College degrees that can attract employers

Click here to read the article. Here are the top 5 they listed:

Degree #1 - Bachelor's in Business Administration

Degree #2 - Bachelor's in Computer & Information Sciences

Degree #3 - Master's in Business Administration (MBA)

Degree #4 - Bachelor's in Health Care Administration

Degree #5 - Bachelor's in Marketing/Communications

Of course, by the time you graduate, things may have changed. Maybe too many people will go into these majors, lowering the potential salary.

Will There Be A Pumpkin Shortage This Year?

See The Great Pumpkin Shortage: Stormy Summer Limits Supply In Northeast By MEGAN GIBSON of Time.com. Here is an excerpt:

"As much as we hate to admit we need pumpkins - NewsFeed answers to no vegetable - this time of year we really do. Unfortunately for those of you in the Northeast, pumpkins might not be so readily available for your Halloweening needs.

Thanks to Tropical Storm Irene and an especially stormy summer, there are severe reported shortages in pumpkin crops across the region as bad weather conditions have led to higher numbers of rotten vegetables. Which means that pumpkin seekers could be paying double for their Jack-o'-lantern canvases in some places and, in others, they could be out of luck entirely.

What's a Halloween lover to do? Now just because you didn't see this shortage coming, doesn't mean there's no hope for you. Now that you know, however, your first course of action should be to move quickly. David Dumaresq of Farmer Dave's told CBS that you should "[b]uy your pumpkins soon for the best availability because there's not going to be too many around this year.""

Of course, if everyone tries to "move quickly," that could make the price rise sooner. This relates to one of the shift factors of demand, expectation of future price. If buyers expect higher prices in the near future, demand today increases which will cause the price to rise.

Then sellers will reduce supply in anticipation of the higher price, further speeding up the price increase. My guess is that sellers try to project consumer behavior on this and will raise the price based on this.

But if the price actually doubles, then that would eliminate the shortage. We have the supply line moving to the left, raising the price and lowering the quantity bought and sold. Yes, fewer people will get pumpkins this time of year, but there is no shortage.

Josh Hamilton’s grand slam causes a flooring and countertop shortage

Click here to read the story. Or just read it here:

"ARLINGTON, Texas (AP)—A Dallas carpet company has had trouble with its website much of the day, thanks to Texas Rangers slugger Josh Hamilton(notes).

The Rangers beat Cleveland on Wednesday night, helped by Hamilton’s grand slam. It just so happened that CC Carpet was offering free flooring and countertops to customers in September if the Rangers outfielder hit a grand slam.

Hamilton did his part and the company has to pay up. Not long after the hit, the company’s website crashed and it’s been spotty Thursday.

CC Carpet president Steve Fitzgerald says the promotion will cost his company about $500,000 but it’s covered by insurance."

Could Those Hours Online Be Making Kids Nicer?

What would Adam Smith say, especially the one from Wednesday's post? Click here to read the Wall Street Journal article about this. Maybe Facebook and Twitter have positive externalities. Excerpts:

"Time spent online may be helping people learn to be more empathetic and make more friends in real life.

A growing body of research indicates the widespread use of texting, emailing or posting on social-media sites has social benefits."

"...digital communication can lead to more or better friendships online and off, greater honesty, faster intimacy in relationships and an increased sense of belonging, in addition to practical social benefits like an expanded circle for networking."

"...technology appears to enhance real-world relationships..."

"People use digital communication primarily to interact with people they are closest to offline, not with strangers. The communication tightens the bonds between them..."

"... technology-driven communication may be particularly helpful for people who are shy or anxious in social settings."

"Anxious students reported greater shyness and discomfort than non-anxious students in face-to-face groups. In the chat room, however, they said they felt significantly less shy, more comfortable and better accepted by their peers."

"Socially anxious participants were more likely to make decisions and lead the group when they were in the chat room than when face-to-face with others."

"Frequent communication online could serve as practice for in-person social interactions..."

"...empathy could indeed be recognized and communicated through written, online communication."

"Digital communication also appears to bolster individuals' sense of community and group identity..."

"Students reporting low self esteem who actively used Facebook were more likely to say they felt a part of the Michigan State community than low self-esteem individuals who didn't use Facebook as intensely..."

Adam Smith vs. Bart Simpson

In March of 2010, I attended a lecture by Paul Zak, a neuro-economist from Claremont Graduate University, at the Mind Science Foundation. This week in my micro class I talked about utility and how consumers behave. neuroeconomics is all about looking inside our brains to see what makes us tick.

Zak has studied how our behaviors are affected by the presence in our brains of a chemical called oxytocin, which can affect how generous we are. The more oxytocin you have have, the more generous and empathic (or sympathetic) you are. So he calls oxytocin "the moral molecule." It helps us identify with others and understand their feelings and situatons. Oxytocin can also increase when people trust you or are generous to you.

What does this have to do with Adam Smith? He wrote a book called The Theory of Moral Sentiments. One point he made there was that we are able to sympathize with other people by trying imagine what they are going through. This is directly related to oxytocin. In September 2009 I had a post on this called Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of). That will provide you with more details.

Where does Bart Simpson come in? Professor Zak showed a video clip from the "The Simpsons" that illustrated sympathy, a concept that Adam Smith wrote about in the above mentioned book. To watch a lecture by professor Zak (very similar to the one he did here in San Antonio), go to The Moral Molecule. The Bart Simpson clip starts at the 7:40 mark. Bart's mom tells him to look at his sister and try to feel what she feels. Exactly the kind of thing Adam Smith talked about.

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

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

Emerging field offers insight into human virtues

Humans release ‘niceness' chemical

More information about neuroeconomics can be found at:

Neuroeconomics Explained, Part One

Neuroeconomics Explained, Part Two

Some Reasons Why Firms Are Not Hiring

See What's Wrong With America's Job Engine?: Wary Companies Rely on Temps, Part-Timers, Hire Overseas by DAVID WESSEL, WSJ 7-27-11. Excerpts:

"That's largely because the economy is growing much too slowly to absorb the available work force, and industries that usually hire early in a recovery—construction and small businesses—were crippled by the credit bust.

Then there's the confidence factor. If employers were sure they could sell more, they would hire more. If they were less uncertain about everything from the durability of the recovery to the details of regulation, they would be more inclined to step up their hiring."

"Something else is going on, too, a phenomenon that predates the recession and has persisted through it: Changes in the way the job market works and how employers view labor.

Executives call it "structural cost reduction" or "flexibility." Northwestern University economist Robert Gordon calls it the rise of "the disposable worker," shorthand for a push by businesses to cut labor costs wherever they can, to an almost unprecedented degree.

Looking back at the percentage of Americans with jobs in the 1990s (rising) and the 2000s (falling), Princeton University economist Alan Krueger estimates that 70% of today's job shortage is simply cyclical, the result of a disappointing recovery from a deep recession. But he attributes 30% to changes in the job market that began a decade or more ago."

"In the most recent recession and the previous two—in 1990-91 and 2001—employers were quicker to lay off workers and cut their hours than in previous downturns. Many also were slower to rehire."

"Between the end of 2007 (when American employment peaked) and the end of 2009 (when it touched bottom), the U.S. economy's output of goods and services fell by 4.5%, but the number of workers fell by a much sharper 8.3%."

"At the worst of the 1980-82 recession, 1 in 5 of the unemployed were "temporary layoffs." In the recent recession, the proportion of temporary layoffs never exceeded 1 in 10. In part that's because fewer Americans work in factories, where production can be stopped and restarted; if a restaurant doesn't have enough customers, it goes out of business.

