this money, causing an increase in aggregate demand in the flat or relatively flat part of short run aggregate supply. This will increase Q or GDP in the economy, which will cause firms to hire more workers without causing might inflation (inflation could always occurr if SRAS shifted left if, for example, oil prices shoot up again). Also, lower interest rates will encourage people to borrow and spend, shifting AD to the right.

A Special Valentine's Message On Romantic Love

Abstract: "Romantic love is characterized by a preoccupation with a deliberately restricted set of perceived characteristics in the love object which are viewed as means to some ideal ends. In the process of selecting the set of perceived characteristics and the process of determining the ideal ends, there is also a systematic failure to assess the accuracy of the perceived characteristics and the feasibility of achieving the ideal ends given the selected set of means and other pre-existing ends.
The study of romantic love can provide insight into the general process of introducing novelty into a system of interacting variables. Novelty, however, is functional only in an open system characterized by uncertainty where the variables have not all been functionally looped and system slacks are readily available to accommodate new things. In a closed system where all the objective functions and variables must be compatible to achieve stability and viability, adjustments in the value of some variables through romantic idealization may be dysfunctional if they represent merely residual responses to the creative combination of the variables in the open sub-system."

The author was K. K. Fung of the Department of Economics, Memphis State University, Memphis. It was from a journal article in 1979. More info on it is at this link. The entire article, which is not too long, can be found at this link. I originally became aware of this back in the early 1980s when another student at the University of Chicago showed it to me. It was in a magazine. The student was David Brooks, who now writes for the New York Times.

When Self-Interest Isn’t Everything

It might seem surprising to see an economist write an article with this title, but it was in the New York Times a few days ago by Robert Frank which you can read here. One thing he says is

"Self-interest is surely an important human motive, perhaps even the most important motive much of the time. But it is never the only important motive."

Another famous economist, Frank Knight, wrote in 1934:

"Life is at bottom an exploration in the field of values, an attempt to discover values, rather than on the basis of knowledge of them to produce and enjoy them to the greatest possible extent. We strive to 'know ourselves,' to find our real wants, more than to get what we want."

You Are What You Spend

That is the title of a very interesting New York Times article which you can read here. It is by two economists who work at the Federal Reserve bank in Dallas. They show that the level of consumption between rich and poor in this country is not as big as the difference between income. The poor often have resources that the government does not count, like capital gains. Here is one really interesting quote:

"At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6 percent."

Studies Warn Biofuel Crops Could Accentuate Global Warming

That is the title of an article you can read here. In one of my classes this week, we read about ethanol in the book The Economics of Public Issues. This article talks about the environmental problems that biofuel crops might cause. Here is the first paragraph:

"Just one month ago, a study conducted by a team of American researchers concluded that there was nothing more environmental-friendly than the biofuel crops, that could reduce the greenhouse gas emissions by 94% and produce five times more energy. New studies however warn that by transforming the various ecosystems into biofuel crop fields would only accentuate the global warming phenomenon rather than reducing it. According to the latest estimations, converting natural ecosystems into biofuel crop fields is likely to release up to 420 times more carbon."

United Air to Charge Some Fliers for 2nd Checked Bag

That is the title of an article you can read here. Doing this will encourage people to bring fewer suitcases or pack their suitcases more efficiently. It could mean less weight on the plane, which is important with higher fuel costs. It makes sense that those with more bags pay more since they use more fuel. But people might just get a bigger suitcase. That one suitcase could carry all that they want and would mean no extra charge. You say the airlines should weigh everyone and charge people partly based on their weight. But that would mean weighing everyone. That would mean buying scales and taking the time to weigh everyone. So the suitcase policy is easier to carry out. It will work as long as people just don't go out and buy one big suitcase.

Amazon.com Sells Book For Less Than The Publisher

I got an email from Amazon.com the other day offering to sell me a book for abut $14. It is a baseball book by Bill James, the well known stat guru. The book is published by ACTA Sports. A couple of hours later I get an email from ACTA sports wanting to sell it to me for $21.95 and they charge more for shipping than Amazon.com. So, of course, I ordered it from Amazon. It made me wonder, does ACTA sports know that I could by it for alot less at Amazon? Maybe not everyone gets that offer from Amazon. Maybe I got it because I have ordered other books from them and people who have not ordered much from Amazon before would not get the offer.

