The Federal Government Favors Some States Over Others

The Federal government spends $10,548 on each person in the United States. See Federal spending up record 16% amid recession. "The biggest chunk of funds went to Medicare, Medicaid and Social Security, entitlement programs that are projected to consume ever larger portions of the federal budget as the population ages."

But the rate per person varies quite a bit across the states. Here are the highest and lowest:

Alaska $20,351
Virginia $19,734
Hawaii $19,001

Nevada $7,148
Utah $7,435
Georgia $8,538

The article did not explain or discuss why there are such big differences. But this other article from the Washington Post does, at least a little. It says:

"Virginia was pushed to the forefront of federal spending by the high number of defense contractors and service members living in the state. It saw $67 billion in military spending, a large chunk of the $155 billion the federal government spent in the state in 2009. Only California, New York and Florida got more money overall.

Much of the federal money went to private contractors. In Fairfax County, for instance, almost $40 billion of the $46 billion the federal government spent in the county went to contractors.

In Maryland, federal spending in fiscal 2009 rose 15 percent, to $92 billion. Maryland's ranking reflects in part a large number of residents who are federal employees. Montgomery County, for example, got $28 billion in federal funds, including $4.6 billion in salaries, almost $3 billion in retirement checks and $17.5 billion in government contracts for various vendors."

But I don't think that explains all of it.

Would You Go To A College That Gets A Grade Of D+?

And that is a grade that they gave themself! Their new ad has a big "D+" in it. See Great moments in collegiate marketing: Drake University’s ‘D+’ campaign. Here is an exerpt:

"If you were going to spend tens of thousands of dollars on a higher education, would you want the end result to be known as a "D+" education?

Probably not.

And therein lies the problem some have with Drake University's new marketing campaign.

Touting the ways it can help students "be transformed by an experience that puts opportunity into action and gives purpose to your passion," the Des Moines, Iowa-based school has elected to dub its added pedagogic value the "D+ Advantage" campaign. The tagline for the promo campaign: "Your passion + our experience."

The administration tried to justify it by saying:

"...the ad blitz [was] "edgy and intriguing" and the campaign "was designed to catch the attention of high school students who are bombarded with college and university materials to the point that they are often in information overload and unable to differentiate among the many institutions that have contacted them.""

There may be something to that. Information is costly to obtain and maybe many of the brochures and webstites that students look at end up looking pretty much the same. So how does a school get your attention? By having a very different kind of ad. But this might not have been the best way to go about it.

Decoding Airline Ticket Costs

Airline prices vary alot. The price if you fly from Boston to Long Beach, California is 6 cents per mile. If you fly from Boston to Philadelphia, it is $1.22 per mile. That seems incredible. But The Wall Street Journal article You Paid What for That Flight? It Can Cost More to Fly to Hartford Than Barcelona. What Airlines Consider in Setting Prices has an explanation. Here are some reasons:

"The price you pay for a ticket is driven by a number of variables: competition, types of passengers, the route and operating costs. But the biggest factor, by far, is whether discount airlines fly in a market. Low-cost carriers often set the price in markets because competitors feel compelled to match that price or risk losing customers and flying empty seats. And when they aren't there, big airlines behave radically differently when setting prices.

"It's the number of competitors and the quality of the competition," said airfare analyst and consultant Bob Harrell.

The kinds of travelers in a market heavily influence what prices airlines charge as well. If the route has lots of business travelers—like Hartford to Washington—then airlines set prices high knowing customers will be less sensitive to higher prices. If the route is populated by price-sensitive travelers —think Florida cities and Las Vegas—then airlines set prices low in order to fill up planes."

And

"And when there's not low-fare competition, prices soar. The most-expensive average domestic ticket in the first quarter was $786 for round-trip flights between San Francisco and Philadelphia, according to the DOT. That 2,521-mile route is dominated by United and US Airways, who are competitors but also partners in the Star Alliance. Fly to Boston from San Francisco—183 miles farther by air than Philadelphia—and you paid an average $296 less round-trip in the first quarter, according to DOT. The difference: JetBlue Airways has 17% of the San Francisco-Boston market, but none of the San Francisco-Philadelphia market.

High fixed costs do make short routes more expensive, per mile. But airport costs like terminal rents and landing fees and even the expense of buying or leasing jets, pale in comparison to the two biggest expenses at airlines: labor and fuel. Both go higher as flights get longer."

And

"High prices do catch the attention of low-priced competitors. In the first quarter this year, the most expensive market in the country, per mile, was Boston to Philadelphia, a US Airways-dominated route, where the average fare was a whopping $684. Southwest began serving that route in June.

And now? US Airways' highest coach fare is $281 round-trip—$400 less than its first-quarter average fare."

I like the part about high fixed costs. Suppose a plane costs $500 million. If it flys a 100 mile route, say 1,000 times, that is $5,000 per mile. If it flies a 1,000 mile route 1,000 times, that is $500 per mile. Of course, that is not the only cost. But it does make a difference.

Costs, Benefits And Environmentally Friendly Energy

In my first lecture, I usually define what we mean by "rational" in economics. It means "no one intentionally makes themself worse off." Or, a rational act is one where "the benefit is greater than the cost." Of course, the benefit is in the eye of the beholder. If you go to a Radiohead concert, it might bring you alot more benefit than it would bring me. And costs and benefits are not always known. But this is more or less what rational means.

So we should be rational in our energy use. That is where the article Green Energy: Why We're Still Not Using It comes in. Here is an exerpt:

"The total cost to research, build and operate new green energy plants combined with storage and transmission expenses is significantly higher than traditional coal burning plants. According to the U.S. Energy Information Administration, the average cost of solar power is almost four times as much as traditional coal burning electric generation. The costs are difficult to compare due to the widely disparate nature of individual technologies but the net result is that startup costs are steep."

[wind power]"...is still 50% more expensive than coal-powered electrical plants. Offshore turbines are almost twice as expensive."

There could be some environmental benefits that would change the accounting. Those were not esitmated in the article. But those would have to be very high to tilt the balance toward some of these alternative fuels.

Cuba Allows Some Market Reforms

See Cuba eases property laws, could open door to golf. In my classes this week, I went over some basics of economics, like the different economic systems, tradition, command and market. I said that there were not very many examples left of countries that used the command economy. North Korea and Cuba are two possibilities.