"When layoffs are temporary, subsequent recalls can take place quickly," say economists Erica Groshen and Simon Potter of the Federal Reserve Bank of New York. When layoffs are permanent, job recovery is slower, they say. If the employer wants to hire, there's the time-consuming chore of sifting through applications.

Corporate employers, their eyes firmly fixed on stock prices and the bottom line, prize flexibility over stability more than ever. The recession showed them they could do more with fewer workers than many of them previously realized."

"58% of employers expect to have more part-time, temporary or contract workers over the next five years and 21.5% more "outsourced or offshored" workers.

"Technology," McKinsey says, "makes it possible for companies to manage labor as a variable input. Using new resource-scheduling systems, they can staff workers only when needed—for a full day or a few hours."

Temporary-help agencies are playing an ever-larger role"

"Workers, in short, now can be hired "just in time.""

"Because they can hire temps almost instantly, there's little need to hire in anticipation of a pickup in business."

"When they do hire, big U.S.-based multinational companies are more able and more willing to hire overseas, both because wages are often cheaper there and because that's where the customers are."

"some employers insist they can't find workers with the skills they need at wages they can afford."

"difficulty in hiring workers "with specialized technical skills, particularly in the health-care and technology sectors."

But workers without college degrees find well-paying jobs scarce."

Links To Differing Opions On President Obama's New Economic Policy Proposals

First, here is a link from the White House about the proposal:

Fact Sheet: The American Jobs Act.

Here is a quick summary from Megan McArdle (who writes for The Atlantic Monthly):

Tax cuts: $250 billion

•Payroll tax rebate on first $5 million in payroll, which the president says will reach 98% of American companies, plus complete rebate for new hires or raises
•Extending payroll tax cut
•Extending 100% expensing of business investment
•(A bunch of regulatory streamlining that is likely to have little effect and is bizarrely classed as a tax cut)
•Tax credits for hiring unemployed veterans, particularly those with service-connected disabilities
•$4,000 per worker for hiring workers who have been unemployed for more than six months

Infrastructure: about $100 billion

•$50 billion for new infrastructure projects
•$10 billion for an infrastructure bank
•$15 billion to rehab vacant and foreclosed homes/businesses
•Some undisclosed sum for getting high speed wireless to "98% of American"
•$25 million to rehab schools

Direct assistance: About $100 billion (?)

•Continuing the extension of unemployment benefits
•Various retraining/wage support ideas that are supposed to help the structurally displaced to transition into new careers.
•$35 billion for preserving/hiring teachers, cops and firefighters
•Federal assistance in refinancing to current mortgage rates

Now links to the various opinions:

Obama's Job Plan: Mostly More of the Same (by McArdle)

Obama’s Jobs Bill: A Reasonable Plan (by Justin Wolfers, economics professor at the University of Pennsylvania)

Obama’s Costly, Unaffordable, Harmful New Stimulus: The “American Jobs Act” (by Hans Bader of the Competitive Enterprise Institute)

A missed opportunity (by Scott Sumner, economics professor at Bentley University)

Obama’s Job Speech Full of Bad Ideas (by Chris Edwards of the Cato Institute)

Obama’s Jobs Speech: Bolder Than Expected (by Mark Thoma, economics professor at the University of Oregon)

Jobs plan may create 1 million jobs - economists (from CNN)

Republicans make nice, but wary of Stimulus 2 (from CNN)

Your Co-Workers Might Be Killing You

Interesting article by Jonah Lehrer, from The Wall Street Journal, 8-20-11. Click here to read it. Here are some excerpts:

"...jobs don't just take a physical toll—they also exact a mental price. When people experience chronic levels of stress—and this is precisely what happens when our workplace is unpleasant or demanding—their risk of suffering from a long list of ailments, such as Alzheimer's, heart disease, depression and even the common cold, is dramatically increased."

"..."psychosocial" factors, such as work-related stress, are the single most important variable in determining the length of a life."

"...the factor most closely linked to health was the support of co-workers: Less-kind colleagues were associated with a higher risk of dying."

"...middle-age workers with little or no "peer social support" in the workplace were 2.4 times more likely to die during the study."

"...worst kind of workplace stress occurs when people have little say over their day. These employees can't choose their own projects or even decide which tasks to focus on first. Instead, they must always follow the orders of someone else."

"...a lack of control at the office was deadly—but only for men. While male workers consistently fared better when they had some autonomy, female workers actually fared worse. Their risk of mortality was increased when they were put in positions with more control."

Do looks matter?

See Ugly? You May Have a Case by DANIEL S. HAMERMESH, professor of economics at the University of Texas, Austin. From the 8-28-11 New York Times. Excerpts:

"...being attractive also helps you earn more money, find a higher-earning spouse (and one who looks better, too!) and get better deals on mortgages."

"...one study showed that an American worker who was among the bottom one-seventh in looks, as assessed by randomly chosen observers, earned 10 to 15 percent less per year than a similar worker whose looks were assessed in the top one-third — a lifetime difference, in a typical case, of about $230,000."

"Most of us, regardless of our professed attitudes, prefer as customers to buy from better-looking salespeople, as jurors to listen to better-looking attorneys, as voters to be led by better-looking politicians, as students to learn from better-looking professors. This is not a matter of evil employers’ refusing to hire the ugly: in our roles as workers, customers and potential lovers we are all responsible for these effects."

"You might argue that people can’t be classified by their looks — that beauty is in the eye of the beholder. That aphorism is correct in one sense: if asked who is the most beautiful person in a group of beautiful people, you and I might well have different answers. But when it comes to differentiating classes of attractiveness, we all view beauty similarly: someone whom you consider good-looking will be viewed similarly by most others; someone you consider ugly will be viewed as ugly by most others. In one study, more than half of a group of people were assessed identically by each of two observers using a five-point scale; and very few assessments differed by more than one point."

Small Changes In Growth Rates Add Up Over Time

In my macro courses we read a chapter in the book "The Economics of Macroissues." The chapter discussed how nations with common law systems, where property rights are better protected than in nations with civil law systems, have higher growth rates. I pointed out to my classes that even a small difference in growth rates ends up causing a very big difference in per capita incomes due to the annual compounding effect.

In early 2010, Paul Krugman mentioned that the per capita GDP since 1980 has grown 1.95% in the US and 1.83% in the EU. But we should also remember that small differences in growth rates compound over time. If per capita income was 20,000 in both the US and EU 29 years ago, the per capita income (or GDP) now would be 35,015 in the US and 33,839 in the EU, a difference of $1,176. Maybe not a big difference. But after 100 years the US income level would be 12% higher. After 200 years it would be 26% higher.

The table below shows how much per capita income would be at various rates after 100 and 200 years. Assume we start with a per capita income of $1,000. If we grow 2.0% per year, after 100 years it will be $7,245. At 2.1% per year, it would be $7,791 or about $700 more. That is how much that little .1% matters. The difference over 200 years is about $11,000. After 100 years at 2.5% per year, per capita income would be $11,814. That is $4,000 more than the 2.0% rate. Small differences in growth rates add up to big differences over time.

Per Capita Income After 100 and 200 Years At Various Annual Growth Rates (Starting With $1,000)

William Breit, Trinity University economics professor, has passed away

I only met him once or twice. But alot of people knew about him and many bloggers have expressed their condolences. He began his academic career as a student at San Antonio College in 1950 after graduating from Jefferson High School. He went on to write many books and was well known in the economics profession. Here are some of the blogs that marked his passing:

William Breit has passed away

Bill Breit, RIP

Bill Breit

Here is a great news story about him:

Dr. William Breit Is Selected SAC's Outstanding Former Student for 2005-2006

Breit co-authored some very fun and interesting economics murder mysteries. The one I really liked was Murder at the Margin. This link has more info:

Murder mysteries

Here is a link to info on his other economics books:

His other books economics books

There really is a marriage market in many countries

See Supply, Demand and Marriage by Robert Frank, New York Times, 8-6-11. Excerpts:

"IN some cultures, romance isn’t nearly as important as cash when it comes to choosing a marriage partner. And even when money plays no explicit role in selecting a mate, courtship customs are governed by the venerable economic model of supply and demand.