One way this might make sense for ACTA is that their email might simply alert me and others that a book is available. They might even know that some of us will head over to Amazon to buy it, but some won't and they will get a few extra bucks from them. In any event, the email might be a pretty cheap way to advertise.

Community Colleges Central to Nation's Welfare

The College Board released a report that suggests that strengthening community colleges is a key to maintaining economic growth in the future. You can read a news article about this article here. As the world economy grows more competitive, community colleges will play a significant role in training and re-training workers in new skills as well as exanding educational opporunties for all Americans.

Some Good Insights On Immigration

In one of my macro sections we read a chapter in The Economics of Macroissues on immigration. Of course, it is a big issue in this election year. The Sunday New York Times magazine had an in-depth article on immigration a couple of years ago. The author, Roger Lowenstein, talked to two of the top economists who study immigration, David Card and George Borjas. The article was called The Immigration Equation. The article paints a generally favorable view of immigration, although Borjas finds a downside.

Venezuela's Chavez threatens to seize properties, citing price speculation

That is the title of an Associated Press article that you can read here. This relates to the first chapter of the book The Economics of Macroissues. It discusses how societies where he government can take away your property easily don't grow as fast in terms of per capita income. This could be a problem for Venezuela if Chavez starts doing this (or more of it).

The article also mentions that there are shortages of products like sugar whose prices are controlled. This is basic chapter 3 material in all of the textbooks I am using this semester. Chavez blames inflation on those hording goods. But we expect supply to decrease (that is, the supply line shifts to the left) when sellers expect higher prices in the future.

Government has no business meddling in the normal business cycle

That is the title of David Hendrick's business page column in the San Antonio Express-News the other day. You can read it here. Here is an exerpt:

"The "stimulus" being sought is too late. The recession already has started. By the time taxpayers find "more money in their pockets," to quote the Bush administration, the downturn will be easing."

This is similar to something we call "the policy lag" problem in economics. We can't always get a policy to work at the time we want it to. In fact, there has been some good news lately. The Wall Street Journal reported

"The number of U.S. workers filing new claims for unemployment benefits fell unexpectedly last week for a fourth-straight week, suggesting that a resilient labor market at the start of the year might keep the U.S. economy from sliding into recession." You can read that story here.

Should Movie Downloaders Who Clog The Internet Pay More?

The San Antonio-Express News had an article titled In a test, Time Warner Net hogs will pay for bytes. The basic idea is that people downloading movies use up lots of bandwidth and that slows down things for the rest of us that use the internet for more basic purposes. Since they are slowing things down, maybe they should pay more. So if they do this less (which would follow the law of demand), then things would go faster for the rest of us. Some experts say that more broadband infrastructure could take care of the problem.

But these big downloaders might be creating what we call negative externalities. Some people impose costs on others like drivers who create pollution. One solution to that is to tax the polluting activity. This higher price on the movie downloaders is like a tax.

This is also like paying a toll on highways. When few people are on the highways, you don't need tolls. But if things get congested, one way to unclog them is to charge a toll. I had a blog entry on this a couple of months ago. You can read that here.

Best Cities For Jobs In 2008

That is the name of an article that you can read here. Texas cities and Salt Lake City are high on the list. But it is never clear what anyone should do with this info. Should you move to one of these places? Maybe not, if lots of other people are. In that case the number of applicants might grow to more than the number of job openings. This kind of thing happens all the time. If we designate certain cities as the best to live in, more people might move there, driving up real estate prices and housing prices (and possibly creating other problems, like more air pollution). Then those places are not so great anymore.

Kidnapping: An Occupational Hazard Faced by Drug and Immigrant Smugglers

Every occupation has its drawbacks. You probably think that they need to worry about shooting it out with rival gangs in turf wars. But there has been a rash of kidnappings in Phoenix. You can read about it in Kidnappings cross the border. Here is an exerpt:

"The kidnap victims are typically drug- or immigrant-smugglers, who are seen as inviting targets because they have a lot of money, they can raise large sums of cash on short notice, and they are unlikely to go to the police, for fear their own shady dealings will come to light."