But now Cuba's government is loosening its grip on economic behavior. Here are the changes:

"Cuba has begun allowing foreign investors to lease government land for up to 99 years, a step toward a future that could be filled with golf courses ringed by luxury villas, beachfront timeshares and vacation homes for well-heeled tourists."

and

"A measure appearing the following day expanded self-employment, letting Cubans grow and sell small amounts of farm products out of their homes or special kiosks."

These are only small steps, of course. But they are in the right direction.

The article also mentions:

"The law marks the first major expansion of self-employment since Castro said in an address to parliament Aug. 1 that his government would reduce state controls on small businesses and private enterprise — a big deal in a country where about 95 percent of people work for the state.

Cubans already sell fruit, pork, cheese and other items on the sides of highways across the country, fleeing whenever the police happen past. The new measure legalizes such practices by letting Cubans grow whatever they wish and sell it, while bolstering state coffers with new taxes on their earnings."

Update 8-29: Cuba is also no longer going to subsize cigarettes. See No Smoking: Cuba drops cigarettes from ration book. It says:

"A program that provided state-subsidized smokes to Cuban seniors is headed for the ash heap.

The communist government announced Wednesday it is cutting cigarettes from its monthly ration books effective Sept. 1, the latest in a series of small steps toward fully eliminating subsidies for food and other basic items that impoverished islanders depend on.

Cubans 55 and older had been eligible to receive three packs of "strong" cigarettes and a pack of milds -- 80 cigarettes altogether per month -- for 6.50 pesos, or the equivalent of about 30 cents, using their ration books at state-run distribution centers.

The island's lowest-quality cigarettes, the only kinds subsidized, normally cost 7 pesos, or about 33 cents, per pack, while imported or topflight domestic brands can go for $3 or more apiece.

Until the 1990s, all Cubans 18 and older received a monthly allotment of cigarettes, but the loss of billions of dollars in annual subsidies from the collapsed Soviet Union forced officials to scale back subsidized smoking. Now even older smokers are out of luck."

Frugal Is The New Sexy

Well, okay, maybe it isn't. But how do you make being careful and responsible with your money into an exciting, if not sexy, personality trait? The article How to Be Frugal and Still Be Asked on Dates discusses the issue. The article opens with:

"Saving may be making a comeback, but it still hasn’t gotten its sexy back, particularly if you’re a man.

Earlier this month, the Commerce Department reported that the personal savings rate in June was a much-improved 6.4 percent and that the number had risen as high as 8.2 percent in the depths of the stock market doldrums in the spring of 2009.

Those who are single may not have been rewarded for their parsimony, though. Now comes some survey data from ING Direct, the people who would like you to save more money in their online savings accounts. In June, the company asked 1,000 people which words would come to mind if someone was fixing them up on a blind date with someone described as frugal.

Just 3.7 percent answered “sexy,” while 15 percent picked “boring” and 27 percent chose “stingy.”"

So the cheapskates among us have their work cut out. But the most interesting thing to me was what went into newspaper personal ads way back in 1860. Here is what one ad says:

"“A young lady, rather good looking, and of good address, desires the acquaintance of a gentleman of wealth (none other need apply), with a view to matrimony.”"

Here is an ad from a man in 1860:

"“The advertiser, a successful young business man of good education, polite manners and agreeable address, having recently amassed a fortune and safely invested the same, wishes to meet with a young lady or widow.""

Do men still need to be wealthy today to meet that special woman? Does more money help? If you are not willing to spend alot on your girl friend hurt a guy?

There is actually a blog about how to save money shopping called Frugal Is The New Sexy!

Then there was this funny cartoon from the Wall Street Journal. It was originally at Pepper...and Salt.

Interesting New Journal: Religion, Brain & Behavior

It looks like it will start next year. You can read about it at Religion, Brain & Behavior. It will be very interdisciplinary. Here are the aims and scope:

"The aim of Religion, Brain & Behavior (RBB) is to provide a vehicle for the advancement of current biological approaches to understanding religion at every level from brain to behavior. RBB unites multiple disciplinary perspectives that share these interests. The journal seeks empirical and theoretical studies that reflect rigorous scientific standards and a sophisticated appreciation of the academic study of religion. RBB welcomes contributions from a wide array of biological and related disciplines, including cognitive science, cognitive neuroscience, evolutionary psychology, social psychology, evolutionary anthropology, social neuroscience, neurology, genetics, demography, bioeconomics, neuroeconomics, physiology, developmental psychology, psychology of religion, moral psychology, archaeology, mimetics, behavioral ecology, epidemiology, public health, cultural evolution, and religious studies. In summary, RBB considers high quality papers in any aspect of the brain-behavior nexus related to religion.

RBB publishes high quality research articles and target articles with about ten solicited commentaries and an author response. Issues are published three times during 2011, and four times annually from 2012 onwards."

It will be published by Institute for the Biocultural Study of Religion. There vision is:

"The leadership of the Institute for the Biocultural Study of Religion (IBCSR) has an immodest vision for transforming current and future religion-science interactions, a transformation powered by the clarity of its ideas and the quality of its research. Our ultimate aim is to contribute to a revolution in the cultural understanding of religion through rigorous research-based knowledge of its nature and functions in individuals and groups."

I heard about this from anthropoligist Richard Sosis. You can read about some of his incredible research in the fascinating NY Times article called Darwin’s God.

Adam Smith vs. Muhammad Yunus

In 2006, economist Muhammad Yunus won the Nobel peace prize (not the economics prize). What did he do? "He invented microcredit, the practice of lending tiny amounts of money to the poor." That is from a NY Times review of a new book by Yunus. To read the review, go to Microcredit? To Him, It’s Only a Start. In this book, Yunus proposes some ideas that seem to conflict with Adam Smith. I post some exerpts on this below, but first something about microcredit from the article:

"It was a revolutionary idea. Until then, bankers figured that such borrowers were worthy of neither credit nor trust. Along came Dr. Yunus, who demonstrated that lending to the needy could be a profitable business and transform their lives. Indeed, many of Grameen’s clients used these small sums to start small businesses and to escape the clutches of poverty."

The people who get the loans work together and make sure that they all work hard and pay back their loans. The loans are often very small, like just enough for a woman to buy a sewing machine so she can make clothes or become a seamstress.

But what does he say that might conflict with Adam Smith?

"...he calls for creation of an alternative economy of businesses devoted to helping the underprivileged."

"...they would invest leftover money in expanding their humanitarian efforts rather than paying dividends to shareholders."

