Are Homemade Gifts Better Or More Special?

That is what world renown economist Daniel Hamermesh says. The article is A homemade Christmas. Here is the relevant passage, which says that making your gifts is

"...an option that is not only cheaper but shows care and thoughtfulness, said Daniel Hamermesh, an economics professor at the University of Texas at Austin and author of “Economics Is Everywhere.” Hamermesh said studies have shown gifts typically cost more than they are worth to the people who receive them, information that should, but often doesn't, tone down frenzied Christmas shopping behavior.

“There is too much compulsion (at Christmas) to buy something nobody wants,” Hamermesh said. “If the point is to ... show that you care, you would do better (to make something) than spend the money.”"

The point Hamermesh makes about gifts costing more than they are worth to the people who receive them is something I discussed a few weeks ago with Is Christmas Gift Giving Inefficient?.

But just because you take the time to make something does not necessarily show that you care more than if, say, you took the time to earn extra money so you could buy a nice gift for someone. Why would taking time to earn money to buy a gift be less worthy or special than taking time to make a gift? And what if you are not good at hand crafts? Or what if your time is valuable? Do we really want President Obama taking a long time to sew his wife a dress?

Economist Steven E. Landsburg had some interesting things to say about gift giving in his book The Armchair Economist: Economics & Everyday Life. From chapter 2:

"I am not sure why people give each oher store-bought gifts instead of cash, which is never the wrong size or color. Some say that we give gifts because it shows that we took the time to shop. But we could accomplish the same thing by giving the cash value of our shopping time, showing that we took the time to earn the money.
My friend David Friedman suggests that we give gifts for exactly the opposite reason-because we want to announce that we did not take much time to shop. If I really care for you, I probably know enough about your tastes to have an easy time finding the right gift. If I care less about you, finding the right gift becomes a major chore. Because you know that my shopping time is limited, the fact that I was able to find something appropriate reveals that I care. I like this theory."

I think it might also mean that you cared enough to get to know the person in the first place. Dilbert had a funny strip on Christmas about this. Here is what happens:

Panel 1
Dilbert: Merry Christmas. Here's a hundred bucks.
Dogbert: And here's a hundred bucks for you.

Panel 2
Dilbert: We could save another step by setting up an electronic transfer with an annual recurring option.
Dogbert: Excellent.

Panel 3
Dogbert: Or we could not give gifts.
Dilbert: Hush your crazy talk.

Colleges And Universities Try To Be Like Hogwarts. What Would Carl Jung Say?

There was an article in the New York Times recently about how schools tell prospective students how they are just like Hogwarts. It was Taking the Magic Out of College by By LAUREN EDELSON. Here are some things she mentioned about her visits to colleges:

"[at one school they play] a flightless version of J. K. Rowling’s Quidditch game — broomsticks and all."

"So I was surprised when many top colleges delivered the same pitch. It turns out, they’re all a little bit like Hogwarts — the school for witches and wizards in the “Harry Potter” books and movies. Or at least, that’s what the tour guides kept telling me."

"During a Harvard information session, the admissions officer compared the intramural sports competitions there to the Hogwarts House Cup. The tour guide told me that I wouldn’t be able to see the university’s huge freshman dining hall as it was closed for the day, but to just imagine Hogwarts’s Great Hall in its place."

"At Dartmouth, a tour guide ushered my group past a large, wood-paneled room filled with comfortable chairs and mentioned the Hogwarts feel it was known for. At another liberal arts college, I heard that students had voted to name four buildings on campus after the four houses in Hogwarts: Gryffindor, Ravenclaw, Hufflepuff and Slytherin."

"[In] Cornell’s fall 2009 quarterly magazine, [it says] that a college admissions counseling Web site had counted Cornell among the five American colleges that have the most in common with Hogwarts. Both institutions, you see, are conveniently located outside cities. The article ended: “Bring your wand and broomstick, just in case.”"

"I’m not the only one who has noticed this phenomenon. One friend told me about Boston College’s Hogwartsesque library, another of Colby’s “Harry Potter”-themed dinner party. And like me, my friends have no problem with college students across the country running around with broomsticks between their legs, trying to seize tennis balls stuffed into socks (each one dubbed a snitch) that dangle off the backs of track athletes dressed in yellow.""