Under the dowry system in India, for example, parents of older brides would typically pay more to prospective grooms. Men with better jobs would receive larger payments, too.

In short, there really is a marriage market in many countries around the world, and economic principles apply to it. In markets with a preponderance of women seeking partners, the terms of trade shift in favor of men. If more men are seeking partners, the reverse is true. Two cases in point are the baby-boom generation in the United States and the current youth cohort in China."

"Before the 1960s, cultural norms encouraged celibacy before marriage. The breakdown of those norms has been widely attributed to the introduction of oral contraception, which gave women an unintrusive way to protect themselves against an unwanted pregnancy. The pill no doubt played a role — perhaps a very big one — but skeptics object that effective alternative forms of contraception had long since been available.

The supply-and-demand model bolsters the skeptics’ concerns. Biologists describe a fundamental asymmetry in the sexual strategies favored by males and females in vertebrate species. Males, whose sex cells are cheap to produce, tend to favor more transient sexual relationships, whereas females, for whom pregnancy and birth are far more costly, tend to favor greater commitment. The sexual revolution, which bent cultural norms toward male preferences, may thus be partly explained by the excess demand for grooms in the 1960s.

An imbalance in the opposite direction characterizes the contemporary marriage market in China. The Chinese government’s one-child policy, combined with a cultural preference for sons and technologies that permit selective abortion, have helped to create a large sex-ratio imbalance among young Chinese. For every 100 women in that group, there are now more than 120 men.

According to market models, the terms of trade in the Chinese marriage market should have shifted sharply in favor of women. And evidence suggests that young Chinese women and their families have in fact become much more selective in recent years.

They appear, for example, to focus more critically on the earnings potential of prospective mates. Because house size is often assumed to be a reliable signal of wealth, a family can enhance its son’s marriage prospects by spending a larger fraction of its income on housing. (Other families can follow the same strategy, of course, but when all families do so, the resulting homes are still reliable indicators of relative wealth.) Such a shift appears to have occurred."

"...families with sons built houses that were significantly larger than those built by families with daughters, even after controlling for family income and other factors. They also generally found that the higher a city’s male-to-female ratio, the bigger the average house size of families that have sons.

Mr. Wei reports that many families with sons have begun to add a phantom third story to their homes, one that looks normal from the outside but whose interior space remains completely unfinished."

There is "...evidence that men are more likely to make risky financial investments in cities with higher male-to-female ratios. Their specific finding was that significantly more local businesses are started in such cities."

Elliot McGucken's Hero's Journey Mythology video set to Beethoven!

Go to

THE HERO'S JOURNEY MYTHOLOGY CODE OF HONOR

It is filled with great pictures, music and interesting and inspiring quotes from many great philosophers and entrepreneurs. He is working on a book on this topic.

Elliot created the HERO'S JOURNEY ENTREPRENEURSHIP FESTIVAL: THE GREAT BOOKS RIDE AGAIN and like me he has related the work of Joseph Campbell on the hero in mythology to entrepreneurship.

Click here to go to Elliot's website

Do Married Baseball Players Get Paid More Than Single Baseball Players?

There is a research paper by two economists Productivity, Wages, and Marriage: The Case of Major League Baseball. Here is the abstract or summary:

"Using a sample of professional baseball players from 1871 - 2007, this paper aims at analyzing a longstanding empirical observation that married men earn significantly more than their single counterparts holding all else equal. There are numerous conflicting explanations, some of which reflect subtle sample selection problems (that is, men who tend to be successful in the workplace or have high potential wage growth also tend to be successful in attracting a spouse) and some of which are causal (that is, marriage does indeed increase productivity for men). Baseball is a unique case study because it has a long history of statistics collection and numerous direct measurements of productivity. Our results show that the marriage premium also holds for baseball players, where married players earn up to 20% more than those who are not married, even after controlling for selection. The results are generally robust only for players in the top third of the ability distribution and post 1975 when changes in the rules that govern wage contracts allowed for players to be valued closer to their true market price. Nonetheless, there do not appear to be clear differences in productivity between married and nonmarried players. We discuss possible reasons why employers may discriminate in favor of married men."

It seems like they do a good job using ceteris paribus conditions (but I have not read the whole paper). They seem to be holding player quality or performance constant and they say that the control for selection. There is always the possibility that women prefer to marry men who make more money (in general married men make more but that does not mean that getting married caused their salary to go up). Somewhere they say that the 20% difference only applies to the top 1/3 of players.

For other views and discussions on this issue go to

When labour market research goes to the ballpark

Married MLB players earn more than single MLB players of the same quality?

Degrees ranking highest in terms of employment

In case any of my students are interested knowing more about the job market, see Degrees That Employers Want. Here are the top six they list:

#1 - Health Care Degree

#2 - Business Administration Degree

#3 - Computer Science Degree

#4 - Accounting/Finance Degree

#5 - Engineering Degree

#6 - Marketing Degree

Of course, if many students see this and go into these areas, they won't pay as much or be as secure if their markets get flooded.

Keynes vs. Hayek

Probably most people have seen this video or know about it. We watched it in my macro classes this week. There are actually two videos. Here they are in order. My class saw the second one. Then there is a link to readings over these issues.

Fear the Boom and Bust

Fight of the Century: Keynes vs. Hayek Round Two

Get the Story Behind the Fight of the Century

If you want to tell Russ Roberts, the economics professor who made the video, what you think, go to Fight of the Century in the classroom

Fight of the Century with Polish subtitles

Was 1800 (approximately) A Pivotal Year In Human History? Robert Fogel, Francis Fukuyama, And Deirdre McCloskey All Seem To Think So

Robert Fogel is a Nobel Prize Winning Economist. Here is something he said recently:

"Technology rescued humankind from centuries of physical maladies and malnutrition, Mr. Fogel argues. Before the 19th century (1800), most people were caught in an endless cycle of subsistence farming."

See Technology Advances; Humans Supersize.

Francis Fukuyama, author of the famous book The End of History and the Last Man, has a new book out. Here is an excerpt from a review of that book:

"But it is true that Mr. Fukuyama tracks a quest for "order" that often falls short of its goal until a decisive threshold is reached around 1800.

By then the Industrial Revolution—even at its earliest stages—had unleashed the forces of production in ways hitherto unimaginable, allowing for abundance rather than scarcity, not least in the production of food. But the threshold proved to be more than a matter of escaping "the Malthusian trap" of hunger and overpopulation. In the years surrounding the French Revolution, Mr. Fukuyama believes, politics began to shape itself—at last—into an orderly and sustainable form.

Obviously, political order had been achieved before then, but in a fitful and incomplete way. In Mr. Fukuyama's view, a durable political order can arise, and societies can fully thrive, only when a state is formed, when the state itself operates according to a rule of law, and when the state becomes accountable—that is, when it must answer to its citizens. Until the threshold point around 1800, he says, all three properties rarely existed together."

See From Dynasty to Democracy: Nations did not find stability, or sustained prosperity, until they became accountable to their citizens.

