Why It Is Hard To Use Cost-Benefit Analysis

In my classes last week and this upcoming week, one of the topics is how government policy affects markets. We would like to see the benefits from a policy be greater than the cotss. Sometimes it is very hard to tell. This comes up in a recent EPA policy as reported on in the Wall Street Journal article EPA Proposes Tighter, Costlier Smog Limits. Here is the intro:

"The Obama administration on Thursday proposed tougher standards for reducing smog in a move it said would save lives and reduce respiratory illness, but businesses said the change would inflict new costs on employers and consumers in a weak economy."

Here is what the new policy will do:

"Under the proposal, the EPA would set the acceptable ozone level in the air between 0.06 and 0.07 parts per million, stricter than the current 0.075 ppm."

What are the costs?

"The EPA estimated that the costs of complying with the new standards could range between $19 billion and $90 billion annually, depending on the final standard. Much of the cost will be in the form of new technologies."

What are the benefits?

"EPA officials and public-health groups claim the new standards would mean fewer visits to the emergency room for children with asthma, and longer lives for people with chronic lung disease -- saving the U.S. $13 billion to $100 billion annually."

So the cost could be as high as $90 billion while the benefits could be as low as $13 billion. There is such a huge range as to what might happen with the costs and benefits. That makes it hard to know if it is a good idea.

A couple of years ago I posted the following:

"Last week in the San Antonio Express-News, Michael E. Kraft, professor of environmental sciences at the Unviersity of Wisconsin-Green Bay, said that "in writing the Clean Air Act, Congress explicitly instructed the agency (EPA) to base its decisions on public health and not economic costs.""

So if we don't base anything on cost, how do we know if the policy is a good idea?

Is Avatar Really King Of The Box Office?

That is the title of an article you can read by clicking on Is Avatar Really King Of The Box Office?.

There is a website called "Box Office Mojo" that adjusts box office revenue for ticket price inflation. You can see their rankings at Box Office Mojo ALL TIME BOX OFFICE. "Gone With The Wind" is still the #1 movie all-time when you take the change in ticket prices into account. When GWTW first came out in 1939, prices were alot lower. The average ticket price was only $0.23. Now it is $7.46. You can read about how they make the adjustments and what prices were in the past at Box Office Mojo: ADJUSTING FOR TICKET PRICE INFLATION.

So the average ticket price is 32.44 times higher than in 1939 (7.46/.23 = 32.44). This actually far outstrips the overall increase in prices. The Consumer Price Index (CPI) was 13.9 in 1939 and it was 214.54 in 2009. So prices across the economy are 15.4 times higher (214.54/13.9 = 15.4). So movie prices have increased at about twice the rate of overall prices.

So we might want to cut GWTW's adjusted box office total of $1,507,252,900 in half. That would leave it a mere $753,626,450. That is still higher than Avatar's $561,317,300 (which only includes U.S. ticket sales but I assume the same is true for GWTW). But GWTW was making money for a long time after 1939, so some of its later box office revenue would have be adjusted downward as ticket prices rose. I just don't know how much of its revenue or ticket sales came early on. My guess is the vast majority. That is usually what happens with movies. They make most of their money early on.

But MOJO says:

"Some movies have been released several times over the decades, and we do account for this. For example, Snow White was released in 1937, but half of its lifetime gross is from re-releases in the 80s and 90s, so each of these releases is adjusted according to the year it earned its money."

So that makes me think that GWTW is still the leader.

Update (1-30-2010): Carl Bialick has an article about this in the Wall Street Journal called What It Takes for a Movie to Be No. 1.

Should People Be Allowed To Sell Their Kidneys And Other Organs?

This came up in one of my classes this week when we discussed a chapter from the book The Economics Of Public Issues. Alex Tabarrok had a good article on this in the 1-9/10-2010 edition of the WSJ, p. W1. It was called The Meat Market. Here are some interesting exerpts:

"Iran has eliminated waiting lists for kidneys entirely by paying its citizens to donate."

"Millions of people suffer from kidney disease, but in 2007 there were just 64,606 kidney-transplant operations in the entire world. In the U.S. alone, 83,000 people wait on the official kidney-transplant list. But just 16,500 people received a kidney transplant in 2008, while almost 5,000 died waiting for one."

"To combat yet another shortfall, some American doctors are routinely removing pieces of tissue from deceased patients for transplant without their, or their families', prior consent. And the practice is perfectly legal."

"The shortage of organs has increased the use of so-called expanded-criteria organs, or organs that used to be considered unsuitable for transplant. Kidneys donated from people over the age of 60 or from people who had various medical problems are more likely to fail than organs from younger, healthier donors, but they are now being used under the pressure."