I guess this is the high price of success. Many cases go unreported. Apparently the victims' families don't want to call the police. So they are more of a target and they can't go the authorities.

Do Monkeys Pay for Sex?

That is the title of a Time Magazine article which you can read here. The male monkeys pay for sex by grooming the female monkeys. The article discusses how this behavior conforms to our ideas about supply & demand and scarcity. "The study also showed that the number of minutes that males spent grooming hinged on the number of females available at the time: The better a male's odds of getting lucky, the less nit-picking time the females received."

Adam Smith, in The Wealth of Nations, talked about the human race's "propensity to truck, barter, and exchange one thing for another." Maybe evolution has built this into us. For more on how our attitudes, especially in relation to economics, might come from other primates, read Why people believe weird things about money. (I saw this latter link at the Freakonomics blog)

Update: To any of my new students checking this out for the first time, I hope to generate some discussion on these issues so feel free to leave comments. You can do so anonymously if you want. I usually post something about 3 times a week, like Sunday, Tuesday and Thursday. Sometimes I am a day late.

Is An Electronic "Helicopter Drop" Feasible?

Economist Mark Thoma wrote about something called a "helicopter drop" on his blog last Sept. It was called "The Repo Man" The idea is that the FED (Federal Reserve Board), simply drops money out of helicopters so that people would spend it. We might do this if there is not enough aggregate demand (AD) in the economy. The FED might have lowered interest rates to stimulate spending, but businesses and consumers might be afraid to spend more even at these lower interest rates. So the argument is that if we are all just given cash, we would spend it.

But what if people don't spend it, the cash they recieve? Mark Thoma said that even the money they just stuff into cookie jars might make them take more risks, which could increase AD. But supposing that even that does not happen and there is no effect on AD, that everyone just holds it? Then I guess the drop does not work.

But suppose that everyone has an account with the FED and we are all given debit cards that initially have a zero balance. If the FED saw the need for a quick stimulus that they know would be spent, they could simply announce that everyone citizen now has $100 (or whatever amount is appropriate) in their account and they have some fixed, finite time period to spend it, say 1-3 months. If you don't spend that money, use the debit card, then after the deadline your account reverts back to zero. Maybe it would not be all citizens, just those who earned below a certain amount the previous year. Maybe the FED debit card could only be used in department stores and grocery stores if people are worried about what it gets spent on. People could not get cash back or withdraw the value in cash from the FED.

All consumers would have an incentive to spend it fairly quickly and we could get a quick stimulus to the economy with no time lag issues (other than the time it takes for the FED to realize the policy is needed). Once people started spending money, the FED would have to pay the stores the money that we spent in some similar fashion to the way current debit cards work. The FED would simply use a computer to put the money in everyone's account. They would have to create new money to pay the stores.

I know this might seem like a crazy idea and there could be all kinds of technical and logistical issues. Fraud and theft could be problems. There would be a cost of creating the debit cards and running the program.

Update: My department chair here at San Antonio College, Bruce Norton, said that people who get money put into their debit card accounts might spend less out of their paycheck than they normally do if they can spend the money in these accounts. They would put $100 from their paycheck into the bank (something they would not normally do) and can spend the money from the debit card. So it is possible that this increase in the money supply will not lead to an increase in AD. But it would be no worse than any other money supply increase. And if people in lower income groups get this money, their MPCs (marginal propensity to consume) may be higher than it is for other people, so they might be likely so spend it. Also, if we don't have enough AD, some of the people getting this money will be unemployed, so they are likely to spend it (I am not suggesting getting rid of unemployment insurance or other programs like this).

End of Semester

Since this is finals week and the semester is just about over, I won't be blogging until around Jan 10.

Is The Environment Sacred?

