The San Antonio College Student Newspaper, "The Ranger," Has A Front Page Story On "Occupy Wall Street"

Here is the link:

Occupy movement only beginning, political science professor says

I submitted an op-ed piece in reply. It is below. I guess I will find out on Monday if they print it.

I am very concerned about the front page article the Ranger did on the Occupy Wall Street Movement.

I can understand and sympathize with the protesters. Unemployment is especially high for young people. I got my B.A. in 1982, a year when the unemployment rate was over 9%. It was again the next year. In fact, both unemployment and inflation averaged 7.7% over the nine years from 1975-1983. I began college in the middle of that difficult economic period. It was also a time of bailouts. The government bailed out Chrysler and Continental Bank.

The article said that "the movements' focus is big business and the government's failure to regulate big business." They also seem to be concerned about inequality and how much money the top 1% makes. I believe that the movement is either wrong about these issues or overstates their importance. And their solutions could harm the economy in the long run. How exactly regulations and taxes can harm the economy is not widely understood. So let me try to explain.

Let's take regulation. Many feel that it was a lack of regulation that caused the financial crisis. This is a highly debatable point. Experts like Nobel Prize winner Gary Becker, Peter Wallison, Jeffrey Friedman, Columbia University economist Charles Calomiris and Stanford University economist John Taylor have written on how it was regulations that were the main cause. Banks were told to lower their lending standards which caused the demand for houses to reach unsustainable levels. Even the business writer for the New York Times, Gretchen Morgenson, has written a book which lays at least part of the blame on the government created Fannie Mae and Freddie Mac.

It also may not be true that we don't have enough regulations. Federal spending by regulatory agencies is about nine times higher today than it was in 1970 (adjusted for inflation). Thousands of pages of new regulations are added every year.

But if we did add even more regulations, how will we make them work? Does each regulator do more work or do we hire more regulators? If the latter, we run into what economists call "the law of increasing opportunity cost." We have to keep taking better and better workers out of the private sector to join government agencies. Fewer goods and services will be produced. The cost of regulation will grow exponentially.

Regulators are also subject to "capture" by the interests they are supposed to be monitoring. They end up not serving or protecting the public since they may have already worked in that industry and regular people don't have time to watch what government agencies do.

Regulations cost about 8% of the national income each year since we need to pay the cost of the government agencies and businesses must spend money to comply with regulations.

Much has been made of the growing inequality problem. One way to measure this is the "Gini coefficient." The higher it gets, the less equal the distribution of income (it ranges from 0 to 1). Yet the Gini coefficient for full-time workers only rose from .31 in 1970 to .40 in 1994. It has basically been unchanged since then. So by that count, then, inequality is not especially worse now.

It is true that the top 1% of earners have seen their share of income rise. But 57% of those in the top 1% in 1996 were not there in 2005. The incomes of the top 1% fell about 16% from 2007-09 while the median income fell just 1.5%. The number of people making $1 million or more per year fell 40%.

People are also not stuck at the bottom. Of those in the lowest one-fifth of incomes in 2001, 44% had moved to a higher "quintile" by 2007. That may not be enough income mobility for some, but I think it is still quite a bit. More people might move between income brackets in Europe than the U. S., but the generally lower incomes in Europe make that easier.

Those at the bottom of the income ladder may be doing better over time than is commonly believed. To measure incomes over time, we need to adjust for inflation. But economists have discovered that we should not use the same price index for the rich and poor. The one for the poor has not risen as much over time. Once this is taken into account, we can see that incomes have not stagnated as much as is normally believed.

Many propose higher tax rates on the rich to deal with inequality. Yet this can lead to problems when recessions hit. The higher income earners are now seeing their incomes fluctuate more and they go down more than for most people in recessions. If we rely too much on them for tax revenue, it will mean extra large budget deficits in recessions, as many states have seen recently. In 2007, the top 1% paid about 37% of all federal income taxes. The more we rely on them for revenue, the bigger the problem will be in the next recession.

Taxes have another problem. They cause increasingly exponential damage to economic efficiency. Taxes distort economic activity. If I normally buy a shirt for $20 and then if that shirt is taxed, say, $5, I may choose not to purchase it. That is a loss for me and for the seller. Our total losses are called the "deadweight loss." It turns out that if you double a tax, the amount of inefficiency or deadweight loss quadruples. So every one-percentage point increase in taxes causes more harm to the economy than the previous one.