Deirdre McCloskey is a highly respected economic historian whose latest book is Bourgeois Dignity: Why Economics Can't Explain the Modern World. Here are some quotes from her:

"Modern economic growth—that stunning increase from $3 a day in 1800 worldwide to now upwards of $130 a day in the richest countries, and anyway $30 as a worldwide average—can’t be accounted for in the usual and materialist ways. It wasn’t trade, investment, exploitation, imperialism, education, legal changes, genes, science. It was innovation, such as cheap steel and the modern university, supported by an entirely new attitude towards the middle class, emerging from Holland around 1600. (It has parallels in classical music and mathematics and politics, in all of which the Europeans burst out, 1600-1800.)

Economics of the usual sort, whether Samuelsonian or Marxist, can’t get at why Europeans and then the rest of us started around 1800 to become insanely innovative. A new dignity for innovation and its market applications can: that’s a sociological change, supporting sensible economic policies.

What you can learn from the history is that stasis reigned until we discovered dignity and liberty for ordinary people, and in particular for the disturbing, irritating class of entrepreneurs."

See Don’t be snobbish towards merchants & entrepreneurs, and you’ll develop

Does Money Buy Happiness?

Some research suggest no. But more recent research says yes. See these two links:

Money buys happiness after all

The happiness wars

How the Economy Works

That's the title of a book I just finished reading and I have mentioned it recently in my macro classes. Here is the link to the Amazon page: How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies. It is by Roger Farmer, who is the chairman of the UCLA economics department.

If you have taken principles of macroeconomics and want to learn more, this book might be a good place to start. Here is the summary from Amazon:

"Farmer explains the differences between classical and Keynesian economics and shows how they influenced the policy debate that developed after the 2007 world financial crisis began and exploded into a global disaster, with the collapse in the U.S. of Lehman Brothers in the fall of 2008. Along with a history of economic thought from 1776 to the present (noting it is incomplete), the author offers his suggestions for preventing future financial crises. “The correct response to the crisis is to set in place, in every country in the world, an institution to control the value of national stock market wealth by targeting the rate of growth of an index fund.” “Central banks should use changes in the size of their balance sheets to prevent inflation from rising too high or too low. They should use changes in the composition of their balance sheets to prevent bubbles and crashes.” This challenging book will appeal to the academic community but not to a broad range of readers."

There's A New Book On The Economics Of College Sports

It is called Big-Time Sports in American Universities, by Charles T. Clotfelter. It was just reviewed in The Wall Street Journal. See Calculating the Score.

Here are some excerpts from that review:

"Pity the poor presidents of colleges with major athletic programs. Football coaches are not just better known than the administrators, the coaches also tend to make a lot more money. And professors lag even further behind. In 1986, the presidents at 44 public universities with teams in the five most established athletic conferences actually made, on average, a little more than their coaches: $294,000 for the presidents, $273,000 for the coaches; full professors earned about $107,000. By 2010, the professors' income, adjusted for inflation, had climbed 32%. University presidents' pay had gone up 90%. The football coaches' pay jumped to more than $2 million—it had "increased by an astounding seven and a half times," Charles T. Clotfelter writes in "Big-Time Sports in American Universities.""

"The book's central theme is that the time has come to end the strange dichotomy on college campuses, where athletic and educational departments exist in parallel universes and regard each other warily. University leaders "typically ignore" athletics "when putting together a formal statement listing their institution's essential functions and objectives."

The unwillingness to acknowledge the centrality of major sports on many campuses makes no sense. Football and basketball teams are, for starters, a huge physical presence, with their gigantic stadiums (Bryant-Denny Stadium at Alabama seats 102,000) and large arenas (the Dean Dome at the University of North Carolina holds nearly 22,000). "Whether or not universities like to admit it," Mr. Clotfelter says, "big-time athletics must be counted as one of their significant activities.""

"And one of their significant economic centers. The author notes that critics complain "how few big-time programs break even or make a profit." Sounds scandalous, right? Despite millions that pour in from TV contracts, merchandise and ticket sales, and other sources, athletic departments barely make ends meet. But as Mr. Clotfelter observes, "arbitrary administrative decisions"—like billing the athletic department for students' phys-ed classes—muddle any net-profit analysis. And there's no way to measure the role that a high-profile team might play in attracting better students and alumni donations."

"At 58 universities with major athletic programs in 2010, 72% of students graduated, but only 56% of football players and 42% of basketball players received a diploma."

Can The Fed Prevent Inflation By Paying Banks Interest On Their Excess Reserves?

This week in my macro classes we covered the Federal Reserve (Fed) policy tools that are used to control the money supply in the economy. Ceteris paribus, the more money in the economy the more aggregatge demand (AD) we have. To see how this affects the economy, go to this post from back in 2009 Fed Officials Disagree On Threat Of Inflation. It shows a graph that explains how AD affects the economy.

The Fed sets the "required reserve ratio." This tells banks what percentage of their deposits they must keep on reserve. If they keep more on reserve than they have to, the extra amount is called excess reserves. The Fed now pays banks interest on these excess reserves.

But lately, banks have been keeping alot of excess reserves. This is because of the recession and the financial crisis. Banks want to make sure they have enough on reserve and are leary of lending too much money. The borrowers might not be able to pay it back. And businesses and consumers have been reluctant to borrow since they too fear they might not be able to pay it back.

To see a good chart on excess reserves, go to Why Are Banks Holding So Many Excess Reserves And Will Those Reserves Fuel Future Inflation? (from the blog "Carpe Diem" by economist Mark Perry). The chart shows that until about the middle of 2008, excess reserves were about zero. Now they are over $1 trillion.

But what might happen if the economy starts to improve and everyone gains confidence. Then banks start lending alot more money and spending increases rapidly. Could this cause inflation? One view is that the Fed just has to raise the interest rate it pays banks on excess reserves to keep them from lending too much. The banks will prefer to keep the excess reserves and earn income from the interest rate rather than lend it out. This would keep AD from increasing past the full-employment GDP into the steep part of the short-run aggregate supply curve (see the post I mention above).

The Possible Impact Of A Lower Credit Rating For The U.S. Government

Last week I talked about problems the national debt might cause. Now this week Standard & Poors says that the government has a one in three chance of seeing it lose its AAA rating (the best rating).

See

U.S. debt finally draws serious warning by Terry Savage, a financial columnist for The Chicago Sun-Times

and

Debt worries turn up heat on Congress to act by Jim Spencer of Minneapolis Star Tribune.

Here is an excerpt from Spencer:

"For financial experts and political combatants here and in Minnesota, Monday's double dose of fiscal foreboding carried an unmistakable warning: Do something about the nation's debt.

The day began with news of a possible downgrade in the nation's credit rating and quickly turned into the stock market's worst day in a month as traders reacted to growing doubts that leaders in Washington could find a way out of the debt crisis.

"This was people on Wall Street [speaking] who are agnostic on politics," said U.S. Rep. Tim Walz, D-Minn. "Either we listen to what they said [Monday] or we pay a horrific price."

When Standard & Poor's switched its outlook on the nation's AAA credit rating from stable to negative, it raised the possibility that Americans could find more of their taxes spent on interest instead of public services. The cost of loans to consumers, government and businesses would go up, as well, suppressing an already fragile economic recovery.

"It's kind of scary," said Murray Frank, a University of Minnesota finance professor, adding that the announcement "is taking one of the central pillars of the world's economy and saying it is not grounded.""

Now one from Savage:

"Interest on the national debt is the third-largest federal spending category. In the last 12 months, the Treasury has paid more than $400 billion in interest — and rates are currently at historically low levels. A ratings drop could cost the taxpayers billions in extra interest payments every year. Worse, the higher rates needed to entice borrowers also would negatively affect our economy.

The United States still maintains its “triple A” bond rating, but the downgrade warning signifies concern that Congress will not act prudently to rein in deficit spending.