Last week in the San Antonio Express-News, Michael E. Kraft, professor of environmental sciences at the Unviersity of Wisconsin-Green Bay, said that "in writing the Clean Air Act, Congress explicitly instructed the agency (EPA) to base its decisions on public health and not economic costs." Then in yesterday's Express-News, the environmental watchdog Germanwatch said the U. S. was the 2nd worst "climate sinner" behind Saudi Arabia. So we are at the point where air should be cleaned no matter what the cost and those who don't go along with this are sinners. It seems that this has now become a religious crusade. Environmental policy should be made both scientifically and cost-effectively. If it isn't we will all pay a very high price in the long run.

Also, here is an exerpt from an article in the International Herald Tribune

"James Lovelock, a British scientist whose 2006 book, "The Revenge of Gaia," argued that most of humankind is doomed, does not think much of renewable energy. At a panel on climate change at the University of Cambridge this summer, Lovelock was asked what would be the most effective action people could take. Because humans and their pets and livestock produce about a quarter of the carbon dioxide in the atmosphere, he said, "just stop breathing.""

Gaia is an earth goddess, so again, we see the extremism that results when religion is brought in: die (stop breathing) to save mother earth.

An Economic Analysis of Toll Roads in San Antonio

This is a big issue here. There was an op-ed article on this in the San Antonio Express-News yesterday by John Merrifield, economics professor at UTSA. You can read it here. One of the big points is that if you build special lanes for toll payers, they will only be used when the rest of the lanes are very congested. Why pay to use the toll lanes when the free lanes are moving pretty fast? So you end up building lanes that don't get used much. But things still move slowly during rush hour and that may be the time to have tolls. That would cut down on the congestion and speed things up.

Some Good Economic News: Alot of New Jobs Added and Productivity is Up

You probably hear alot of bad economic news: the dollar is down, the housing crisis, high oil prices, etc. But there was some good economic news today. Worker productivity was up 6.3% (adjusted to an annual rate) in the third quarter. That is a very high rate. In the long run, the only way to raise our standard of living is through productivity growth. You can read about this here. The economy also added 189,000 new jobs in November, many more than predicted. You can read about that here.

Tattoos: Symbols of Rebellion or Signs of Selling Out to the Man?

It seems that tattoos are now being used for advertising. That means they are furthering the aims of the capitalist, for profit making system. So how can getting a tattoo be a rebellious act when it merely helps preserve the status quo? You can read all about it at Tattoos: a new favorite of advertisers

Historical Tax Rates

Ever wonder how much people paid in income taxes in the past? Some of my students have asked about this. Our current federal income tax began in 1913. If you made under $20,000 then, your tax rate was 1%. In 1963, every dollar you made above $400,000 your rate was 91%. In 1980, your rate between $45,800 and $60,000 was 49%. In today's terms, those incomes would be between $100,000 and $120,000. That 49% is higher than even the highest bracket now (35%). The Tax Foundation has all of the historical income tax rates. Click here to go to that site.

The Misery Index

The misery index is simply the inflation rate plus the unemployment rate. The graph below shows how it has changed since 1970. Notice it used to be alot higher. From 1975-83 the average unemployment rate and the average inflation rate were both 7.7% for an average misery index of 15.4. This year it will probably be about 8.7.

Want Kids Immunized? Threaten the Parents With Jail

Student are supposed to get vaccinated against certain diseases. But what if the parents don't take care of it? Make it costly for them not to, like sending them to jail. Here is the intro to one of the articles:

"UPPER MARLBORO, MD. — The threat of jail time injected a little motivation into scores of parents who lined up around the courthouse Saturday to get their children vaccinated on the spot or prove they've already had the shots.

It was one of the strongest efforts yet by a U.S. school system to ensure that youngsters are immunized, upsetting some parents who grumbled that Prince George's County officials went too far and irking opponents of mass vaccinations, who demonstrated outside.

Two months into the school year, county officials realized more than 2,000 students didn't have the vaccinations required to attend class. So Circuit Court Judge C. Philip Nichols ordered parents in a letter to appear at the courthouse Saturday or risk 10 days in jail."

You can read about it here and here and here

Is Barry Bonds Guilty?