In the same issue of the NY Times, there was a review of a book by the famous psychologist Carl Jung. The review was titled The Symbologist by KATHRYN HARRISON. The book by Jung is titled THE RED BOOK: Liber Novus. One of the passages from the book was was about Jung's belief in the "deep subliminal connections between individual fantasies and world events."

Mixing fantasy and reality. Sounds like what these colleges and universities are doing by comparing themselves to Hogwarts.

Also, since my semester ended, it will be a few weeks until I post again.

The Ugly Truth About Pirates They Don't Show You In Those Johnny Depp/Keira Knightley Movies

You probably know that there are real pirates, with many of them operating off the coast of Somalia. Their economic impact is particularly interesting. Read Pirate Payoffs Feed Big-Money Lifestyle in Somalia: Big houses, fast cars, easy drugs: Ransom-fed lifestyle creates problems in Somali towns.

For one, the money pouring in is driving up prices. A pair of shoes that used to cost $20 now costs $50, for example. It also causes social problems with so many pirates using alcohol and drugs. "Teenagers threaten their parents that they will join the pirates if they don't get their way." How widespread and accepted is piracy? This quote says alot:

"The price of clothes, shoes and cosmetics is climbing, said Anshur Kamil, a businessman. Pirates don't even have to pay upfront. Those holding ships hostage that haven't yet received ransom can buy goods on credit — at elevated prices — and settle up their debts when the ransom money comes in, villagers say."

Can you imagine walking into a store and buying a pair of Gucci loafers and an Armani suit and telling the clerk "just put it on my tab, I'm good for it because I'm a pirate?" The article also implies that pirates are able to buy brides with their money.

Pirates have set up a stock exchange to find investors. See Somali sea gangs lure investors at pirate lair. This article was discussed at The Marginal Revolution.That article also mentions that it is not hard to attract young men to piracy since there are few legitimate economic opportunities in the area.

Economist Peter Leeson has written a book called The Invisible Hook: The Hidden Economics of Pirates.

Although the Somali pirates make millions of dollars, it still pales in comparison to what the movies make. Pirates of the Caribbean: At World's End took in about $960 million worldwide at the box office while costing about $150 million to make. Then it made about $295 million in DVD sales. And that was just one of the movies.

Is Christmas Gift Giving Inefficient?

In 1993, Yale economics professor Joel Waldfogel published an article titled The deadweight loss of Christmas. The idea is that gift recipients often place a lower dollar value on the item than its actual price. Maybe someone buys you a tie for $20 that you would pay no more than $5 for. So the inefficiency or deadweight loss is $15. Waldfogel estimated that in 1992, the inefficiency or deadweight loss in the United States from Christmas was anywhere between $4 billion and $13 billion.

Not everyone agrees with this. The article Christmas gift giving: a deadweight loss? from Business World mentions:

"the process of gift giving adds value to a gift over and above its retail price. Giving a gift instead of cash says the giver bothered to know what the receiver might want. There are times, in fact, when gifts that weren’t wished for turn out to be most valued. A thing one would not have thought of buying himself might end up a pleasant surprise. Or, an item the recipient might have had money to spend on but never bought for frugal reasons could also turn out to be a gift valued more than its price."

An article from the Economist magazine, "Is Santa a deadweight loss?: Are all those Christmas gifts just a waste of resources?, raised the question "So should economists advocate an end to gift-giving?" Here is the answer they provided:

"There are a number of reasons to think not. First, recipients may not know their own preferences very well. Some of the best gifts, after all, are the unexpected items that you would never have thought of buying, but which turn out to be especially well picked. And preferences can change. So by giving a jazz CD, for example, the giver may be encouraging the recipient to enjoy something that was shunned before. This, and a desire to build skills, is presumably the hope held by the many parents who ignore their children's pleas for video games and buy them books instead.

Second, the giver may have access to items—because of travel or an employee discount, for example—that the recipient does not know existed, cannot buy, or can only buy at a higher price. Finally, there are items that a recipient would like to receive but not purchase. If someone else buys them, however, they can be enjoyed guilt-free. This might explain the high volume of chocolate that changes hands over the holidays.