In its statement, S&P emphasized “the importance of timely bipartisan cooperation and action on fiscal reform.”"

The Wall Street Journal has an article with a chart showing how annual interest payments on the debt will change in the near future. They also say that it was $200 billion this past year. See As Budget Battle Rages On, a Quiet Cancer Grows

What Do Men In China Need To Get A Bride?

See For Many Chinese Men, No Deed Means No Dates from the NY Times. Excerpts:

"Although there are few concrete ways to measure the scope of involuntary bachelorhood, more than 70 percent of single women in a recent survey said they would tie the knot only with a prospective husband who owned a home.

Among the qualities they seek in a mate, 50 percent said that financial considerations ranked above all else, with good morals and personality falling beneath the top three requirements. (Not surprisingly, 54 percent of single men ranked beauty first, according to the report, which surveyed 32,000 people and was jointly issued by the Chinese Research Association of Marriage and Family and the All-China Women’s Federation.)

The marriage competition is fierce, and statistically, women hold the cards. Given the nation’s gender imbalance, an outgrowth of a cultural preference for boys and China’s stringent family-planning policies, as many as 24 million men could be perpetual bachelors by 2020, according to the report.

Zhang Yanhong, a matchmaking consultant at Baihe, one of the country’s most popular dating sites, said many disheartened men had simply dropped out of the marriage market.

“This fixation on real estate has twisted the popular notion of love and marriage,” she said. “Women are putting economic factors above everything else when looking for a mate, and this is not a good thing for relationships or for society.”"

"Many women are unapologetic about their priorities, citing the age-old tradition in which men provided a home for their brides, even if that home came with a mother-in-law."

"With such women on the prowl, even men who do have their own homes have come up with techniques to weed out the covetous and the inordinately materialistic."

Do We Need To Raise Taxes On The Wealthy?

I submitted an op-ed article to the San Antonio Express-News about this issue. It looks like it will not get printed. In it, I disagreed with the idea that we need to raise taxes on the wealthy and upper income groups. The article that I responded to was Millionaires and their tax request.

What I submitted is below. One thing I should add is that economist Veronique de Rugy wrote at the Reason magazine site the federal government has never been able to collect 21 percent of GDP in tax revenues. Even in the 1950s when the highest tax rate was over 90%.

"I disagree with investment banker John Kortenhaus who wants to increase taxes on the wealthy (“Millionaires and their tax request,” April 2).

For one, he says “trickle-down” economics doesn’t work, that the spending of the rich won’t create jobs. But we would have to compare this to how well government spending creates jobs and some economists are skeptical of that, too. There is no guarantee that the federal government will spend the money wisely.

Then he says “the wealthy ought to pay progressively higher percentages of their incomes in taxes because they benefit more” from government. It might be true the rich get more from government, but that does not necessarily prove progressive taxes are a good idea.

Let’s look at a flat-rate tax system. With a tax rate of 20%, someone earning $100,000 pays $20,000 in taxes, ten times what someone who earns $10,000 pays.

That seems equitable: You make ten times as much, so you benefit ten times as much from government. Paying ten times as much in taxes covers your benefits.

I am not aware of any scientific study that proves the rich receive disproportionate benefits from government.

He also says “many inherited their wealth.” But according to the book The Economics of Macro Issues, “current living standards are chiefly determined by the incomes people have earned for themselves” and not inheritance.

He then also says some inventors are lucky and don’t deserve their high incomes. But how would the government figure out who was lucky and should have to pay progressive taxes and who was not lucky?

I don’t think they could and making all high-income people pay progressive tax rates and punishing some who don’t deserve it seems like using guilt by association.

Maybe someone like Bill Gates could not have gotten so rich one-hundred years ago since there were no computers.

This only shows that all of us are much better off than people once were. It does not tell us that the rich have disproportionately benefited from progress. The typical low-income person is also much better off now, too.

Where does all this progress come from? Partly from entrepreneurs, some of the people Mr. Kortenhaus wants to tax so much.

Recently the eminent economic historian Deirdre McCloskey said around the year 1800 economic growth took off because societies started to treat entrepreneurs, their innovations and their drive to earn high incomes with dignity.

High taxes on the rich might hurt the innovation that benefits us all. Is punishing them a good vision for America?

We have income mobility, too. From 2001-2007, 44% of the top income earners fell out of the top bracket (top fifth). High incomes may be fleeting. Why punish some for having a good year with extra-high taxes?

Relying too much on the rich for tax revenue can hurt budgets in a recession. The Wall Street Journal recently reported that high income earners saw even bigger losses than everyone else in the recession. That partly explains the big deficits in many states.

In 2007, 37% of federal income tax revenue came from the top 1% of income earners. If we tried to get even more revenue from them, when the next recession hits and they see larger than average income drops, the federal deficit will grow even more.

I do agree with him on eliminating some deductions and loopholes that allow the rich to pay less in taxes, but let’s be careful before we make the system even more progressive.

Finally, full disclosure: I am not a millionaire even though the one car I own is a Honda Civic."

Why is college so hard?

This was a guest column I wrote that appeared on The Ranger website (that is the school paper for San Antonio College). Here is the link:

Why is college so hard?

Smokers and the obese cheaper to care for, study shows

See Smokers and the obese cheaper to care for, study shows from the New York Times. The idea is that the healthy live longer and that tips the scales to make them more costly. Excerpt:

"The researchers found that from age 20 to 56, obese people racked up the most expensive health costs. But because both the smokers and the obese people died sooner than the healthy group, it cost less to treat them in the long run.

On average, healthy people lived 84 years. Smokers lived about 77 years and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people.

Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on.

The cost of care for obese people was $371,000, and for smokers, about $326,000.

The results counter the common perception that preventing obesity will save health systems worldwide millions of dollars."

Why High Taxes To Pay Back The Debt Might Be A Problem For Economic Efficiency And Future Economic Growth

This is a continuation of Wednesday's topic.

Suppose that you buy a new shirt every month for $20. But now there is a high tax on shirts to help pay back the debt so that the price is $35. You might not buy that new shirt. Many other people might not, either. Then some stores go out of business and some t-shirt makers lay off workers. This will slow down economic growth in the future.

Also, if taxes are especially high, businesses will have less incentive to invest (build new factories, stores, restaurants, buy new capital, etc.). Less capital means less economic growth. The problem with taxes is that each incremental tax increase causes more harm to economic efficiency than the previous increase (and probably harms economic growth more). I will explain more of this below.

But also remember that just a small drop in the growth rate hurts us in the long run. For example, in the last 30 years or so, the annual growth rate in the real GDP in the U.S.has been about 2.8%. If per capita GDP goes up 1 percentage point less than that to take population growth into account, we would have a per capita growth rate per year of 1.8%.

If 30 years ago per capita GDP was $27,500 then today it would be about $46,900 (actually close to what it really was last year). But what if we had only grown 1.3% per year? The per capita GDP would be only $40,500. That would be $6,000 less, which is big and that kind of difference just keeps getting bigger over time and that is only a .5% lower growth. This big difference is due to compound interest.

