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.