He has been charged with four counts of perjury and one of obstruction of justice following a four-year investigation into steroids. But what evidence is there that he used steroids? I can't comment on the chemical and biologicial issues, but I have analyzed his stats. What comes out is that probably no other player has had such a dramatic and sustained improvement in his late thirties. Players normally have their best performances in their late 20s but Bonds had his best years in his late 30s. Some players have done better in their late 30s than they did before, but no one has improved as much as Bonds. Why would a player do so much better in his 30s, an age when many players' careers are actually over? A special training program? Better nutrition? Some new batting technique? It raises the questions that steroids were involved, so Bonds may have had something to hide. You can read my analysis on this here and here and here

Did the Clear Air Act Reduce Crime?

I talk about the Clean Air Act of 1990 in class and how, like any other regulation, it decreases supply. Any regulation raises costs to producers, so that is why supply is reduced. The price of the good increases and the amount produced falls. But we also hope that regulations have benefits. The first Clean Air Act from the 1970s called for a reduction in lead in gasoline. It turns out that this may have had other benefits by reducing crime. Below is an exerpt from the New York Times article Criminal Element

"The answer, according to Jessica Wolpaw Reyes, an economist at Amherst College, lies in the cleanup of a toxic chemical that affected nearly everyone in the United States for most of the last century. After moving out of an old townhouse in Boston when her first child was born in 2000, Reyes started looking into the effects of lead poisoning. She learned that even low levels of lead can cause brain damage that makes children less intelligent and, in some cases, more impulsive and aggressive. She also discovered that the main source of lead in the air and water had not been paint but rather leaded gasoline — until it was phased out in the 1970s and ’80s by the Clean Air Act, which took blood levels of lead for all Americans down to a fraction of what they had been. “Putting the two together,” she says, “it seemed that this big change in people’s exposure to lead might have led to some big changes in behavior.”"

The economist, Jessica Wolpaw Reyes, of course, did attempt to hold all other factors constant. But only more research will show if she is right.

Another Book Relates Religion to Economics

The book is Shopping for God: How Christianity Went From in Your Heart to in Your Face by James Twitchell. You can read reviews of it here and here. There is an interview with the author here. About a year ago, I had an entry about a similar book. You can read that entry here.

One of Twitchell's main points is that competition in the religion market is fueling the rise in mega churches. If a church wants more members, it has to offer a better deal and more benefits than other churches

Employers Want To Know: Which Job Applicants Will Fit In?

If a prospective employer asks you if you're nice, if you get along with others, are you a team player, etc, you will, of course, say yes. Who wouldn't? Since no one says "I don't get along with co-workers," how will employers figure out who will and won't fit in? It is the age old search for information and indicators (or signals as economists call them) of who people truly are. So employers are devising all kinds of new ways to figure out who will be right for them. Below is an exerpt from the article Employers study applicants' personalities to give you an idea

"At KaBoom, a nonprofit that builds playgrounds, the board was hammering co-founder and CEO Darell Hammond four years ago over the organization's high employee turnover. "I rationalized that they were on the road too much, when in reality, it was the wrong fit in the wrong role," he said. He started thinking about who left and why, then focused on the characteristics of workers who stayed. The list of traits: Can do, will do, team fit, damn quick and damn smart. His team kept a closer eye on job applicants in the reception area, which is set up as a playground, to see how they acted around playground equipment. "If you're early, you may have to sit on a swing or the bottom of a slide," Hammond said. People who stand with a tight grip on their briefcases instead of sitting on the playground equipment aren't asked back.""

Has the Minimum Wage Kept Pace with Inflation?

The first federal minimum wage was set in 1938 at $0.25 per hour. As of this past July, it went up to $5.85. It will go up to $6.55 next July and $7.25 in July of 2009. To see the history of changes in the minimum wage CLICK HERE. The numbers below show by what percentage the wage increased each time it was raised, followed by the change in the CPI in that year relative to 1938. For example, the increase in 1939 raised the minimum wage 20% while prices actually fell 1.42%. The 1967 increase raised the minimum wage 12% while prices in that time (since 1963, the time of the previous increase) went up 9.15%. There have been times when the increase in the minimum wage was less than the increase in prices. In 1990, the minimum wage increase was 13.43% over the 1981 level while prices since 1981 were up 43.78%. Since 1938, the minimum wage has increased 2240% while the Consumer Price Index is up 1371%. To make a long story short, this amounts to an increase in the minimum wage of 63%, adjusted for inflation.