Below is a letter to the editor of the WSJ I wrote a few years ago. It helps explain the exponentially growing damage that taxes cause:

"Stephen Moore did a great job explaining how complicated our tax code is and how high taxes have gotten relative to what was originally promised in 1913. One other way to see the insidiousness of taxes is to realize that they are just as much the "noise" in the economy as prices are the "signals." The income you get paid is the price for your services and therefore signals the value of those services. But taxes reduce the clarity of that signal (hence, they are noise) by reducing how much of your pay you actually get to keep. As taxes increase, the noise-to-signal ratio in the economy increases even more, meaning distortions, and the misallocation of resources they cause increases disproportionately. For example, if the income tax rate is 10%, you keep 90% of your income. The noise-to-signal ratio is .111 (or .1/.9). But if the tax rate goes up by .10, or to 20%, the noise-to-signal ratio goes up even more, by .15 to .25 since you keep 80% of your income. The .25 comes from .20/.80 equaling .25. Another .10 increase in the tax rate increases the noise-to-signal ratio by .179 from .25 to .429. Then going from a 30% tax rate to a 40% tax rate makes it go up by .238, from .429 to .667. Every tax increase causes increasing damage to the economy's ability to efficiently allocate resources."

This is consistent with the fact that deadweight loss also grows exponentially with tax increases. There will be some links to deadweight loss at the end of this post (my students can simply look at the appendix to chapter 3 in their textbooks). But the idea is that a tax on a good causes the problem mentioned above when the price of a shirt increases.

In supply and demand, if an excise tax has to be collected by the seller, the supply line shifts up by the amount of the tax. In the graphs below, the green triangle shows the deadweight loss or the total economic harm from the tax.

In the first graph, the tax on the good is $2 per unit, so the supply curve shifts up by $2 (the red line represents the new supply line). The area of the green deadweight loss triangle is 1 (one-half times the base times the height (I turn it sideways to make a base of 2)).

But in the second graph, the tax is doubled. It is $4 per unit, so the supply curve shifts up by $4. Now the area of the deadweight loss triangle is 4. So we doubled the tax but the damage caused has quadrupled. This shows that tax increases cause exponential damage to economic efficiency, which harms economic growth in the future.

If the supply line gets shifted up by $20 (if taxes were that high), then there would be no market left at all.






Links on deadweight loss:

Deadweight loss

Deadweight loss

Gross public debt exceeding about 90% of annual economic output can slow growth

See Reinhart and Rogoff: Higher Debt May Stunt Economic Growth from the WSJ blog last year.

"To all the reasons to worry about the rapid rise in government debt in the wake of the financial crisis, add another: It’ll stunt our growth.

In a new paper presented Monday at the annual meeting of the American Economic Association, Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard study the link between different levels of debt and countries’ economic growth over the last two centuries. One finding: Countries with a gross public debt debt exceeding about 90% of annual economic output tended to grow a lot more slowly. For advanced countries above the 90% threshold, average annual growth was about two percentage points lower than for countries with public debt of less than 30% of GDP.

The results are particularly relevant at a time when debt levels in the U.S. and other countries at the center of the financial crisis are rapidly approaching the 90% threshold. Gross government debt in the U.S., for example, stood at 85% of GDP in 2009 and will reach 108% of GDP by 2014, according to IMF projections. The U.K.’s gross government debt stood at 69% of GDP in 2009 and is expected to reach 98% of GDP by 2013.

“If history is any guide,” the rising government debt “is very troubling for the U.S. and other advanced economies,” says Ms. Reinhart.

The relationship between government debt burdens and growth is even stronger for emerging-market economies, Ms. Reinhart and Mr. Rogoff find. For countries above the 90% threshold, average annual growth was about three percentage points lower than for countries with public debt of less than 30% of GDP. The countries above the threshold also experienced much higher inflation: prices rose more than twice as fast as in countries with small debt burdens."

I will post more about this on Friday. But the big issue for me is that taxes might have to rise so much that they hurt economic growth. The loss of economic efficiency or deadweight loss grows faster than taxes. That is, every one percentage point increase in the tax rate causes more than a one percentage point increase in deadweight loss.

In the long run, that slows down growth in the economy. Even if the economy only grows 0.1% less or 0.2% less than otherwise, those losses compound every year and after 30 years we start to see big losses in our incomes (or they don't grow to as much as they could have).

North Dakota Is Number One!

See Why North Dakota May Be the Best State in the Country to Live In. The state has the lowest unemployment rate (3.8%), in 2009 had the third highest GDP growth rate, the fourth lowest crime rate and the state government has a budget surplus. Why?

"North Dakota's economic good fortune is pretty much a function of being a major producer of two very in-demand commodities: wheat and oil, both of which have seen huge global price increases. The state is the country's #1 producer of durum wheat -- that's what pasta is made from -- and is also a major grower of other crops including barley, pinto beans, and flaxseed."

But if people really believe that North Dakota is the best state and many of them go there, things won't be very fun due to the crowds (which reminds me of something that Yogi Berra said about a restaurant: "nobody goes there anymore, it's too crowded").

Prices of everything will be bid up. This also illustrates what economist Steven Landsburg calls the "Indifference Principle." "Except when people have unusual tastes or unusual talents, all activities must be equally desirable."

This applies to North Dakota. Once everyone sees it as a good deal, they start going there. Only people with unusual tastes will really enjoy it. That is, you will have to like what that North Dakota has to offer alot more than the average person or the crowds and congestion will erode your enjoyment. It won't be any better than anywhere else to live. Other places will be just as desirable.

Obama To Pitch For The White Sox

April first 2011 will go down in history. Click White Sox Sign Obama For Left-handed Bullpen Support to read all about it.

Fourth Quarter GDP Revised From A 2.8% Increase To A 3.1% Increase!

My students know how exciting this news is. See 4th Quarter U.S. GDP Revised Up to 3.1% Growth.

Why is this exciting? Let's suppose that per gapita GDP is $50,000 (it is a little less than that right now). Now what if over the next 20 years GDP (actually real GDP) rises every year by 3.1% instead of just 2.1%? How much difference will this make?

First, we need to say what the annual per capita GDP increase will be. Per capital GDP is GDP divided by population. What if we assume that population grows 1% per year. Then instead of an increase in per capita GDP of 3.1%, it would be about 2.1% (and instead of 2.8%, it will be about 1.8%).

Compounding an annual increase of 2.1% over 20 years would leave us with a per capita GDP of $75,460. That is more than $3,000 above what it would be if we grow only 1.8% per year ($71,188). An extra $3,000 in everyone's pocket is exciting news.

One technical note. When you see numbers like this reported in the media, real GDP did not increase 3.1% in the fourth quarter. It means that if it increased at the rate it actually did for that quarter for a whole year, then the yearly increase would be 3.1%. It would have increased about 0.766% for the quarter. If it does that for 4 straight quarters, the GDP will end up being about 3.1% higher than it was before.

Will The Real Multiplier Please Stand Up?

In the past few weeks in my macro classes, we have talked about the government spending multiplier. But not all economists agree on what the numerical value of the multiplier is. See Much ado about multipliers: Why do economists disagree so much on whether fiscal stimulus works? from "The Economist" magazine in Sept. 2009. Here is an excerpt:

"Different assumptions about the impact of higher government borrowing on interest rates and private spending explain wild variations in the estimates of multipliers from today’s stimulus spending. Economists in the Obama administration, who assume that the federal funds rate stays constant for a four-year period, expect a multiplier of 1.6 for government purchases and 1.0 for tax cuts from America’s fiscal stimulus. An alternative assessment by John Cogan, Tobias Cwik, John Taylor and Volker Wieland uses models in which interest rates and taxes rise more quickly in response to higher public borrowing. Their multipliers are much smaller. They think America’s stimulus will boost GDP by only one-sixth as much as the Obama team expects."

Factors Influencing The Price Of Gas

See Gas prices are about more than just oil. Here are some excerpts:

"Gas prices rise when oil prices rise, and fall when oil prices fall — except when they don't. What you pay at your gas station depends on an array of factors, from what happens on an exchange in New York to what the competition is charging."