But there is a more powerful argument for gift-giving, deliberately ignored by most surveys. Gift-giving, some economists think, is a process that adds value to an item over and above what it would otherwise be worth to the recipient. Intuition backs this up, of course. A gift's worth is not only a function of its price, but also of the giver and the circumstances in which it is given.

Hence a wedding ring is more valuable to its owner than to a jeweller, and the imprint of a child's hand on dried clay is priceless to a loving grandparent. Moreover, not only can gift-giving add value for the recipient, but it can be fun for the giver too. It is good, in other words, to give as well as to receive."

Important Notice About The Final Exam For My Students

As I said in class and on the final test taking guide, the 2nd half of the final will be over the "study questions for final" But there will be 3-4 questions on the 2nd half from the last 4 chapters. Please pass this along to anyone in the class.

For ECON 2301 this means chapters 14-17.

For Econ 1301 this means chapters 14, 15, 17, and "Last Chapter"

Can Testosterone Help Women Earn More Money?

You may have heard that women get paid less than men. How big the difference is not always clear. Read Women and the Pay Gap. Now there is research on how testosterone affects pay. This is from the University of Chicago alumni magazine Risky business.

"In general, women tend to avoid the risks that men undertake more frequently, but testosterone may provide an equalizer. Studying the connection between testosterone and high-risk financial careers, Chicago Booth economist Luigi Zingales, comparative human-development professor Dario Maestripieri, and Northwestern University Kellogg School economist Paola Sapienza found that the hormone played an important role for women. The researchers began with a sample of 500 Chicago Booth MBA students; 36 percent of the women chose jobs like investment banking or trading, compared with 57 percent of the men. Higher testosterone levels correlated with greater risk-appetite in women, though not in men. But in men and women with similar testosterone levels, risk-related gender differences disappeared. The findings appeared in the August 24 Proceedings of the National Academy of Sciences."

Looks Like Some Pretty Good Capitalists Run The Congress

Go to Policy, portfolios and the investor lawmaker: As stock ownership rises in Congress, experts warn of potential ethics concerns from the Washington Post this past week.

Most members of the House of Representatives own stock. The article says "The investments increasingly put lawmakers in the position of voting or advocating on matters that could affect their personal wealth, whether the lawmakers realize it or not."

Politicians who rarely agree on anything might be found to be voting for the same bill if it matters to their pocket book. They are supposed to report what they own but the drag their feet and the records are not very well computerized, so they are harder to analyze. And they are good at this investing stuff. From 1985-2001, the legislators beat the market by .55 basis points a month. In a year that means 6.6 percentage points above the market.

In that time, the market (DJIA) gained just a bit under 1% a month (from 12-31-85 to 12-31-2001). It went from 1,546 to 10,021. So, if you had $1,546 in the market it became worth $10,021. But, if you were a member of Congress, it rose about 1.5% a month and you would have ended up with $26,970. Each dollar in the market grew into $6.48 while for the lawmakers it grew into $17.44.

"The researchers, whose findings were presented at a congressional hearing in July, said the statistics suggest that those unusual returns must be based on lawmakers' access to "government and important social contacts.""

But legislators acting on their self interest is not new. Charles Beard wrote about this in his book An Economic Interpretation of the Constitution of the United States. He argued that self-interest was a big force in how the framers wrote the constitution.

In the 1950s, Forrest McDonald We the People : The Economic Origins of the Constitution, in attempt to refute Beard. But more recently, economic historian Robert A. McGuire wrote a book called To Form a More Perfect Union: A New Economic Interpretation of the United States Constitution. He used modern statistical analysis to show that the Beard thesis may be legitimate.

My students might recall something like this that I talk about on the first day of the semester. Congressmen in the early 1790s voted on the "Funding and Assumption Act" based on how much money they would receive if that bill passed. The bill paid back all of the debts from the Revolutionary War at full value (they were not getting paid back before the Constitution was passed because under the Articles of Confederation all states had to agree to a tax increase-this did not happen much so taxes were never raised to pay back the money the government borrowed to finance the war). But under the Constitution if both the House and the Senate passed a tax increase and the president signed it, it became law.

The debts were securities or bonds. Some congressman owned them. I found how much about half the congressmen owned in these bonds from McDonald's book. The ones who voted yes on the bill had an average of about $6,000 while the ones who voted no had about $700. So it is possible that money influenced the vote.