1939 ** 20.00% ** -1.42%
1945 ** 33.33% ** 29.50%
1950 ** 87.50% ** 33.89%
1956 ** 33.33% ** 12.86%
1961 ** 15.00% ** 9.93%
1963 ** 8.70% ** 2.34%
1967 ** 12.00% ** 9.15%
1968 ** 14.29% ** 4.19%
1974 ** 25.00% ** 41.67%
1975 ** 5.00% ** 9.13%
1976 ** 9.52% ** 5.76%
1978 ** 15.22% ** 14.59%
1979 ** 9.43% ** 11.35%
1980 ** 6.90% ** 13.50%
1981 ** 8.06% ** 10.32%
1990 ** 13.43% ** 43.78%
1991 ** 11.84% ** 4.21%
1996 ** 11.76% ** 15.20%
1997 ** 8.42% ** 2.29%
2007 ** 13.59% ** 29.22%

What is the Inflation Rate?

It may not be as obvious as you would think. The CPI was 207.917 in August and 208.490 in September. The 208.49 means that what cost $100 in 1983 now costs $208.49. Since 208.49/207.917 = 1.00276, prices were up .276%. If that happens for 12 months, the inflation rate would end up being 3.36%.

But that is based on just one month. In September 2006, the CPI was 202.9. That means that prices went up 2.76% in the last 12 months. In all of 2006, they were up 2.5%. So far in 2007, they are up 3.3%. The CPI was 201.8 in December of 2006. Since 208.49 (the Sept 2007 CPI) divided by 201.8 =1.033, we get a 3.3% increase. That works out to .364% per month. If we get that increase over 12 months, the inflation rate would be 4.4%.

How could they have gone up 2.76% over the last 12 months while they might go up 4.4% for all of this year? Prices fell in the last few months of 2006. The same thing happened in 2005. Both of those years we were headed to 4-5% inflation but prices fell the last few months to give us a decent rate for the year. The CPI was up only 3.4% in 2005. Will we get lucky the last few months this year?

Click here to see inflation statistics

Millionaires Are Regular Folks

It seems like they work hard and don't want to show off too much. Here are the first two paragrahps from an article titled More U.S. millionaires are middle-class

"Sitting on a million but still middle-class? New research has found that more and more Americans worth at least $1 million want luxury goods such as yachts but otherwise lead family-focused, work-oriented lives.

Private wealth specialists Lewis Schiff and Russ Alan Prince found the number of Americans with $1 million to $10 million had risen to 8.4 million households -- or 7.6 percent of U.S. households -- and was growing at 15 percent a year."

At that rate, about half of American households will be millionaire households in 13 or 14 years. Maybe a little longer, since if inflation averages 3% a year, after 13-14 years $1 million will only be worth about $600,000 or $700,000. But since the number of millionaires is growing 15% a year while inflation has averaged just about 3% a year for the last 24 years, it is not just rising prices that is causing the number of millionaires to grow. So if we subtract 3% from 15%, and use a growth rate of 12% a year, it will take 16 or 17 years before half the households are millionaires.

Taco Bell Gives Away "Free" Tacos, Problems Arise

Maybe you heard that if a player stole a base in the World Series, Taco Bell would give away a free taco to anyone who wanted one on Tuesday from 2-5 pm. There was a stolen base, so they gave them away yesterday. At one Taco Bell, there were so many cars in the drive up lane that they went out into the street. It got so bad that the there was a traffic jam and the police had Taco Bell close their drive up window. Tempers also flared. But the tacos were not really free if you had to wait that long. This all shows that when something is given away for free, it causes problems. You can read about it in Promise of free taco brings on the fans: Tempers flare in Norwell; crowds jam Quincy restaurant

Are Rock Stars "Selling Out?"

With revenue from the sales of recordings down in recent years, rock stars are looking for other ways to make money. Sales of CDs are down because of downloading and file sharing. So some of them have gone back to school to take business classes, sold their songs to be used in TV commercials and have formed partnerships with corporations. Some say they should stay pure, caring only about their music and not "go commercial." The New York Times today had an article on this called If It’s Retail, Is It Still Rock?.