"Sellers of commodities, like gas station owners and refineries, price their product based not on what it costs to produce it, but on what it costs to replace it. Stations like the Plainfield BP, which gets shipments of gas several times a week, must constantly adjust their prices to keep up with the changing costs of their shipments.

Oil is the biggest factor in gas prices. It accounts for 50 to 70 percent of the cost."

"In the next few weeks, gas prices are expected to rise as refiners switch to a more expensive blend of gasoline designed to help protect against evaporation during the warmer summer months."

"A wholesaler like BP or Gulf each has its own formula for setting the rack price. In an attempt to smooth out the spikes and dips of the market, a wholesaler usually buys some of his fuel through long-term contracts. The rest is bought on the so-called spot market, priced at a given moment by a benchmark like the New York Harbor gasoline price."

""If gasoline prices drop a dime, a station will only pass along one or two pennies a day," says Patrick DeHaan, an analyst at GasBuddy.com, a website that collects and publishes retail gas prices. "They are slower to pass along the discount because they need to make up for money they lost when prices went up.""

88% Of Bavarian Doctors Give Their Patients Placebos

See Half of all German doctors prescribe placebos, new study shows: Placebo cures shown to help with depression and stomach complaints – in Bavaria, 88% of doctors have prescribed them. They might help save money, too. Here are excerpts:

"The report says placebos, from vitamin pills to homeopathic remedies or even sham surgery, can prove highly effective in various treatments."

""Placebos have a stronger impact and are more complex than we realised. They are hugely important in medicine today," says Christoph Fuchs, the managing director of the BÄK.

The report recommends that students and doctors should be taught about placebos and their usage.

"Placebos can maximise the effect of medication," says Robert Jütte, author of the study and a BÄK board member.

"They can reduce undesirable side-effects and are a more efficient usage of our healthcare budget.""

"Recent research, he said, showed that placebos had helped 59% of patients who had been suffering from an upset stomach. Used to treat depression, placebos have the same effect as antidepressants in about a third of cases.

The efficacy of a placebo depends on many factors, according to the report, including the size and colour of a pill.

The more expensive the placebo, the higher the success rate, the study found, and intravenous injections are shown to be more effective than oral medication.

It's also a question of trust. Placebos produce better results if a patient feels their doctor understands their concerns, and believes they are being taken seriously, the study says."

I have blogged about this before. See

Study: Half of American Doctors Give Patients Placebos Without Telling Them.

Can A Product Work Just Because It's Expensive?

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

People Waiting In Line For The Apple iPad 2 Is Socially Wasteful So The Price Should Be Extra High The First Few Days

See Woman Sells First Spot in iPad 2 Line For $900. She waited in line for 41 hours. This benefits no one one. No goods or services are created. It is wasted time and is inefficient. The iPad 2 starts at $499.

Apple should charge a higher price to begin with to avoid these long waiting lines. There is a shortage at the $499 price the first few days. They could start at $1000 and lower it $100 each day until it is back down to $499. Once these waiters get one they sell them for a very high price to someone else anyway and some go even higher than $1000 when sold on eBay.

Apple could get some great PR by donating the extra profit to charity. They could use that money to donate computers to schools. People who bought at the extra high price early on could get a t-shirt that says they support the Apple school computer initiative. So they could get to brag about their "donation."

Is It Getting Too Expensive To Go College?

Hedge-fund manager and author James Altucher says he will not be sending his kids to college. See Rethinking College as Student-Loan Burdens Rise. This link has both an article and a video clip. (Hat Tip: Frances Minten)

But remember that on average, college grad makes about 75% more a year than someone who only has a high school diploma. So let's say that if a high school grad makes $24,000 a year then the college grad is making $42,000. That is an extra $18,000 a year and it won't take long to make up for the $100,000 average cost of going to college.

Here are some earlier posts on related topics:

Maybe That College Degree Is Not As Valuable As You Thought

As college costs rise, sticker shock eased by student aid

Does It Pay To Go To College?

The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender

See EU Closes Insurers' Gender Rate Gap from The Wall Street Journal, 3-2-11. This is actually bad news for women. Here are some key excerpts:

"The European Union's highest court declared illegal the widespread practice of charging men and women different rates for insurance, setting in motion an overhaul of how life, auto and health policies are written across Europe.

Two Belgian men had challenged the higher life-insurance premiums charged to members of their sex, arguing that it was discriminatory. In a ruling Tuesday, the Luxembourg-based European Court of Justice agreed.

The judgment can't be appealed. It will have vast implications: Insurers routinely charge women, who live longer, lower premiums for life insurance; young male drivers, who statistically cause more accidents, pay higher premiums for auto policies."

"A study last year commissioned by the British insurers' group found excluding sex would have a particular impact on the auto policies of young women, whose premiums could rise by as much as 25%."

The Problem In The Middle East Might Be The State Preventing Entrepreneurship

I saw this article mentioned at Carpe Diem, the blog of economist Mark Perry. It links an article in the New Yorker by James Surowiecki called The Tyrant Tax. Here is one paragraph:

"Healthy economies need a thriving and independent private sector, where resources are allocated by markets and competition, and where small and medium-sized businesses can flourish. But in most of the Middle East the state and big business are so tightly intertwined as to be indistinguishable, and competition has been discouraged in favor of central planning and private monopolies. It’s hard for entrepreneurs to start and run a business. Minimum capital requirements tend to be high, so you can’t get started without lots of cash, and getting business licenses and registering property are frequently arduous. Political favoritism is rampant, and byzantine regulations are difficult for outsiders to navigate. It’s instructive that the young man whose self-immolation helped set off the protests in Tunisia had had his fruit cart confiscated for violating some government rule."

and

"The state’s intrusive presence forces much economic activity off the books—in Egypt, eighty-five per cent of small businesses are in the “informal” sector—and this reduces growth, since informal businesses have a hard time getting credit or expanding beyond a certain size."

and

"Strict regulations enable the government to protect its friends in the private sector from competition, and bureaucrats line their own pockets, becoming further indebted to the system."

and

"Not surprisingly, when autocratic regimes in the region have tried to change their economies they’ve done so primarily with an eye toward maintaining power. In the past decade, countries like Egypt, Jordan, and Algeria have made vaunted public commitments to reform. But, as a recent study by the political scientist Oliver Schlumberger shows, reform did not, for the most part, aim at introducing genuine free-market competition, the most important feature of a healthy capitalist system. Instead, it strengthened what he calls “patrimonial capitalism”—a system in which the key determinant of success is how close you are to those in power."

Qatar Is The New Number One

In per capita GDP, that is. The table below shows the the top 10 countries in per capita GDP based on the the CIA's 2010 estimates (they are not all from 2010-Liechtenstein's estimate comes from 2007, for example).



Click here to go to the CIA World Factbook. The numbers are based on "purchasing power parity," which means the differences in cost of living between countries is taken into account. But it does bother me that our most recent estimate for Liechtenstein is from 2007. With all their riches, they could be a threat. So maybe the CIA should pay closer attention to them.

Update 3-4: Commentor "Sparrow" mentioned that Qatar uses slave labor. Here is a UN report on that Trafficking in Persons Report 2008 - Qatar. Here is a recent news story Online Petition Asks Qatar to Fight Human Trafficking in Advance of World Cup.

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

See Ways Your Appearance Affects Your Paycheck. Here are some excerpts:

"Men who are at least 6' tall make an average salary of $5,525 more than their shorter, 5'5 counterparts..."

"... 1% increase in body mass [for a woman] results in a 0.6 percentage point decrease in family income..."

"people with above average looks typically received premiums in pay of 5% or more, and that less attractive people "suffered a salary penalty of up to 9%.""