I Have Alot To Be Thankful For Since I'm Soon Going To Be Rich!!

I got this email a few days ago and it looks like it is from a famous economist. Anybody have any suggestions as to what I should do with $10 million?

"Chairman Federal Reserve Bank New York

We received the instructional letter to credit $10.5million to your account. We wish to let you know that all charges are waived for the sucess of this contract fund to be credited into the your account.

Your respond is required to enable us credit your account without any further of delay and you are also required to get back to us with the reconfirmation of your banking particulars for we to know if what we have in file is correct and to avoid crediting your fund to wrong account.

Please be fast on this matter.

Regards,
Bzen S. Bernanke"

Senators And Representatives Get Paid To Talk, But Do We Always Know Who Is Paying Them?

These legislators make lots of speeches and ask questions at congressional hearings. That is part of their job and maybe they like doing that sort of thing (which might explain why they ran for office in the first place). So you might assume that the taxpayers are paying them to talk. But maybe not. The New York Times had an article recently called In House, Many Spoke With One Voice: Lobbyists’. Here is the intro:

"In the official record of the historic House debate on overhauling health care, the speeches of many lawmakers echo with similarities. Often, that was no accident. Statements by more than a dozen lawmakers were ghostwritten, in whole or in part, by Washington lobbyists working for Genentech, one of the world’s largest biotechnology companies. E-mail messages obtained by The New York Times show that the lobbyists drafted one statement for Democrats and another for Republicans."

It later says

"In recent years, Genentech’s political action committee and lobbyists for Roche and Genentech have made campaign contributions to many House members, including some who filed statements in the Congressional Record. And company employees have been among the hosts at fund-raisers for some of those lawmakers."

So it looks like this company is actually paying the representatives to say what they want them to say. This reminds me of an Associated Press (AP) article from way back in 1993 (before the internet was widespread). It described how political action committees (PACs) were requiring senators and representatives to sign pledges of what their positions were on various issues before they got their campaign contributions. Of course, the PACs would not be giving money to politicians on the "wrong" side of the issue. It sounded like vote buying back then and it still does. The article was "Interest Groups Use Pointed Questionnaires As Lobbying Tactic" by Jim Drinkard and was issued by the AP on March 26, 1993. I don't think it is online anywhere.

Did The Yankees Buy A World Championship In 2009?

This is actually a cross over post from my Cybermetrics blog. To read it click here.

The Mortgage Delinquency Rate Hits An All-Time High

In two of my classes this week we discussed the housing crisis over the last few years. The latest news is reported in Mortgage loans: Record number are late. According to the article, "In the third quarter, 9.64% of all mortgage loans were delinquent..." and "The combined percentage of loans in foreclosure or at least one payment past due was 14.41% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey."

In a related article Foreclosure plague: It's spreading, McAllen, Texas is reported to have the fastest growing rate. And with the high unemployment rate, the foreclosure and delinquency rates could go higher. To see a map of the unemployment rates for each state, go to Where does your state rank?

Leggo Your Eggo: There's a Waffle Shortage

That is the title of a news article which you can read here. According to the article, "Kellogg is rationing its Eggo products due to flooding and equipment problems at two bakeries. The shortfall could last through mid-2010." So the solution? The article says "Remaining inventory will be rationed to stores across the country "based on historical percentage of business.""

Why not let the price rise? That way there won't be lines of people waiting to get them or people calling the stores or the stores having to establish waiting lists. Are stores going to set limits on how many you can buy? What if you are the first person in the store, are they going stop you from buying all that is there?

Three years ago strange things happened when Play Station 3 came out. Instead of charging a higher price at first, it was at the normal price. So there were long lines and certain people got first dibs. You will be surprised who. Read about that at this link.

Late Breaking News Bulletin: The depression is over! We're out of the red!

So said an enthusiastic character in the 1934 movie Stand Up and Cheer!. Here is the video clip of the man getting worked up about how everything has turned around. The text is below the clip in case the sound is not good enough.



Here is a link to the video file: We're out of the red!

Mr. Cromwell, I've got great news for you.
The depression is over.
Over, do you realize that.
Factories are opening up.
Men are going back to work by the thousands.
Our farm products are being sold the world over.
Savings accounts are heaping up.
The banks are pouring out new loans.
There is no unemployment.
Fear has been banished.
Confidence reborn.
Poverty has been wiped out.
Laughter resounds throughout the nation.
The people are happy again.
We're out of the red.