Are Chimps More Rational Than Humans?

Seems hard to believe. But an experiment suggests it. The article is Chimps choose more rationally than humans. My student BRUNO MEJIA sent me this.

It reminds me of research that was done at Texas A & M some years ago. They found that rats and pigeons act rationally. If they had to press a lever so many times to get a drop something to drink or a pellet of food, they "bought" less of either one if the scientists raised the number lever pushes it took to get one. This was like raising the price. More lever pushes to get either food or drink, the less they tried to get of it. So they followed the law of demand. This was reported in Steven Landsburg's book The Armchair Economist.

Moral Hazard and the Housing Crisis

When economists use the term "moral hazard" they mean the fact that when people buy insurance, they might not be as careful as they were before. For example, if you don't have fire insurance for your house, you will be very careful not to create fire hazards. But once you buy insurance, you might not go to as much effort to make sure everything is safe. But that increases the chance that fires will happen.

Reuter's has an article called Popular mortgage "mods" fuel moral hazard by By Al Yoon and Walden Siew. See if you can spot the moral hazard in the excerpt below.

"NEW YORK (Reuters) - Mortgage companies scrambling to ease the terms on thousands of loans destined for default may be doing more harm than good by rewarding investors and homeowners who took on excessive risk.

Efforts to help Americans pay their mortgages have forced companies such as Countrywide Financial Corp (CFC.N: Quote, Profile, Research), the largest U.S. mortgage lender, to expand their practice of loan modifications, which lower payments for borrowers vulnerable to foreclosure. Countrywide on Tuesday said it would refinance or modify $16 billion of loans.

While such concessions are largely a win-win situation for the parties involved, since homeowners keep their homes and the bank reduces losses, the practice may exacerbate a credit crisis that began in July and is leading to growing cries of foul in the $7.2 trillion mortgage bond market.

To some, the loan adjustments are little more than a bailout of bond buyers who were paid to take greater risks. The practice of lowering interest rates or forgiving a portion of the principal could even encourage more of the bad lending that helped create the U.S. housing bubble and subsequent credit crunch."

Want to make $60 an hour? Stand in line for a lobbyist, while its still legal

Lobbyists in Washington are very busy and their time is valuable. So they don't want to wait in line to get a good seat at a Congressional hearing. So they pay people to stand in line for them. Companies exist to find waiters and the internet is used. You can make up to $60 an hour. Seems okay to me. Lobbyists can use their time wisely and low income people can earn alot. But a senator wants to outlaw the practice. It was in today's San Antonio Express-News. The article is
Waiting for dollars won't hurt America and was by Maria Anglin.

When Women Earn More Than Men, Is Dating Affected?

The New York Times had an articled titled Putting
Money on the Table on Sept. 23. It seems that problems arise when a women makes alot more than her boy friend. Sometimes the men don't like it when the women pay for things. Other times women try to hide how much money they make. One woman said that it is "easier to date someone in the same economic bracket." Some women think if the man does not make alot of money that he is not ambitious enough.

With many women making more than men, it is hard to share common interests. If you make alot of money and want to go to the opera and fine restaurants, it helps if the other person can also afford to do so. This raises another issue: Can you have any kind of friend, not just the dating type of friend, who has an income that is not much different than yours? Suppose you like bike riding and you want to join a bike riding club. But if everyone in the club owns expensive bikes that are very light and fast, you can only keep up with them if you also buy an expensive bike. So you have to spend money to keep up. If you don't, there is no point in being in the club since you will just end up being way behind everyone else and the others won't want to go real slow so you can keep pace. My guess is that most people have friends who make a similar amount of money.

But getting back to men, women, incomes and dating, if women have trouble dating men who make less, but it is okay for men to date women who make less, then men have a larger group of potential dates: the women who make as much as they do and the women who make less whereas women who make alot can only date men who make as much. That narrows their field and total number of potential dates, maybe even husbands.