The damage to the economy from extra regulations and higher tax rates does not have to be great. Even if incentives to work and produce are only slightly diminished and inefficiency rises marginally, the costs in the long-run can be great due to the compounding effect.

The per capita GDP from 1980-2009 grew 1.95% in the US and 1.83% in the EU. That difference may seem small. But, if, for example, per capita income was 20,000 in both the US and EU in 1980, 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 it might matter to many families. But after 100 years the US income level would be 12% higher. After 200 years it would be 26% higher.

We also have to realize that recovery from a recession caused by a financial crisis takes more time than in other recessions. This is what research by economists Carmen Reinhart and Kenneth Rogoff has shown.

So I think we should be careful about adding more regulations or higher tax rates to our economy. Let's not rush into anything based on what the Occupy Wall Street movement says. The occupiers would probably site other statistics or interpret them differently. But let's recognize that theirs is not the only valid view on these issues.

Vehicle Exhaust Linked To Brain-Cell Damage, Higher Rates of Autism

See The Hidden Toll of Traffic Jams by ROBERT LEE HOTZ, science writer for the WSJ. In my macro classes earlier this semester I talked about externalities like pollution. The ideal policy to me would be to tax any activity equal to the costs it imposes. This article shows what some of the damages are. Excerpts:

"New public-health studies and laboratory experiments suggest that, at every stage of life, traffic fumes exact a measurable toll on mental capacity, intelligence and emotional stability."

"So far, the evidence is largely circumstantial but worrisome, researchers say. And no one is certain yet of the consequences for brain biology or behavior. "There is real cause for concern," says neurochemist Annette Kirshner at the National Institute of Environmental Health Sciences at Research Triangle Park in North Carolina. "But we ought to proceed with caution.""

"Recent studies show that breathing street-level fumes for just 30 minutes can intensify electrical activity in brain regions responsible for behavior, personality and decision-making, changes that are suggestive of stress, scientists in the Netherlands recently discovered. Breathing normal city air with high levels of traffic exhaust for 90 days can change the way that genes turn on or off among the elderly; it can also leave a molecular mark on the genome of a newborn for life, separate research teams at Columbia University and Harvard University reported this year."

"Children in areas affected by high levels of emissions, on average, scored more poorly on intelligence tests and were more prone to depression, anxiety and attention problems than children growing up in cleaner air, separate research teams in New York, Boston, Beijing, and Krakow, Poland, found."

"The evidence is growing that air pollution can affect the brain," says medical epidemiologist Heather Volk at USC's Keck School of Medicine. "We may be starting to realize the effects are broader than we realized.""

"...children born to mothers living within 1,000 feet of a major road or freeway in Los Angeles, San Francisco or Sacramento were twice as likely to have autism,..."

"Scientists believe that simple steps to speed traffic are a factor in reducing some public-health problems. In New Jersey, premature births, a risk factor for cognitive delays, in areas around highway toll plazas dropped 10.8% after the introduction of E-ZPass, which eased traffic congestion and reduced exhaust fumes, according to reports published in scientific journals this year and in 2009. The researchers, Princeton University economist Janet Currie and her colleagues at Columbia University, analyzed health data for the decade ending 2003."

M1 and M2 show big gains in the last 12 months

For the data, see Money Stock Measures from the Federal Reserve.

From October 2010 to October 2011, M1 was up about 21% while M2 was up about 9.9%.

From November 2009 to November 2010, M1 was up about 8.1% while M2 was up about 3.1%.

So the last 12 months have seen much bigger increases than in roughly the previous 12 months.

The CPI was up about 3.87% from September 2010 to September 2011. From November 2009 to November 2010, the CPI was up only 1.1%. From September 2009 to September 2010 it was also up only 1.1%. Maybe all the extra money is leading to some inflation.

It seems like the big increases in the CPI came early in this year. The numbers below show the annualized rate of inflation for each month (from the previous month). For example, if the price rise from January 2010 to February 2010 lasted 12 months (compounding, of course), the annual rate of inflation would have been just .30%. Obviously we had some big increases from January to May this year. When May ended, prices were 3.1% higher than at the end of December. If that rate were to last a whole year, we would have an inflation rate of about 7.6%. So it looks like things have slowed down a bit. But who knows for sure with all the money out there. It does depend on the velocity, too. The Sept. 2011 CPI was only about .4% higher than the May 2011 CPI.