"Already, the black market may account for 5% to 10% of transplants world-wide."

"Only one country, Iran, has eliminated the shortage of transplant organs—and only Iran has a working and legal payment system for organ donation." (although the payment system works mainly through the government)

"The Iranian system and the black market demonstrate one important fact: The organ shortage can be solved by paying living donors. The Iranian system began in 1988 and eliminated the shortage of kidneys by 1999. Writing in the Journal of Economic Perspectives in 2007, Nobel Laureate economist Gary Becker and Julio Elias estimated that a payment of $15,000 for living donors would alleviate the shortage of kidneys in the U.S. Payment could be made by the federal government to avoid any hint of inequality in kidney allocation. Moreover, this proposal would save the government money since even with a significant payment, transplant is cheaper than the dialysis that is now paid for by Medicare's End Stage Renal Disease program."

Is It Hard For A Successful, Well Educated Women To Find Mr. Right?

This question was raised in a recent Wall Street Journal article called The Right Man Is Getting Harder to Find. It seems like there are just not enough well educated, high income men around. One woman, who is a telecommunications project manager, said "I've found a lot of Mr. Almosts, but I can't find Mr. Right." Here is what happens when she meets a guy:

"When she brings men back to her very nice, four-bedroom home, they often comment about her success. A few flat-out say they're uncomfortable with her salary advantage, education advantage (master's degree), or both."

Here are some interesting facts mentioned in the article:

-There's been a 145% rise in unmarried births among college-educated women since 1980more than twice the increase in such births among women without college educations.

-22% of men with "some college" are now outearned by their wives, up from 4% in 1970.

-In situations where there are fewer women than men, you see long-term monogamy

-nearly 58% of all bachelor's degrees and 62% of associate's degrees are earned by women. (men take advantage of this situation)

-colleges accept some male applicants who are not really qualified to prevent a gender imbalance. (college men seem to take advantage of this situation and like having all those women around)

-80% of the jobs lost in the recession were held by men.

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.

Paul Krugman recently 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.

Economists Love Fables And Parables (Or, The Essence Of Economic Analysis)

Nobel Prize winning economist Paul Krugman wrote the following in Slate magazine back in the 1990s:

“Economic theory is not a collection of dictums laid down by pompous authority figures. Mainly, it is a menagerie of thought experiments--parables, if you like--that are intended to capture the logic of economic processes in a simplified way. In the end, of course, ideas must be tested against the facts. But even to know what facts are relevant, you must play with those ideas in hypothetical settings.”

Here is the link to the article the quote is from: The Accidental Theorist. He has a brilliant example of how labor saving technology does not increase unemployment.

University of Rochester economist Steven Landsburg wrote the following in his book The Armchair Economist: Economics & Everyday Life:

“But as Aesop discovered some time ago, the details of reality can disguise essential truths that are best revealed through simple fictions. Aesop called them fables and economists call them models." (p. 34)

And

"Economists love fables. A fable need not be true or even realistic to have an important moral. No tortoise ever really raced against a hare, yet “Slow but steady wins the race” remains an insightful lesson.” (p. 40)

So when you see an economics professor draw PPFs on the board which show the tradeoff between houses and cars or when we draw supply and demand curves, we know that these are "simple fictions." But, by assuming, for example, that there is a society that makes only two goods and has one resource (labor, say), we can learn something important, like the The Law of Increasing Opportunity Cost.

Should We Tax Cosmetic Surgery To Help Pay For Health Care Insurance?

This the question raised in Knives Drawn Over the 'Botax'. The article says:

"Leading makers of antiwrinkle drugs, breast implants and other appearance-related products are trying to derail a proposed tax on elective cosmetic surgery in the Senate's health-overhaul bill.

The proposed 5% levy -- dubbed the "Botax" after the antiwrinkle treatment product Botox -- would raise an estimated $5.8 billion over 10 years."

Some are opposed to it, including plastic surgeons and "companies in aesthetic treatments."

"Botox treatments are by far the most popular procedure, costing an average of $443 in 2008, according to the American Society for Aesthetic Plastic Surgery. The American Medical Association, which also opposes the tax, says it would be the first federal levy on a medical procedure."

Universities Favor Athletes In Admissions

Read Admissions exemptions aide athletes By ALAN SCHER ZAGIER. I saw the article in the 12-31-09 San Antonio Express-News, page 2E.

"The review identified at least 27 schools where athletes were at least 10 times more likely to benefit from special admission programs than students in the general population."