The Worst Jobs for the 21st Century

That's the title of an article from Forbes, which you can read here.

It tells us which jobs are expected grow faster in number than average, which will grow slower and which will actually decline. But what if people make career decisions based on these projections? Say alot of people go into a career that is expected to grow. Will this be a good decision for those people? Maybe not. If you go into a career that alot of other people are entering, the wages might be low or not as high as you expect. It's like when you hear about the best places to live. If they are so great, alot of people move there. Then the cost of living goes up there and although it might be a place with many benefits, you are now paying for them and living there is not such a great deal.

What has happened to wages and employment since NAFTA went into effect?

The San Antonio Express-News had an article on this in today's paper called More jobs, higher pay in years after NAFTA. I highly recommend it, probably because I wrote it. My comments were in response to two articles by Carlos Guerra. The links to his articles are in the article. My basic point is that wages and employment have done well since January, 1994 when NAFTA went into effect.

Is It Too Easy For Students To Get Credit Cards?

It seems that college students are inundated with credit card offers. Some of these cards have fine print which show, for example, that if you miss a minimum monthly payment, it gets raised dramatically. Students also "face peer pressure to live a flashy lifestyle when they're on their own for the first time."

So consumer groups are trying to limit and regulate the offers for credit cards that appear on college campuses. I wonder how much pressure there is for students to live a flashy lifestyle and therefore spend alot of money (which they may not have and need to put on a credit card).

You can read about this in the article Project targets credit cards on campus

More Proof That Tradeoffs Are Everywhere: Blind People Don't Like The New, Quiet Hybrid Cars

How could anyone not like hybrid cars? They use less gas so there is less pollution and we conserve on a scarce resource. But they are so quiet that they may pose a threat to blind people who cannot hear them. The blind often use audio or noise cues to know if there are cars nearby. So the National Federation of the Blind wants regulations mandating that hybrid cars make some kind of easily identifiable noise. The article on this is called Blind people: Hybrid cars pose hazard. Here is the intro:

"Gas-electric hybrid vehicles, the status symbol for the environmentally conscientious, are coming under attack from a constituency that doesn't drive: the blind.

Because hybrids make virtually no noise at slower speeds when they run solely on electric power, blind people say they pose a hazard to those who rely on their ears to determine whether it's safe to cross the street or walk through a parking lot."

Will the Rising Use of Student Loans Hurt the Economy?

There is an interesting article by Marcy Gordon of the Associated Press called Student loans sow seeds of economic ills. The amount of money students are borrowing to pay ever rising tuition costs is also growing rapidly. For some the monthly payment is more than a mortgage.

But I think the part where they think the economy will be hurt is:

"Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time."

Maybe we should not be too concerned about this. They will pay the money back to someone, who in turn will spend it. It will just mean that the former students will be consuming fewer goods and others, the ones doing the lending right now, will consume more (right now they are consuming less than they could since they are lending money to students). This does not seem to be hurting the economy right now. We have not had a recession since 2001 and the unemployment rate is 4.7%.

Is the Stock Market a Good Investment?

The market closed over 14,000 today. If you had invested in the market about 5 years ago, you would have earned a compound annual rate of return of 10.75%. The market was at 8,397 about 5 years ago and 14,000 is about 66.67% higher than 8,397. If you raise 1.1075 to the 5th power, you get about 1.667. Below are the rates of return if you go back 5, 10, 15, 20, and 25 years.

5-0.1075
10-0.0654
15-0.1028
20-0.1023
25-0.1117

But we are at high point this year. We are up about 10% in just about 9 months. So what if we had started from the beginning of the year? Below are the returns.

5-0.0494
10-0.0635
15-0.0953
20-0.0923
25-0.1128

Radiohead Lets You Name Your Price

The band Radiohead is trying an experiment to let you pay whatever you want for the digital version of their latest album. Will this work? Or will most people just take it for free? My guess is that a few loyal fans will pay something but most people will pay only a little. Thanks to one of my students for letting me know about this.

Click here to read a brief summary of the story

Click here to read the long version of the story. But you may have to register to read this New York Times article.

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.

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?

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.

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?

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.

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.

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."

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

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.

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.

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"