2010
Feb. 0.30%
Mar. 5.04%
Apr. 2.10%
May 0.93%
June -1.17%
July 0.25%
Aug. 1.67%
Sep. 0.70%
Oct. 1.50%
Nov. 0.51%
Dec. 2.08%

2011
Jan. 5.87%
Feb. 6.08%
Mar. 12.35%
Apr. 8.01%
May 5.79%
June -1.28%
July 1.07%
Aug. 3.36%
Sep. 1.84%

Click here to see CPI figures

The numbers below show the annualized rate of increase in both M1 and M2 for each month (from the previous month). First M1.

2010
Feb. 17.13%
Mar. 6.30%
Apr. -8.81%
May 3.66%
June 14.07%
July 2.18%
Aug. 15.14%
Sep. 16.92%
Oct. 7.07%
Nov. 28.78%
Dec. 7.58%

2011
Jan. 15.43%
Feb. 14.65%
Mar. 11.25%
Apr. 6.27%
May 21.99%
June 10.01%
July 43.05%
Aug. 83.32%
Sep. 15.98%
Oct. 9.01%

Now M2

2010
Feb. 10.05%
Mar. -3.04%
Apr. 1.52%
May 5.71%
June 4.17%
July 2.26%
Aug. 6.53%
Sep. 6.82%
Oct. 5.73%
Nov. 5.36%
Dec. 4.65%

2011
Jan. 3.40%
Feb. 8.66%
Mar. 3.86%
Apr. 4.40%
May 7.16%
June 12.30%
July 30.07%
Aug. 34.42%
Sep. 6.08%
Oct. 3.59%

U.S. exports and imports as a percentage of total output, 1869-2005

Below is a graph from Macroeconomics (6th Edition) by Andrew B. Abel, Ben S. Bernanke and Dean Croushore. A question about this came up in my micro class this week. Here is how they describe the graph in the book:

"U.S. exports and imports,1869-2005 The figure shows U.S. exports (black) and U.S. imports (red), each expressed as a percentage of total output. Exports and imports need not be equal in each year: U.S. exports exceeded imports (shaded gray) during much of the twentieth century. During the 1980s, 1990s and early 2000s, however, U.S. exports were smaller than U.S. imports (shaded red). Sources: Imports and exports of goods and services: 1869-1959 from Historical Statistics of the United States, Colonial Times to 1970, pp. 864-865; 1960-2005 from FRED database, Federal Reserve Bank of St. Louis, research.stlouisfed.org/fred2/series/BOPX and BOPM; output is from Fig. 1.1."

The output data from Fig. 1.1 comes from an article by Christina Romer.

“The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908.” Journal of Political Economy 97 (February 1989): 1-37.

The percentages seem a little higher than other sources, though. Click on the graph to see a much larger version.

Does It Pay To Be A Garbage Miner?

This past week in my microeconomics class, we read a chapter about trash in the book The Economics of Public Issues. It raised the issue of how can we reduce the amount of trash we have and how do we get rid of the trash we do have.

For some people, though, going through garbage is a job. See Guatemala's trash 'miners' risk lives to find gold by ALBERTO ARCE of the Associated Press. Excerpts:

"A torrent of gray, toxic water spews from a drainage tunnel and surges along the ravine, tumbling along garbage that has fallen from the Guatemalan capital's main landfill 1,000 feet (300 meters) above.

Despite the foul odors, the danger of unstable piles of garbage collapsing and the chance for heavy rain to suddenly raise the water level, dozens of people are busily at work searching for jewelry and other metal scraps knocked loose from the trash."

One worker said:

""I found a bracelet with 9 grams (0.32 avoir ounces) of gold. I got 2,000 quetzals ($256) for it."

It may not seem like much, but it's almost as much as the monthly $270 minimum wage in this Central American nation."

"If the scavengers don't find jewelry, they collect screws, faucets and other recyclable metal items that they can sell for 85 cents a pound. That amounts to twice the minimum wage for an average trip.""

What happened to income of the top 1% from 2007-2009?