Here is the movie's IMBD synopsis: "President Franklin Roosevelt appoints a theatrical producer as the new Secretary of Amusement in order to cheer up an American public still suffering through the Depression. The new secretary soon runs afoul of political lobbyists out to destroy his department." I guess they were trying to make people feel better. Unemployment was 25% in 1933. This was one of the first big roles for Shirley Temple.

Get out of here and get me some money too

That is a line from a song that Peggy Lee (1920-2002) is well known for singing. Below is a video of her singing it with Benny Goodman (1909-86) and his orchestra. KRTU played it on the radio this morning and I have been meaning to post this for awhile. The lyrics are printed below the video.



The video is online at Peggy Lee - Why Don't You Do Right (1943). Here are the lyrics which I got at Why Don't You Do Right.

Why Don't You Do Right

You had plenty money, 1922
You let other women make a fool of you
Why don't you do right, like some other men do?
Get out of here and get me some money too

You're sittin' there and wonderin' what it's all about
You ain't got no money, they will put you out
Why don't you do right, like some other men do?
Get out of here and get me some money too

If you had prepared twenty years ago
You wouldn't be a-wanderin' from door to door
Why don't you do right, like some other men do?
Get out of here and get me some money too

I fell for your jivin' and I took you in
Now all you got to offer me's a drink of gin
Why don't you do right, like some other men do?
Get out of here and get me some money too
Why don't you do right, like some other men do?
Like some other men do

For People Who Still Have Jobs, Women's Wages Have Risen Faster Than Men's During The Recession

This was reported in a Wall Street Journal article called Women's Wages Outpaced Men's During Recession. The increase in median wages for women was 3.2% while it was 2.0% for men. The article gives a pretty thorough run down on how various demographic groups have done during the recession. Men now have an 11% unemployment rate while women have 8.4%.

Being Happy Might Hurt Your Bottom Line

This came up in two articles recently. The first is Don’t Worry, Be Happy: The Warranty Psychology. The article suggests that people are very happy when they make a big purchase like a refrigerator. So they are willing to pay alot for an extended warranty, especially if they got a discount on the product. But the price of the warranty is often too high. If a product has a 10% chance of failure, you don't want to pay more than 10% of the product price for the warranty. But people often do. To avoid this, the article concludes with "The lesson is simple: Stay grouchy while shopping."

The other article is Sadder But Wiser. It discusses research by Joseph Forgas, a professor of psychology at Australia's University. The article says "Sometimes, he finds, it pays to be sad." Also, " a bad attitude makes us more critical of what we are told and less easily duped."

Here is more:

"Not only can a mild malaise keep us from being bamboozled, but we are more perceptive and have sharper, more accurate recall when we're down in the dumps. The professor tested people on their ability to remember items viewed on a cluttered table. On a dreary, drizzly day, people "had better eyewitness memory for what they saw" than those tested "on a bright, sunny day.""

"The Icelandic mood may have been knocked down a peg or two by the collapse of the country's economy, but that may not be such a bad thing. Could it be that Iceland's positive disposition is what got it into such a mess in the first place? If a dour mood dispels credulity, then where better to peddle monumental scams than in a nation awash in good feelings?"

"The method-acting crowd long ago perfected the technique of dredging up memories of life's awful moments to produce compelling stage tears. A similar technique could have business applications. A maudlin and well-timed musing on the death of your childhood dog could save the company millions.

On the flip side, a salesman looking to close a deal should do his best to induce a warm wave of good feelings. Remember, a happy customer is a rather less critical customer. The customer may want to adopt a crotchety counter-strategy akin to the old saw about not going grocery shopping when hungry: Don't do any sort of shopping when you're cheery."

One more thing. Don't have a nice day.

Sports, Economics and Politics Collide When Government Officials Get World Series Tickets

The article is Lawmakers Score Ticket Deal: Baseball Sells Officials Scarce World Series Seats at Face Value, Far Below Going Rate. Why would teams give up profit? My guess is that something else is in the offer, something only politicians can trade. Here is the intro to the article:

"Tickets for Wednesday's World Series game are nearly impossible to come by at face value. But that isn't the case if you are a member of Congress or one of their aides.