"At Alabama, 19 football players got in as part of a special admissions program from 2004 to 2006, the most recent years available in the NCAA report. The school tightened its standards for "special admits" in both 2004 and 2007, but from 2004 through 2006, Crimson Tide athletes were still more than 43 times more likely to benefit from such exemptions."

"The NCAA defines special admissions programs as those designed for students who don't meet "standard or normal entrance requirements.""

"Texas was one of seven schools that reported no use of special admissions, instead describing "holistic" standards that consider each applicant individually rather than relying on minimum test scores and grade-point averages.

But the school also acknowledged in its NCAA report that athletic recruits overall are less prepared. At Texas, the average SAT score for a freshman football player from 2003 to 2005 was 945 — or 320 points lower than the typical first-year student's score on the entrance exam."

How Recessions Affect Young People

It is too early in the semester to have talked about recessions. But there was an interesting article called Recession may shape young adults' future habits. Here are some exerpts:

Researchers found "...young people who live through recessions tend to doubt their control over their careers. Unlike people who have lived through sweeter economic circumstances, the youth of recessions tend to look at career success as luck rather than a result of personal action."

"Beyond family pressures, unemployment among 16-to-19-year-olds is at an extraordinarily high level of more than 26 percent. Students finishing college face difficult job prospects, with hiring of this year's graduates down 22 percent, according to the National Association of Colleges and Employers."

[when] "...individuals have had low stock market returns for many years, they don't want to take risks in stocks. And bad experiences with stocks early in life "have significant influence even several decades later."

"...Americans aged 22 years to 33 years have shifted toward more conservative financial behavior too. It's influencing everything from investing to job choices: More are seeking job security and strong benefits rather than opting to jump from job to job to further their careers."

Another article, Birth date, business cycles, and lifetime income says:

"...a one percentage point increase in the national unemployment rate is associated with a 6 to 7 percent loss in initial wages. The annual wage loss declines over time, but is still statistically significant 15 years later. Comparing the wages earned by the class of 1982 (a peak unemployment year) with the wages of the class of 1988 (a peak employment year) over the first 20 years of a career, the wage difference resulted in a difference of nearly $100,000 in cumulative earnings in net present value."

Why Do Older People Hate The Imaginarium of Doctor Parnassus?

This is a recently released movie which you can read about at IMDB The Imaginarium of Doctor Parnassus. In economics, we say that tastes and preferences affect demand, but we usually don't talk much about how those tastes or preferences are formed. But at IMDB, people can rate a movie on a scale from 1 to 10. Then you can view the breakdown on how the movie was rated by age and gender categories. And then you can see the breakdown for a given group, like females aged 45+. You can see how many of them gave the movie a 1 or 2, etc. 10 is the best, 1 is the worst. Here is something I just posted at IMDB to get a discussion going about a strange pattern I see in the rankings:

I have not seen this movie. What seems weird is that 102 females age 45+ have voted yet they give it a 3.7? (the overall average is 7.4). Males that age don't rate it very higly either. Why? Why would old people not like this? I look at movie ratings at IMDB occassionally and I don't recall seeing such a huge young/old split before. Please tell me about other movies where this happens. Also, 41 of the Females Aged 45+ gave this movie a 10 while 27 have given it a 1. They either loved it or hated it? I don't see any of the other demographic groups with such a love/hate viewpoint. Seems very strange.

Here is the breakdown as of 1-10-2009

http://www.imdb.com/title/tt1054606/ratings

See user ratings report for:

Votes Average
Males 5,190 7.4 (this means that 5,190 males have voted and the average ranking is 7.4)
Females 1,503 7.2
Aged under 18 400 8.3
Males under 18 228 8.9
Females under 18 171 7.0
Aged 18-29 4,556 7.7
Males Aged 18-29 3,557 7.7
Females Aged 18-29 987 7.9
Aged 30-44 1,357 7.0
Males Aged 30-44 1,118 7.0
Females Aged 30-44 231 6.4
Aged 45+ 368 5.5
Males Aged 45+ 265 5.9
Females Aged 45+ 102 3.7
Top 1000 voters 87 6.3
US users 902 6.8
Non-US users 5,798 7.5

IMDb users 6,993 7.4

http://www.imdb.com/title/tt1054606/ratings-female_age_4

102 Females Aged 45+ have given a weighted average vote of 3.7 / 10

Demographic breakdowns are shown below.

Votes Percentage Rating
41 40.2% 10
9 8.8% 9
15 14.7% 8
6 5.9% 7
3 2.9% 6
5
1 1.0% 4
3
2
27 26.5% 1

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.