See The Rich Get Poorer by Greg Mankiw, Harvard economics professor. Here is his blog post:

"Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years.

According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879 to $32,396."

That works out to a 1.5% drop in median income and a 16.1% drop in income for those in the top 1%.

Mankiw also mentions a paper that shows "that high-income households have riskier-than-average incomes." That is, incomes for the top earners fluctuate alot more than for everyone else. That paper is The Increase in Income Cyclicality of High-Income Households and its Relation to the Rise in Top Income Shares by Jonathan A. Parker and Annette Vissing-Jorgensen, both of Northwestern University. Here is the abstract:

"We document a large increase in the cyclicality of the incomes of high-income households, coinciding with the rise in their share of aggregate income. In the U.S., since top income shares began to rise rapidly in the early 1980s, incomes of those in the top 1 percent of the income distribution have averaged 14 times average income and been 2.4 times more cyclical. Before the early 1980s, incomes of the top 1 percent were slightly less cyclical than average. The increase in income cyclicality at the top is to a large extent due to increases in the share and the cyclicality of their earned income. The high cyclicality among top incomes is found for households without stock options; following the same households over time; for post-tax, post-transfer income; and for consumption. We study cyclicality throughout the income distribution and reconcile with earlier work. Furthermore, greater top income share is associated with greater top income cyclicality across recent decades, across subgroups of top income households, and, in changes, across countries. This suggests a common cause. We show theoretically that increases in the production scale of the most talented can raise both top incomes and their cyclicality."

The Deficit Trials 2017 A. D.

I recall a commercial like this back in 1985 or 1986. It paints a bleak picture of America in the future, presumably caused on the growing national debt ($2 trillion then, almost $15 trillion now). I think this thing is way over the top but there may be some real dangers from the debt that I mention below. You might have to watch a brief commercial for some product first. We have been covering the deficit and debt this week in my macro classes. If the embedded video does not appear, use the link below it.


Ridley Scott - W. R. Grace Deficit Trials by angelseyth

Real problems the national debt might cause

1. About 28% of the debt is owed to foreign citizens (that is according to the textbook by Tucker-it is probably closer to 30% now). When they get paid back, they come and buy American goods. That leaves fewer goods for Americans (who can't afford to buy as much due to higher taxes that were needed to pay back the debt). BUT THIS MIGHT NOT BE A CONCERN IF WE ORIGINALLY BORROWED THE MONEY FOR A GOOD PURPOSE.

People borrow money all the time to buy houses and cars. Then they pay it back to a person outside of their family or household. We don’t consider this a burden since the money was put to good use. Right after World War II, the national debt was 120% of the GDP. This was much higher than it is now and we survived. No one complains that we borrowed to win the war.

2. Raising taxes might hurt economic incentives. At higher tax rates, people might want to work and invest less. Fewer businesses might expand and fewer news ones created since you will get to keep less profit. But again, THIS MIGHT NOT BE A CONCERN IF WE ORIGINALLY BORROWED THE MONEY FOR A GOOD PURPOSE. Also, if taxes only go up a little, and the debt is slowly paid off each year (like after WW II), it may not hurt too much.

3. We may have fewer government services in the future if we pay back the debt by lowering government spending. But this means that we are trading more government services today for fewer in the future. THIS IS NOT NECESSARILY A BAD THING IF THE MONEY IS SPENT WISELY (which everyone not might not agree on).

For more info ee Reinhart and Rogoff: Higher Debt May Stunt Economic Growth from the WSJ blog last year.

"To all the reasons to worry about the rapid rise in government debt in the wake of the financial crisis, add another: It’ll stunt our growth.

In a new paper presented Monday at the annual meeting of the American Economic Association, Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard study the link between different levels of debt and countries’ economic growth over the last two centuries. One finding: Countries with a gross public debt debt exceeding about 90% of annual economic output tended to grow a lot more slowly. For advanced countries above the 90% threshold, average annual growth was about two percentage points lower than for countries with public debt of less than 30% of GDP.

The results are particularly relevant at a time when debt levels in the U.S. and other countries at the center of the financial crisis are rapidly approaching the 90% threshold. Gross government debt in the U.S., for example, stood at 85% of GDP in 2009 and will reach 108% of GDP by 2014, according to IMF projections. The U.K.’s gross government debt stood at 69% of GDP in 2009 and is expected to reach 98% of GDP by 2013.