"People “will be delighted to create businesses for selfless purposes,” Dr. Yunus predicts. “The only thing we’ll have to do is to free them from the mind-set that puts profit-making at the heart of every business, an idea that we imposed on them through our flawed economic theory.”"

"“You don’t need to know ‘how to do business,’ ” he writes a bit too facilely. “Much more important is your desire to solve a social problem."

In his book The Wealth of Nations, Adam Smith wrote about how self-interested people were led by the "invisible hand" to make society better off:

"But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the publick good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

From the Online Library of Liberty.

So Yunus is suggesting that people start businesses to intentionally try to help society while Adam Smith thought society benefited more if people pursued their own self-interest.

Of course, Smith is more complex than this. Adam Smith's "other" book was called The Theory of Moral Sentiments. One point he made there was that we are able to sympathize with other people by trying imagine what they are going through. I wrote about that in a post last year called Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of)

The Economy Affects The Birth Rate

Our discipline assumes that economic factors influence behavior. Here is a good example. Read Older Moms' Births Still Up in U.S. Here is an exerpt:

"The new report on births was issued Tuesday by the Centers for Disease Control and Prevention. It's based on a review of more than 99 percent of birth certificates for the year 2008 — the first full year of the recession. Overall, about 4.2 million babies were born that year, a 2 percent drop from 2007. It's the first annual decline in births since the start of the decade.

Experts say the most likely explanations are the recession and a decline in immigration to the United States, which has been blamed on the weak job market.

Some early birth information for the first six months of 2009 indicates a continuing decline of about 3 percent in total births, CDC officials said."

But

"The one exception to the trend was the birth rate among women in their 40s, who perhaps felt they didn't have the luxury of waiting for better economic times.

The birth rate for women in their early 40s rose a surprising 4 percent over the previous year, reaching its highest mark since 1967. The rate for women in their late 40s also rose, slightly."

Are Speculators Heroes?

Maybe. This past week in my macro courses I talked about the money demand motives. One of them is the speculative motive, so I explained what a speculator is. Very often speculators are maligned. But sometimes they perform a valuable service by figuring out a resource will be more scarce in the future and then bidding up the price of that resource today. That sends a signal to markets that we all need to economize on that resource or try to provide more of it. That doesn't mean that everyhting speculators do has a good result, just that it can.

It was said that speculators are heroes in the NY Times article titled Those Wall Street Gamblers Might Not Be Bad After All. From the 3-21-10 edition, p. WK 5. It was by NELSON D. SCHWARTZ. Exerpts:

"“If there are heroes in the financial system, these are the heroes,” said Frank Partnoy, a professor of law and finance at the University of San Diego. “They’re the people who bet against Enron, who bet against Lehman and warned it was insolvent.”

It’s not just academics who are coming to the defense of speculators. Earlier this month, BaFin, the regulatory agency that oversees financial markets in Germany, concluded that speculators weren’t behind Greece’s problems. A more likely cause was that investors were simply wary of lending the Greek government any more money following years of heavy borrowing and widening budget deficits."

"“Every time the market goes down, they blame short-sellers and speculators,” said Jim Chanos, a famous short-seller who manages more than $6 billion and was among the earliest voices to warn about Enron as well as the credit crisis. But his trades aren’t gambles at all. “We do as much fundamental research as anybody,” he said.

If that’s the case, speculators are far from being a plague on the markets. Instead, they help reduce risk by taking on the other side of popular trades, resisting the herd mentality that creates bubbles in the first place."

"The speculator “loves freedom, detests cant and abhors restrictions,” Edward Chancellor wrote in his 1999 book, “Devil Take the Hindmost: A History of Financial Speculation.”

According to Mr. Chancellor, a financial strategist in Boston, speculators aren’t motivated by greed, after all. Instead, idealism fuels their trades.

“The essence of speculation remains a utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its inevitable inequalities of wealth,” he argued in his book."

"Victor Niederhoffer, a legendary hedge fund manager and self-described speculator..." said “But when my daughters ask me if my job is as important as the butcher’s, the doctor’s or the scientist’s, I answer that the speculator is a hero, and has been throughout history.”"

My New York Times Letter

You can read it at A Consumption Tax, Revisited. It also contains a link to the article that my letter addressed. What got printed in the paper on Sunday was cut down from what I actually sent. Here is my originla letter:

"On balance, Robert Frank’s proposal for a consumption tax on high income families may be a good idea (“Hey, Big Spender: You Need a Surtax,” March 21). But there may be some potential downsides that we should keep in mind. He suggests that reduced future consumption spending (as a result of the tax) won’t cause a fall in total spending in the economy because investment spending will rise to pick up the slack. But if businesses know that consumers will be cutting back, they have less of an incentive to build new plant and equipment. There will also be reduced incentives for people to earn, since, if they cross the threshold, they will start paying these consumption taxes (which are also progressive, exacerbating the problem). The rich might turn, as they often do, to smart lawyers and accountants to help them hide their income. This would waste talent in our economy. Finally, a luxury surtax in the early 1990s failed to generate the expected revenue while at the same time causing layoffs for workers."

Why Are Some Private Colleges And Universities So Expensive?

It seems that they have something everyone wants: prestige. Who wouldn't want to go to Harvard or Yale, for example? And then these schools seem to know what everyone is willing to pay and then they charge it. This is all explained in the WSJ article Why Top Colleges Squeeze You Dry by ANDREW MANSHEL. Here is an exerpt:

"I learned that the most prestigious and desirable institutions have a good deal of information about the shape of the demand curve for the families seeking to obtain elite higher education for their offspring. These schools have the capacity to estimate with some precision how many applicants will go elsewhere for each additional dollar they charge in tuition and fees. Each sets its tuition so as to produce a targeted "yield"—the percentage of accepted students who actually enroll there. If in any year we over- or under-estimated the price changes made by the other schools, and we had moved up or down in rank, we corrected the following year by raising or lowering tuition by more or less to compensate. We essentially followed the price leadership of the wealthiest, most prestigious institutions."

There is some financial aid. But that amounts to basically charging different students different prices based on their ability and willingess to pay. Economists call this price discrimination.

Why price discrimination raises profits

1. If a firm can get a higher price from some customers than others they increase their profits.
2. If a firm can lower the price for others who might not have bought the product to begin with, they also increase their profits.

Necessary Conditions for Price Discrimination

1. The firm must face a downward sloping demand. Monopolies do but firms in perfect competition do not (their demand, also their MR line, is flat).

