Report Says We Won't Have A Recession This Year

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

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

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

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

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

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

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

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

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

In Poland, It Is Death OR Taxes

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

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

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

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

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

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

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

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

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

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

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

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

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

A Solution To The Health Care Problem? Change In Behavior

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

Here is an exerpt:

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

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

More Bad Economic News

Here are exerpts from an article:

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

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

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

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

Trees vs. Solar Power?

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

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

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

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

Unemployment Has Been Good Recently

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



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

Poverty Might Affect The Brain

Here is brief idea of what is going on:

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

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

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

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

What the stimulus package means for you

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

A Special Valentine's Message On Romantic Love

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

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

When Self-Interest Isn’t Everything

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

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

Another famous economist, Frank Knight, wrote in 1934:

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

You Are What You Spend

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

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

Studies Warn Biofuel Crops Could Accentuate Global Warming

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

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

United Air to Charge Some Fliers for 2nd Checked Bag

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

Amazon.com Sells Book For Less Than The Publisher

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

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

Community Colleges Central to Nation's Welfare

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

Some Good Insights On Immigration

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

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

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

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