“If history is any guide,” the rising government debt “is very troubling for the U.S. and other advanced economies,” says Ms. Reinhart.

The relationship between government debt burdens and growth is even stronger for emerging-market economies, Ms. Reinhart and Mr. Rogoff find. For countries above the 90% threshold, average annual growth was about three percentage points lower than for countries with public debt of less than 30% of GDP. The countries above the threshold also experienced much higher inflation: prices rose more than twice as fast as in countries with small debt burdens."

What is the unemployment rate for people with college degrees?

4.2%. The median weekly income for college grads is $1,072 while it is $636 for high school grads. See Gloom Widespread as College Grads Face New Math By DAVID WESSEL of the WSJ. The news is not all great for college grads, though. Excerpts:

"On average, wages for workers with four-year college degrees fell by 8.6% adjusted for inflation between 2000 and 2010, according to government data."

"To be sure, data on wages and incomes don't give a complete picture. They don't count increasingly costly health benefits that many employers provide nor tax breaks enacted to cushion the recession's blow. Nor do they include aspects of life that don't show up in paychecks, from the iPhone to the growing odds of beating cancer.

And Bruce Meyer of the University of Chicago and James X. Sullivan of Notre Dame, who argue official income data paint an overly gloomy picture, note that Americans managed to keep spending in the 2000s while incomes lagged. In an American Enterprise Institute working paper, they cite consumer surveys that suggest inflation-adjusted spending of the typical household (excluding out-of-pocket medical care, education costs and retirement savings) rose 16% in the 1990s and another 16% in the 2000s—some of that fueled by an unsustainable borrowing binge."

"The unemployment rate for recent college grads is 10.7%. More than 14% of Americans between 25 and 34 (5.9 million in all) are living with their parents, up significantly from before the recession. Nearly a quarter of them have bachelor's degrees."

Untangling the Long-Term-Unemployment Crisis

Click here to read this article by David Wessel of the WSJ. Excerpts:

"...according to Fed governor Daniel Tarullo...there is little evidence that the bulk of today's unemployed would still be unemployed if the economy were growing faster or that the bulk of today's unemployment is, in the jargon of economists, "structural.""

""Most of the difference between the prerecession and current unemployment rates is attributable to an aggregate demand shortfall," said Mr. Tarullo"

"The Labor Department counts 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per job opening. Before the recession, the ratio was 1.5. If every opening were filled instantly, there would still be many unemployed."

"Wages aren't rising. "We don't see rapid wage growth almost anywhere, which is what you would expect if firms were bidding up the wages of qualified workers and were unable to find qualified workers among the unemployed," said Harvard University's Lawrence Katz."

"We had a fast-advancing economic decline with layoffs and hiring freezes in a broad range of sectors of the economy. That is not consistent with an increase in structural unemployment being the big explanation," Mr. Tarullo said."

"Data gleaned from help-wanted ads, surveys and government tallies did hint at a growing mismatch during the recession between skills jobless workers have and those employers want, but that "mostly has receded since 2009," says Mike Elsby, a University of Edinburgh economist."

"...between 12% and 33% of the five-percentage-point increase in the unemployment rate is due to this mismatch."

"...there was reasonable speculation that those who couldn't sell their houses wouldn't move to where the jobs are. But the latest data suggest that phenomenon is, as Mr. Elsby puts it, "quantitatively negligible.""

Women and the pay gap

This is a post from April 2007. This issue came up in one of my micro sections this week.

The American Association of University Women issued a report. One of the things it says is:

"Ten years after graduation, women fall further behind, earning only 69 percent of what men earn. Even after controlling for hours, occupation, parenthood, and other factors known to affect earnings, the research indicates that one-quarter of the pay gap remains unexplained and is likely due to sex discrimination."

I emailed them the following question but have not heard back (not even now as of October 26, 2011):

"So the 69 percent means that women earn 69 cents for every dollar that men make ten years after college. That makes the gap 31 cents. But when these other factors are accounted for, one-quarter of the gap remains. Since one-quarter of 31 is 7.75, that means when all other factors are held constant, women earn 92.25 cents for every dollar that men make. Is my interpretation correct? How does this compare to what other studies have found? Is this gap changing over time? Were any other causes for the remaining 7.75 cents examined besides sexual discrimination?"