2. The firm must be able to readily (and cheaply) identify buyers or groups of buyers with predictably different elasticities of demand (senior citizens have a more elastic demand and will shop around more since they have more time so restaurants might give them a discount).

3. The firm must be able to prevent resale of the product or service. If a student can buy a movie ticket for $6 while everyone else pays $8, the firm will lose money if the students turn around and sell their tickets for $7. So the theater can prevent resale by checking student IDs to make sure people holding the lower price ticket really are students.

What do the schools do with all the money they get? It mainly goes to the faculty and administrators. 60%-75% goes to salaries and benefits. Schools also spend alot of money on "...the "arms race," the constant effort to refurbish and build new physical facilities."

Does Everyone Pay Taxes?

No, not exactly. Everyone pays some kind of taxes, but many people don't pay any federal income taxes. See Nearly half of US households escape fed income tax: Recession, new tax credits have nearly half of US households paying no federal income tax. It is possible that "...a family of four making as much as $50,000 will owe no federal income tax for 2009..." Also, "...the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government."

And

"The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment."

How does the family of four making $50,000 eliminate their income tax liability?

"The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15."

Economy's Excess Capacity Keeps Inflation Low

See the WSJ article titled Economy's Excess Capacity Reins In Prices: Latest Data Give Fed Room to Maintain Rock-Bottom Interest Rates; Initial Jobless Claims Decline for Third Straight Week. Here are the first three paragraphs:

"The vast economic slack left over from the recession continues to keep inflation in check, leaving companies and workers with little leeway to ask for price or wage increases.

Consumer prices were flat in February—and even with volatile food and energy removed from the equation, the needle barely moved: Prices ticked up a scant 0.1%, the Labor Department said Thursday. Over the past year, prices have increased 2.1%, or 1.3% omitting food and energy, the smallest rise in six years.

Behind these numbers stands a huge excess—of workers, factory space and homes. Until more of the nation's productive capacity comes into use and starts pulling workers off the unemployment line, the sellers of everything from golf clubs to paving machines have little ability to raise prices. The problem is exacerbated by continued tightness in credit, which makes it harder to rev up economic growth through bank lending to soak up the economy's lingering slack."

We can see how this works in the following graph:



A GDP of $9 trillion is the "full-employment" GDP (QF). That gives us the lowest rate of unemployment compatible with "price stability" (price stability is an an annual inflation rate of 3% or less). As GDP increases, more workers are hired, so unemployment falls. But if GDP is below QF, firms cannot raise prices, as the article states. There is slack or "excess capacity" in the economy. That means that there will be very little pressure on prices. Resources are not very scarce and product prices don't have to be increased (or increased very much) to call them back into service.

But as GDP increases, resources become more scarce as more bidders want them. The more GDP increases, the faster prices increase. Also, less efficient resources get called into service and less efficiency means greater cost. The higher costs get passed along to the consumer in higher prices. But the graph and the article suggest that as GDP increases and the unemployment rate falls, we will not see much inflation soon.

Also, interest rates won't have to be increased since there is little danger of AD going past QF. Sometimes the FED will raise interest rates to slow down private spending (both consumption and investment) to keep AD from moving too far to the right. But the article suggests that this will not happen.

Has The Recession Been Hard On College Graduates?

Yes. But it has been hard on many people. This issue came up in a recent WSJ article titled College Grads' Outlook Grim: Students Begin the Search Early, Look to 'Plan-B' as Campus Recruitment Falls. Here some key exerpts:

"Companies have cut back hiring and when they do have jobs, they have plenty of experienced applicants to pick from. College graduates typically need further training and seasoning, so many employers are skipping college career fairs this year or tapping former interns if they need fresh talent."

"But there are some bright spots: The unemployment rate for people ages 20 to 24 with a bachelor's degree was 7.2% in March, down from 7.6% a year earlier and below the 21.9% jobless rate for those in the same age group with high-school degrees only.

Preliminary data from a spring poll of employers by the National Association of Colleges and Employers show college-graduate hiring could rise 3% to 5% this year after falling 22% last year."

"... business and technical majors are likely to see the most demand, particularly as Wall Street resumes hiring."

So it looks like things will be better this year than last year. Also, things are much worse for people without college degrees, as the above figures indicate. High-school only people had an unemployment rate nearly 3 times that of those with college degrees from ages 20-24. I looked at something similar a few months ago with How Recessions Affect Young People. One thing that post mentioned is that those who graduate during recessions see their lifetime incomes cut quite a bit.

Obama To Pitch For The White Sox

April first 2010 will go down in history. Click White Sox Sign Obama For Left-handed Bullpen Support to read all about it.

Women Make Trade-offs When Looking For A Man

There is no perfect man, a woman has to give up one quality if she wants more of another, just the kind of thing that economics would predict. That is one thing mentioned in the Wall Street Journal article Why Women Don't Want Macho Men: New research suggests that women from countries with healthier populations prefer more feminine-looking men. Here are some interesting exerpts:

"In countries where poor health is particularly a threat to survival, women leaned toward "manlier" men. That is, they preferred their males to have shorter, broader faces and stronger eyebrows, cheekbones and jaw lines."

"To a person unfamiliar with the field of evolutionary psychology, this may sound a little far-fetched. How is it even possible to link a woman's masculinity preferences to the health of her nation? The answer begins with the theory of sexual selection. It goes that women are the choosier sex because they take on most of the risk and burden of reproduction and child rearing."

"But what does health have to do with masculinity? The link is testosterone, the hormone behind manly muscles, strong jaws, prominent eyebrow ridges, facial hair and deep voices. Testosterone is immunosuppressive. This means a man must be healthy and in good condition to withstand its effects on his development. Testosterone is also linked to other traits related to strength: fitness, fertility and dominance."

"Masculinity, however, can come at a high price. Women often think of high-testosterone types as uncooperative, unsympathetic, philandering, aggressive and disinterested in parenting. In fact, there is evidence that they really do have more relationship problems than other men."

"...men with testosterone levels one standard deviation above the mean were 43% more likely to get divorced than men with normal levels, 31% more likely to leave home because of marital problems, 38% more likely to cheat on their wives, and 13% more likely to admit that they hit or hurled things at them."

"But if health comes at the expense of fidelity and good parenting, how much does masculinity really matter?