Here is some research from a few years ago that explains why looks might matter from an evolutionary perspective:

"So you think beauty is in the eye of the beholder? Think again. According to new research from the University of Exeter in Great Britain, the preference for pretty faces over ugly ones is embedded in our brains from the moment of birth and possibly prior to birth.

Newborn babies come fully equipped with built-in preferences, including a preference for an attractive face, that help them make sense of their new environment, report the BBC News Online and Newsweek magazine. The Exeter researchers showed more than 100 infants two images that were placed side by side. One was of an attractive face, while the other was a less attractive face. The babies, ranging in age from five hours old to two days old, spent about 80 percent of the time looking at the attractive face, while barely glancing at the unattractive face.

"You can show them pair after pair of faces that are matched for everything other than attractiveness. This leads to the conclusion that babies are born with a very detailed representation of the human face," Dr. Alan Slater, a psychologist at Exeter, explained to the BBC News. Why would infants have this capability? "It helps them to recognize familiar faces--particularly that of the mother--and it helps them in learning about the social world. Attractiveness is not simply in the eye of the beholder, it is in the brain of the newborn infant right from the moment of birth and possibly prior to birth," he added.

When those babies grow up, the preference for pretty faces doesn't change. And it crosses all cultures and geography as well. When an insular European is shown the faces of two Africans, the one he chooses as most attractive is also the same one an African chooses. And it works the other way around when an African is shown the faces of two Europeans.

"Although we think that standards of facial beauty vary over time and culture, they don't actually change that much," Slater explained to Newsweek. The evidence indicates that there is a biological and universal standard."

So don't blame a man when he can't help but look at a pretty face! He's biologically programmed that way."

The Percent Of The Civilian Noninstitutional Population Employed Since 1970

(This is a post from last October with an update at the end, including a link to a comaparison of unemployment rates in different countries from 2002-09)

I talked about unemployment in my macro classes yesterday. If you go to this site by the Bureau of Labor Statistics called Employment status of the civilian noninstitutional population 16 years and over, 1970 to date, you can see unemployment rates going back to 1970. It also shows the percent of the civilian noninstitutional population that is employed. The graph below shows how that has changed over time.


The general trend since 1975 has been up, although it has flutctuated. Unfortunately, it has been going down for a couple of years and we are well below the high of 64.4% in the year 2000. It was 59.3% in 2009.

But the average for the years 1970-84 was 58%. So we are still above that. That does not mean what we have is good. But it just puts what is currently going on in perspective.

Some will say that we have a large prison population, so they are not part of the figures and that prison population has been growing. In 2008, the U. S. prison population was 1,610,446. See Prisoners in 2008. Suppose we increase the number of people in the civilian noninstitutional population by that amount. Right now it is 235,801,000. The new figure will be 237,411,446. Now let's keep the number employed the same, at 139,877,000. That would 58.9% employed, still higher than the average from 1970-1984.

Now there were some tough economic times in that earlier period. But we survived and we weren't exactly destitute. So although the economy is not doing well right now, maybe things are not so bad.

Update: For all of 2010, the percent employed in the US was 58.5%. From 1975-83, the average annual unemployment rate was 7.7% and the the average inflation rate was also 7.7%. The average annual percent employed in that period was 58.21%, still less than what we had in 2010 or any other recent year. The last 9 years averaged 61.9%.

Click here to see international comparison of unemployment rates by country.

Also, here is something from the Wall Street Journal last December about how GDP growth is related to unemployment:

"Okun's Law," as it came to be known, has been tweaked over the years, and now states that for every two percentage points the economy grows above its long-term trend annually, unemployment falls by a percentage point.

Most economists peg the economy's long-term trend rate at about 2.5%, which is roughly where economists polled by The Wall Street Journal estimate growth stands in the current quarter.That means, according to Okun's Law, that the economy isn't growing fast enough to bring down unemployment."

We Spend A Much Smaller Percentage Of Our Incomes On Food And Clothing Than We Used To

Economist Mark Perry has posted two great graphs at his blog (links to the two entries are below). But here are the graphs, They show that over time the percentage of our income that we spend on food and clothing has been falling. It looks like in 1950 that about 30% of our income went to food and clothing combined. Today it is only about 12.5%.




Here are the links to his two posts on this:

As a Share of Income, Americans Have the Most Affordable Food in World & It's Never Been Better

As a Share of Income, Clothing and Footwear in U.S. Are More Affordable Today Than Ever Before

Can Some Places Really Be The "Best" Places To Retire To?

See The Best Places to Retire Outside the U.S.

But if people really believe this and many of them go to a given country, things won't be very fun due to the crowds (which reminds me of something that Yogi Berra said about a restaurant: "nobody goes there anymore, it's too crowded").

This also illustrates what economist Steven Landsburg calls the "Indifference Principle." "Except when people have unusual tastes or unusual talents, all activities must be equally desirable."

This applies to any of the countries on the list in the article. Once everyone sees it as a good deal, they start going there. Only people with unusual tastes will really enjoy it. That is, you will have to like what that country has to offer alot more than the average person or the crowds and congestion will erode your enjoyment. That country won't be any better than anywhere else for retirement. Other places will be just as desirable.

Incentives Matter, Even When It Comes To Returning Bottles

See Shades of 'Seinfeld': Maine bottle scam alleged form the AP. Here are the first two paragraphs:

"A memorable "Seinfeld" episode features Kramer and Newman taking thousands of cans and bottles to Michigan so they can get a nickel more per container than they would in New York, but beverage distributors say there's nothing funny when it happens for real.

In Maine, which has a more expansive bottle-redemption law than neighboring states, three people have been accused of illegally cashing in more than 100,000 out-of-state bottles and cans for deposits, the first time criminal charges have been filed in the state over bottle-refund fraud, a prosecutor said.

A couple that runs a Maine redemption center and a Massachusetts man were indicted this week for allegedly redeeming beverage containers in Maine that were bought in other states."

And here is more:

"An estimated 90 million cans and bottles are fraudulently cashed in each year in Maine, costing beverage distributors $8 million to $10 million, said Newell Augur, executive director of the Maine Beverage Association.

People from other states — especially New Hampshire, which has no "bottle law" — routinely redeem loads of cans and bottles in Maine, Augur said. Redemption centers pay customers 5-cent refunds on most beverage containers and 15 cents for wine and liquor bottles. The centers, in turn, get that money back from distributors, plus a 3 1/2- or 4-cent handling fee per container."

And

"Officials estimate that up to 1 billion beverage containers are sold in Maine each year. Containers sold in other states, however, carry the Maine deposit stamp because it's not cost-effective to change labeling for each state."

Adam Smith, Marriage Counselor

That is an article from the NY Times. Click here to read it. It is by Jenny Anderson, co-author of the book “Spousonomics,” written with Paula Szuchman (as you can probably guess, I am continuing with the Valentine's theme from Sunday).

They discuss how using incentives and economic theories like loss aversion, game theory and information processing costs can improve your marriage. The two authors answered questions at Freakonomics.

Finally, neuro-economist Paul Zak explains why romance in the workplace is important. Go to The Container Store Cheers Office Romance, Love This Valentine's Day. Here is an excerpt:

"Research has shown that a loving work environment causes the brains of those in it to produce the neurotransmitter oxytocin, which motivates people to care for the people around them, the company says, citing the findings of Paul Zak, founding director of The Center for Neuroeconomics Studies and professor of economics psychology and management at Claremont Graduate University.

In 10 years of research, I have shown that when we are loved and trusted, we in return love and trust others," Zak told WalletPop.

"Love is the foundation for all economic exchange which, at its core, is about serving others. Love creates employee engagement, builds customer loyalty and creates sustainable businesses. Imagine that: the best business practices derive directly from love.""