Federal lawmakers and people who work for them have gotten their hands on scores of tickets to the sold-out World Series games this year between the New York Yankees and Philadelphia Phillies courtesy of a perk not available to the public.

Major League Baseball and the teams sell a limited number of prime seats to lawmakers and congressional aides at face value, often hundreds of dollars less than the going rate.

The league has sold about 75 World Series tickets to a total of 15 lawmakers or aides in the past week, according to Pat Courtney, a spokesman for Major League Baseball. Mr. Courtney declined to identify which lawmakers and aides sought the tickets.

Because the recipients pay for the tickets, the offer complies with ethics rules for Congress and the executive branch. The arrangement, however, highlights what some ethics watchdogs say is a loophole in recently tightened congressional ethics rules, which ban officials from receiving just about any gifts.

"Anytime you have access to something that regular people don't have, it should be considered a gift," said Melanie Sloan, executive director of the nonpartisan Citizens for Responsibility and Ethics in Washington. "Regular people can't call the Major League Baseball office and get tickets.""

Want Your Neighbors To Know How Much You Made Last Year And Your Net Worth? Move To Norway

Every year the govenment publishes the "skatteliste" or "tax list" "to uphold the country's tradition of transparency." Some people say that this is the way democracy is supposed to work. But not everyone agrees. For example

"Besides providing criminals with a useful tool to find prime targets, he said the list generates playground taunts of my-dad-is-richer-than-your-dad.

"The children of people with low wages are being teased about it in the schools," Stordrange said Thursday. "People with low salaries are being met with comments at the grocery store, 'How can you live on these low wages?'""

The article is Lutefisk and loot: Tax records open in Norway

Some Women Actually Want Polygamy Legalized

The reasons seem to be mainly economic. It was in a
New York Times article. It was an actually an exerpt of another, longer article (link below). Here is what the Times article said:

"Women in Siberia are lobbying to legalize polygamy, a Cambridge University anthropologist reports in The Guardian in London. The critical issue is demography. Population is falling and there are fewer men than women. Caroline Humphrey, the anthropologist, said: “Women say that the legalization of polygamy would be a godsend: it would give them rights to a man’s financial and physical support, legitimacy for their children, and rights to state benefits.” Meanwhile, some Russian nationalists claim that introducing polygamy in the country would provide husbands for “10 million lonely women” and fill Mother Russia’s cradles."

The more in depth article, which discusses research by an anthropologist is 'Half a good man is better than none at all: 'A study of polygamy in Russia suggests we have a lot to learn about how to beat the recession.

Structural Unemployment In The News

In my principles of macroeconomics courses and my survey of economics course we have covered the different types of unemployment. They are seasonal, structural, frictional and cyclical. One of the articles is called Even as layoffs persist, some good jobs go begging. Here is the intro:

"In a brutal job market, here's a task that might sound easy: Fill jobs in nursing, engineering and energy research that pay $55,000 to $60,000, plus benefits.

Yet even with 15 million people hunting for work, even with the unemployment rate nearing 10 percent, some employers can't find enough qualified people for good-paying career jobs.

Ask Steve Jones, a hospital recruiter in Indianapolis who's struggling to find qualified nurses, pharmacists and MRI technicians. Or Ed Baker, who's looking to hire at a U.S. Energy Department research lab in Richland, Wash., for $60,000 each.

Economists say the main problem is a mismatch between available work and people qualified to do it. Millions of jobs with attractive pay and benefits that once drew legions of workers to the auto industry, construction, Wall Street and other sectors are gone, probably for good. And those who lost those jobs generally lack the right experience for new positions popping up in health care, energy and engineering."

The "mismatch between available work and people qualified to do it" sounds very much like how I define structural unemployment in class. This article uses one of the kinds of structural unemployment I discuss in class, when there is a fall in demand for the good or service you help produce. That is what many people face.

Another kind of structural unemployment is when you are replaced by a machine or technology. There is a computer program called "Stats Monkey" that will write a story about a baseball game when it is fed the stats from the boxscore and the complete play-by-play of the game. You can read about it at The Robots Are Coming! Oh, They’re Here. So it looks like some sports writers will be losing their jobs. This is okay as long as computer programs can't write blog entries:)