The apparent answer is not so much—if you're a woman living in a country with a decent health-care system and few harmful pathogens. While a masculine father's "good genes" may confer health advantages to children, so do good medical attention and a clean environment. In the Face Lab study, women with the weakest masculinity preferences tended to live in some of the healthiest countries."

"Women with the weakest masculinity preferences of all lived in Belgium, a country considered to have one of the best publicly funded health-care systems in Europe..."

"...women with the strongest masculinity preferences tended to hail from the countries with higher disease and mortality rates and some of the poorest scores on the health-care index..."

"...researchers found that a nation's health index explained more of the variation in women's masculinity preferences than did many culture-specific female norms..."

"Is it possible that modern medicine—and by extension modern life—inadvertently devalues masculinity?"

"As the social environment shifts, so may women's mate preferences. While Stone Age forces once wired women to associate strong cues of masculinity with their children's chance of survival, times are changing. The promise of improved health care in America could be one example of a shift.

Another is women's financial freedom. In 1970, women represented only 43.3% of women of the labor force, compared to 55.8% today. Moreover, the recession in America has been a tremendous blow to men in traditionally masculine jobs such as construction and manufacturing; 82% of job losses affect men."

" No longer as reliant on men's genes or jobs to ensure the health and wealth of their children, women may come to value other qualities in a mate. It may become evolutionarily adaptive to prefer men who are cooperative, communicative, caring and better parents over traditional "manly men.""

"...beautiful women (as determined by averaged ratings of eight teams of male and female interviewers) want it all in a partner: masculine, physically fit, loving, educated, desirous of home and children, a few years older than themselves and with a high income potential.

While exceptionally attractive (or wealthy) women may indeed capture this ideal male, most are forced by circumstance to settle for the best combination of traits. Some husband-seekers trade off masculinity for companionship and good parenting. Others forfeit compassion in exchange for wealth."

"To secretly have it all, some women adopt a "dual mating" strategy—marrying a solid, faithful guy and enjoying trysts with hunks. As a result, up to 10% of babies born in some populations have fathers who are presumed to be their biological dads but aren't."

"...as women's level of "resource control" increases—that is, they become more financially independent—their preference for good-looking men increases. So will it be considered progress if women start pursuing "metrosexuals"..."

Should We Pay People To Adopt A Healthy Lifestyle?

That is what a New York Times article called Carrots, Sticks and Lower Premiums suggests. The article says:

"...the one thing that could really reform health care is you, collectively speaking: People living healthier lives."

"The statistical evidence has been clear for years, but it bears repeating. Studies show that 50 percent to 70 percent of the nation’s health care costs are preventable. Much of that expense goes to treat a few chronic conditions that are closely linked to behavior, including cardiovascular disease, diabetes, obesity and cancer. Bad genes and bad luck matter, of course. But behavior — exercise and choice of diet — matters most.

So why not pay people to live healthier lives? In fact, a fledgling “pay for prevention” industry is beginning to emerge, offering employers ways to reward workers with cash or reduced insurance premiums for exercising more and eating wisely."

So companies are paying their employees not to smoke or charging them less for health insurance if they are in good health.

Are Women Better At Investing Than Men?

That was the idea in How Men’s Overconfidence Hurts Them as Investors, from the New York Times, 3-14-10. Here are some interesing exerpts:

"All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men’s costs and lowered their returns. The economists found that while both sexes reduced net returns through trading, men did so by 0.94 percentage points more per year."

"Selling volatile stocks in a down market — as male I.R.A. investors did more often than women, according to the Vanguard data — might seem to protect a portfolio. But that isn’t necessarily so. Selling before the market falls and buying after it falls is the smart move. For long-term investors, though, the best strategy may be to ignore short-term market movements (perhaps rebalancing a diversified portfolio every so often)."

"Gender differences appear to extend to other financial behavior. For example, women who are C.E.O.’s and company directors tend to pay a lower premium in corporate takeovers, saving their shareholders a bundle..."

"Researchers have found that activating the nucleus accumbens — a brain region that is stimulated when you eat delicious food or look at an attractive person — can affect financial risk-taking. When young Stanford men were shown pictures of partially clothed men and women kissing, he said, that region of their brains was activated. And when they were then given financial tests, the men became more likely to “make high-risk gambles.” Women didn’t respond much to the same pictures..."

"Others studying the effects of hormones on financial behavior have found correlations between testosterone and risk-taking."

"It’s also possible...that evolutionary psychology accounts for some of them. Before the dawn of history, aggressive risk-taking might have given men an advantage in finding mates, she said, while women might have become more risk-averse to protect their offspring."

I have had posts on related topics before. They were:

Can Testosterone Help Women Earn More Money?

Male sex hormone may affect stock trades

I also had a post on how genes can affect the way you invest. See

Is Your Investing Personality in Your DNA?

Crime and Punishment: Required Reading in My Economics Class

Okay, it is not the book Crime and Punishment by Fyodor Dostoevsky (this is a link to the entire book online). I will come back to this book. My students are required to read a chapter by this name from the book The Economics of Public Issues. It is only 5 pages long while the famous book is over 500.

One of the interesting things mentioned in this chapter is research by Steven Levitt. It deals with the question of whether or not more police officers means less crime, everything else being held constant. The problem is that cities with high crime rates will have to hire more police officers (it is the opposite for low crime cities). So it is hard to find a meaningful correlation. But this paragraph from the book shows how he got around that problem:

"In the case of police, Levitt has found that election cycles tend to have a strong independent effect on the size of police forces, enabling him to identify the impact of police on crime rates. Because crime is such a hot political issue, both mayors and governors have strong incentives (and the ability) to push for more police funding in election years. The result is that even though police forces in major cities tend to remain constant in nonelection years, they grow by about 2 percent in an average election year. Although this may sound small, it is (1) large enough to have a significant impact over several election cycles, and thus (2) large enough to detect clearly in the data."

So we can see that crime goes down when more police get hired in election years. Each city gets compared to itself, so the problem mentioned above is avoided.

Now back to the Dostoevsky book. Below are two passages that relate to economics and one sounds like the invisible hand.

"But Mr. Lebeziatnikov who keeps up with modern ideas explained the other day that compassion is forbidden nowadays by science itself, and that that's what is done now in England, where there is political economy." (economics used to be called political economy)

"if I were told, 'love thy neighbour,' what came of it?" Pyotr Petrovitch went on, perhaps with excessive haste. "It came to my tearing my coat in half to share with my neighbour and we both were left half naked. As a Russian proverb has it, 'Catch several hares and you won't catch one.' Science now tells us, love yourself before all men, for everything in the world rests on self-interest. You love yourself and manage your own affairs properly and your coat remains whole. Economic truth adds that the better private affairs are organised in society--the more whole coats, so to say—the firmer are its foundations and the better is the common welfare organised too. Therefore, in acquiring wealth solely and exclusively for myself, I am acquiring, so to speak, for all, and helping to bring to pass my neighbour's getting a little more than a torn coat; and that not from private, personal liberality, but as a consequence of the general advance."

More online versions of the book.

Adam Smith vs. Bart Simpson

Last week I attended a lecture by Paul Zak, a neuro-economist from Claremont Graduate University, at the the Mind Science Foundation. He has studied how our behaviors are affected by the presence in our brains of a chemical called oxytocin, which can affect how generous we are. The more oxytocin you have have, the more generous and empathic (or sympathetic) you are. So he calls oxytocin "the moral molecule." It helps us identify with others and understand their feelings and situatons. Oxytocin can also increase when people trust you or are generous to you.

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

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

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

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

Emerging field offers insight into human virtues

Humans release ‘niceness' chemical

More information about neuroeconomics can be found at:

Neuroeconomics Explained, Part One

Neuroeconomics Explained, Part Two

As college costs rise, sticker shock eased by student aid

That is the title of an article that you can read by clicking here. The idea is that the listed price is very high by grants and scholarships actually lower the cost. The thing is, is that collegs don't give aid. They just charge students different prices and this is called price disicrimination.

Here are some notes on it:

Price Discrimination = Selling a given product at more than one price, with the price difference being unrelated to differences in marginal cost.

Examples include when senior citizens get discounts at restaurants or students get discounts at theaters. Firms do this because it increases their profits.


Why price discrimination raises profits

1. If a firm can get a higher price from some customers than others they increase their profits.
2. If a firm can lower the price for others who might not have bought the product to begin with, they also increase their profits.

Necessary Conditions for Price Discrimination

1. The firm must face a downward sloping demand. Monopolies do but firms in perfect competition do not (their demand, also their MR line, is flat).

2. The firm must be able to readily (and cheaply) identify buyers or groups of buyers with predictably different elasticities of demand (senior citizens have a more elastic demand and will shop around more since they have more time so restaurants might give them a discount).

3. The firm must be able to prevent resale of the product or service. If a student can buy a movie ticket for $6 while everyone else pays $8, the firm will lose money if the students turn around and sell their tickets for $7. So the theater can prevent resale by checking student IDs to make sure people holding the lower price ticket really are students.

Free Can Be Deadly

On the first day of each semester, I define a scarce good as one for which there is not enough to go around when it is given away for free. A tragedy occurred in India this week when free food and clothes were given away at a religious compound. The event was publicized more this year than in the past and many more people showed up than expected. People started gathering a few hours before the event and a stampede ensued. 63 people died, mostly women and children. Here is an article about it:

Dozens killed in India temple stampede for free clothes and food.

This kind of tragedy has happened before:

Freebies led to stampede in '04 too

The Depression Is Over!

So said an enthusiastic character in the 1934 movie Stand Up and Cheer!. We watched a video about the Great Depression in my macro classes. 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.

Deadweight Loss & Who Won The Olympics

After the last post, my students might wonder what "deadweight loss" is. It is the loss of social welfare caused by that dreaded demon, inefficiency. Examples are monopoly and externalities. It can also be caused by taxes. To learn more, go to the following links (which are all different)

Deadweight_loss
Deadweight_loss
Deadweight_loss

Who won the Olympics? Go to

Canada Wins The Olympics! (based on the market value of the medals

There Is A Funny Economist Out There

No, really, there is. My students will find this hard to believe after the groaners I tell in class. But Yoram Bauman, who has a Ph. D. in economics from the University of Washington, calls himelf a "stand up economist." He performs all over the country. Here is a link to his site:

Stand Up Economist

I wonder if he is related to Comicus, the first stand up philosopher? (who said the Christians are so poor, they can only afford to have one God) Anyway, the site has a video which you can watch.

Bauman also has a site called

You might be an economist if….

My students will find it rewarding to look at. For example, it says "you might be an economist if you refuse to sell your children because you think they’ll be worth more later."

Should The Sale Of Tiger Parts Be Legal?

This week in one of my classes we read a chapter titled ""Bye, Bye Bison" from the book The Economics of Public Issues. The chapter discussed what happens when no one owns animals. They get over hunted or over fished.

The Wall Street Journal had an article last week called China's Tiger Farms Spark a Standoff: Economists Propose Legalizing Sale of Some Animal Parts, as Poachers and Shrinking Habitat Thin Ranks in the Wild. Here are some key exerpts:

"To curtail demand for poached animals, the economists suggest legalizing the sale of bones from some farm-bred tigers. In China, the bones are in high demand for use in traditional medicines such as rheumatism cures."

"Such sales have been illegal in China since 1993, when Beijing joined a ban on international trade in tiger products. Before then, many tiger farms fed a demand for bones; after the ban, poachers and habitat destruction thinned China's ranks of wild tigers down to a few dozen."

""Farming works if the price of the poached product falls sufficiently so that poaching is no longer profitable," he said. " That's why you don't go hunting in the jungle for wild chickens—because it's cheaper to go to the supermarket. In essence. You've got to get wild tiger bone cheaper than the farmed bone—a big ask."

It costs at least $2,000 to raise a tiger bred in captivity—and $200 or less to kill a tiger, the World Bank estimates.

Mr. van Kooten disputes those figures, saying that poaching is much more costly and that farms could achieve economies of scale to decrease the price of raising a tiger."

The idea is that if tiger parts can be sold legally, the supply would increase, lowering the price. Then poachers would have no need to kill tigers in the wild. Also, I think some poachers might be willing to start doing things legally themselves.

What Was The Rate Of Inflation Last Year? Was It Positive Or Negative?

First, a note to my students. I added some links and informaton to the last post on religion and economics.

This may not be as simple a question as you might guess. You can get data on this from the Bureau of Labor Statistics at Consumer Price Index. The official rate is 2.7%. Why?

In December of 2008, the CPI = 210.228. In December of 2009, the CPI = 215.949. The latter number is 2.7% higher than the first number. But, what if we took the average CPI of all 12 months in each year and then found the percentage change?

The average CPI for all 12 months of 2008 was 215.303. The average for 2009 was 214.537. Notice that the 2nd number is lower. How much lower? 214.537/214.537 = 0.99644. That means that prices were only 99.644% as high in 2009 as they were in 2008. The percentage drop was about 0.356% since 1 - 0.99644 = 0.00356.

The table below shows the CPI in each month for each year and then the % change month-to-month going forward a year.


When you look at the BLS web site linked above, you will see in the last column a -0.4 or a -0.4% (the site does not put any % signs in). That is just rounded up slightly from the actual -0.356%. The last year there was a fall in the CPI, whether by the December-to-December method or the monthly average method was 1955 (it was only the monthly average that was negative).

Usually, the two methods are within 1 percentage point of each other (58 out of 96 years). But in each of the last two years, they differed by more than 3 percentage points (in 2008, the Dec-Dec rate was 0.1% while it was 3.8% using monthly averages). The last time there were two straight years like that was from 1946-48. So we must be having some pretty big month-to-month fluctuations. The graph below shows the absolute difference between the two methods for each year since 1914. Notice that the differences became larger in the last few years.

Can You Mix Economics With Religion?

The ancient Greeks sure thought you could. They had a god of commerce and a god of wealth. You can read about them at Britannica.

Hermes (commerce)

Plutus (wealth)

The name of Plutus came up in a Wall Street Journal article called The Greek Tragedy That Changed Europe. It is about the debt problems that Greece faces and how they might affect the European Union. It says:

"Plutus, the Greek god of wealth, did not have an easy life. As the myth goes, Plutus wanted to grant riches only to the "the just, the wise, the men of ordered life." Zeus blinded him out of jealousy of mankind (and envy of the good), leaving Plutus to indiscriminately distribute his favors.

Modern-day Greece may be just and wise, but it certainly has not had an ordered life. As a result, the great opportunity and wealth bestowed by European integration has been largely squandered."

Here are links for Wikpedia:

Hermes

Plutus

The relationship between economics and religion is summed up very well in a Family Circus cartoon.

The Freaknomics blog has a good article about people donate more money to their churches if other people can see how much they are donating called “We Pretend We Are Christians”

World Unemployment Rates And The Ideal Inflation Rate

In my macro classes this week, I talked about unemployment. Our policy goal is full-employment which means we want to have the lowest rate of unemployment compatible with price stability (when I first took economics in 1978 it was thought to be a 4% unemployment rate). Price stability means a 3% or lower annual inflation rate. The idea is that if we try to0 hard to lower the unemployment rate by increasing AD, inflation will get too high. I explained how this works with a post from last October called Fed Officials Disagree On Threat Of Inflation. It has a graph that shows what happens with AD and AS and how inflation accelerates as AD increases.

Professor Mark Thoma of the University of Oregon had a post at his blog recently on the disagreement over what the optimal inflation rate is called Do We Need to Rethink Macroeconomic Policy?. Some economists think maybe 4% would be okay. But this article gives you a good idea of the issues and controversies surrounding the unemployment-inflation tradeoff.

It might seem silly to worry about small differences in percentage rates, like a 4% vs. 5% unemployment rate. But if economists concluded that full-employment was a 5% unemployment rate but it was really 4%, then our policies would leave about 1.5 million people unemployed since the labor force has about 150 million people in it. On the other hand, if policies tried to lower the UE rate to 4% but the full-employment UE rate is really 5%, then we could trigger very high rates of inflation. So this discussion of the ideal inflation rate is very important.

I did not get a chance to talk too much about unemployment rates in other countries. So here are links to some info on that:

The CIA's country ranks by unemployment rates

A report on current country rates from the OECD

Employment Over Time

We all know that the unemployment rate is high at 9.7%. The recession has been tough. But until the last couple of years, the long-term picture was good. The percent of the civilian noninstitutional population that was employed was trending upward. Here are the average percentages per dedade:

1970s 57.66
1980s 60.1
1990s 62.85
2000s 62.57

The data comes from a Bureau of Labor Statistics site called A-1. Employment status of the civilian noninstitutional population 16 years and over, 1970 to date. The graph below shows the yearly changes.

A Special (Economic) Valentine's Message On Romantic Love

What can an economist say about love on this holiday? You'd be surprised. But first, here is a link to an interesting story in yesterday's San Antonio Express-News: Surveys: Workplace romances in full bloom. We all spend alot of time where we work, so that is going to be a place for many people to meet that special someone. The E-N also had an article about how people are not spending as much as they did last year called Saying ‘I love you’ for less.

Now the economic definition of 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 Love really is blind, U.S. study finds. Here is an exerpt:

"Love really is blind, at least when it comes to looking at others, U.S. researchers reported on Tuesday.

College students who reported they were in love were less likely to take careful notice of other attractive men or women, the team at the University of California Los Angeles and dating Web site eHarmony found.

"Feeling love for your romantic partner appears to make everybody else less attractive, and the emotion appears to work in very specific ways in enabling you to push thoughts of that tempting other out of your mind," said Gian Gonzaga of eHarmony, whose study is published in the journal Evolution and Human Behavior.

"It's almost like love puts blinders on people," added Martie Haselton, an associate professor of psychology and communication studies at UCLA."

So How Is The Recession Affecting America's Drinking Habits?

There was an article in the San Antonio Express-News last week called Recession enough to drive a liquor salesman to drink. Apparently people are still drinking, but cheaper brands and they are not drinking high-end beverages in restaurants as much as they were a few years ago.

"San Antonians' love for fiestas hasn't abated — in fact, the March issue of Men's Health magazine ranks San Antonio the seventh drunkest city in the country. But as we've been hammered by the recession, we're cutting back on premium liquors and drinking more cheap booze."

Sounds like what we call inferior goods in economics. The things you buy more of when your income falls (as it does in recessions). Not sure if this really fits the definition because what people are doing when they switch to a cheaper brand is just that they purchasing less quality. Suppose you could measure the quality of, say, vodka (which they discuss in the article), and you could attach quality units to different brands. If you switch to a cheaper brand, you are just buying a lower number of "quality units."

It is like you still go to baseball games or Spurs games but you buy cheaper seats. So a lesser brand may not necessarily be an inferior good. But, by making more meals at home and drinking there, that could be an inferior good since you don't go to restaurants as much. People are buying more margarita mixes, for example because they are not going to restaurants as much. So maybe the margarita mixes are an inferior good.

Finally, the article quoted the chief economist of the Distilled Spirits Council of the United States. Talk about a dream job.

Liechtenstein In Number One!

In per capita GDP, that is. In my macro classes this week we started talking about GDP (gross domestic product or the value of all the goods and services produced in a country in a year). The CIA has a ranking of all countries by their per capita GDP (that is, GDP divided by population). That ranking is at Country Comparison: GDP per capita (PPP). The figures are all stated in dollar terms, so they use exchange rates to make the conversion from each country's own currency. They are also adjusted for "purchasing power parity" or the cost of living. One good thing about this list from the CIA is that each country is a hot link. If you click on a country you go to it's home page and there is alot of info there. Here is the top 10:


Here is something I reported last year:

"The country of Guinea-Bissau has a population of 1.5 million. But their GDP was only about $900 million. That is less money than the movie "The Darknight" has made, even if you take into account its production costs."

So Avatar, too, has probably earned more money than the GDP of some countries (it is up to about $2.2 Billion in revenue and may have cost around $400 million to make).

Click here to read last year's post on GDP. It mentions that Liechtenstein was having some problems in the banking system. One thing the CIA said was: "In 2008 Liechtenstein came under renewed international pressure - particularly from Germany - to improve transparency in its banking and tax systems."

Can You Put A Price Tag On Love?

That might sound sacrilegious, especially with Valentine's day coming up. But "Online dating is a $976 million annual industry in the United States" according to a New York Times article titled: Better Loving Through Chemistry (this is one article which is definitely worth checking out because the picture is very funny). So people are willing to pay big bucks to find love.

The article discusses some online services. Some sites try to match brain chemistry. Others try to match personal values and life experiences. They may simply be facilitating the information gathering process that was once easier in the past when life moved at a slower pace and people lived in more close-knit communities. Or, they may just be getting people together who are very selective. This may sound crass, but love is about people trading something and these services might make the trading easier. Here are some interesting exerpts:

""People tend to be adept at heeding that first spark of attraction but may be less dexterous at recognizing the commonalities that are the foundations of good marriages, says Gian Gonzaga, eHarmony’s senior director of research and development. The site suggests potential matches based on areas of compatibility —like values, beliefs and important experiences — that are predictors of relationship success, he says.

“In the long haul, you want to be able to manage conflicts, celebrate positives and get through the day-to-day relationship,” Dr. Gonzaga said. “Our system is there to take care of that so you can now focus on who you find really attractive, that you feel really passionate about.”

Chemistry.com, meanwhile, uses answers to a detailed questionnaire to suggest potential partners based on their brain chemistry, says Dr. Fisher, a research professor in the anthropology department at Rutgers University. Based on a review of scientific studies on neurotransmitters and chemicals like dopamine in the brain, she determined that humans tend to express one of four dominant temperaments.

Since the site’s introduction in 2006, more than eight million people have answered Dr. Fisher’s questionnaire, and she has used their answers to pinpoint traits that attract people to one another. She says people of decisive, straight-talking temperament, whom she calls “directors,” tend to be attracted to empathetic, intuitive types she calls “negotiators.” Spontaneous types (“explorers”) tend to be attracted to their own kind, while traditional pillars of society (“builders”) also tend to seek out partners that resemble themselves.

“If Helen Fisher can give you right off the bat individuals that your brain is more likely to be attracted to,” she says, “so much the better.”

At the end of the day, however, it may be that the success of such sites is attributable not so much to their proprietary methods as to their choosy, self-selected members who don’t want to wink at and woo the first person whose profile they read online. The sites attract cohorts of people interested in slowing down the online dating and mating process, in finding out more information about potential partners — or in ruling out unlikely suitors — before they graduate to the meet-and-greet stage.

THE more advanced the partner prediction sites, the more they may actually serve a more old-fashioned role. The sites provide background details on a person’s family, education, aspirations, character, genetic traits and general health of the type that was once public information in farming or immigrant communities or even in hunter-gatherer societies, Dr. Fisher says.

Indeed, at least from the point of view of evolutionary science, you’d be better off spending $50 — and more likely to find a mate — by using a premium dating site than by dropping $50 on drinks in the uncertain waters of singles bars."

Maybe That College Degree Is Not As Valuable As You Thought

It seems that previous estimates were wrong. That is the gist of a WSJ article titled What's a Degree Really Worth? An often cited figure is that you earn, on average, $800,000 more in your working life if you have a college degree compared to having only a high school diploma. Here are what seem to be the key exerpts:

"Mark Schneider, a vice president of the American Institutes for Research, a nonprofit research organization based in Washington, calls it "a million-dollar misunderstanding."

One problem he sees with the estimates: They don't take into account deductions from income taxes or breaks in employment. Nor do they factor in debt, particularly student debt loads, which have ballooned for both public and private colleges in recent years. In addition, the income data used for the Census estimates is from 1999, when total expenses for tuition and fees at the average four-year private college were $15,518 per year. For the 2009-10 school year, that number has risen to $26,273, and it continues to increase at a rate higher than inflation.

Dr. Schneider estimated the actual lifetime-earnings advantage for college graduates is a mere $279,893 in a report he wrote last year. He included tuition payments and discounted earning streams, putting them into present value. He also used actual salary data for graduates 10 years after they completed their degrees to measure incomes. Even among graduates of top-tier institutions, the earnings came in well below the million-dollar mark, he says."

But $279,000 is nothing to sneeze at. The one thing that is not clear is if they took into account that the high-school-diploma-only people are earning money earlier and that they can save that money and earn interest. My guess is that this issue is a minor one since you won't be able to save much in these cases.

The part about tuition prices and inflation is interesting. The Consumer Price Index rose 28.8% from 1999-2009. Total expenses for tuition and fees at the average four-year private college rose 69.3%.

Banning Cell Phones While Driving And A Lesson In Ceteris Paribus

The article is Report: Study shows cell phone bans don’t lower accident rates. A study found that states that banned using hand-held cell phones while driving did not see their accident rates go down compared to other states. But "Officials believe that drivers in areas with the ban have obtained hands-free devices, whose accident rates are at the same level as the hand-held devices." This means that all other factors were not held constant. We need ceteris paribus to be able to see if A causes B. We need to change just one thing, hand held cell phone use, without anything else changing. It is possible that this ban really does lead to fewer accidents but that the increased use of hands-free devices raised it back up.

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."