An article by Steve Chapman gives a different view than the American Association of University Women on this issue. Here is a passage from his article:

"I asked Harvard economist Claudia Goldin if there is sufficient evidence to conclude that women experience systematic pay discrimination. "No," she replied. There are certainly instances of discrimination, she says, but most of the gap is the result of different choices. Other hard-to-measure factors, Goldin thinks, largely account for the remaining gap -- "probably not all, but most of it.""

Will Dropouts Save America?

Click here to read this interesting article from today's NY Times. Excerpts:

"...nearly all net job creation in America comes from start-up businesses..."

"If start-up activity is the true engine of job creation in America, one thing is clear: our current educational system is acting as the brakes. Simply put, from kindergarten through undergraduate and grad school, you learn very few skills or attitudes that would ever help you start a business."

"...most students learn nothing about sales in college; they are more likely to take a course on why sales (and capitalism) are evil."

"You don’t learn how to network crouched over a desk studying for multiple-choice exams. You learn it outside the classroom, talking to fellow human beings face-to-face."

"True, people with college degrees tend to earn more. But that could be because most ambitious people tend to go to college; there is little evidence to suggest that the same ambitious people would earn less without college degrees..."

"AFTER all, there is not one job market in America, but two. The formal market we always hear about — jobs that get filled through cold résumé submissions in reply to posted ads — accounts for only about 20 percent of jobs.

The other 80 percent get filled in the informal job market."

"You don’t need a degree (and certainly not an M.B.A.) to start a business and create jobs, nor is it even that helpful, compared with cheaper, faster alternatives."

Should companies give healthy workers a break on their health care costs?

The issue of who deserves government financed health care came up in one of my classes a couple of weeks ago. Megan McArdle had a post at her blog that reminded me of that called Give Me Liberty and Give Me Death?. Here it is:

"Ezra Klein has an interesting article about the Cleveland Clinic's move to cut its own health costs by somewhat curtailing the choices that its employees can make about their lifestyle:

That left enforcement. The clinic tracks its employees' blood pressure, lipids, blood sugar, weight and smoking habits. If any of these are what the clinic calls "abnormal," a doctor must certify that the employee is taking steps to get them under control. Otherwise, no insurance rebate. The idea is to force employees to have regular conversations with their doctors about wellness. If they participate, they can lock in the rates they were paying two years ago. The savings amount to many thousands of dollars.

It appears to be working. Not only has the clinic cut its health-care costs, but its employees are also getting healthier in measurable ways. Workers have lost a collective 250,000 pounds since 2005. Their blood pressure is lower than it was three years ago. Smoking has declined from 15.4 percent of employees to 6.8 percent.

In one sense, the clinic has achieved the health policy ideal: cutting health-care costs by making people healthier. But consider how the clinic has done it -- tying premiums to personal decisions, firing smokers, tracking employee metrics, eliminating popular sodas and foods from campus. By making it harder and more expensive for employees to be unhealthy, the clinic has radically overstepped the traditional, laissez-faire approach of employers to their workers' personal habits.

It also opens the door to onerous forms of discrimination. The clinic no longer hires smokers. Will the obese eventually face similar hurdles? What about fans of fast food? The experiment might work at a famed medical center where the CEO plausibly argues that aggressive leadership in health care is central to the institution's mission. But would it work at General Motors? Caterpillar? Wal-Mart? Medicaid and Medicare?

Roizen thinks it can -- and should. He estimates that an aggressive program could cut federal health spending by $300 billion to $600 billion a year. If he's right, then simply instituting such wellness reforms could cut the federal deficit by far more than the Simpson-Bowles commission or the congressional supercommittee would.

Perhaps unsurprisingly, I'm pretty skeptical. Let's start by asking what the selection bias was. Cleveland fired two high-profile doctors who wouldn't quit smoking. One imagines that employees who do not want their employer nannying them about their gym time and alcohol consumption probably decline to work at the Clinic.

Selection bias will produce good results for the selecting organization, but you cannot replicate its results on a nationwide scale; fat, smoky people have to work somewhere (or go on welfare). If this became common, you'd see legislative pushback in the form of discrimination lawsuits and legislation. I'm betting there are more obese workers/voters than there are people who hit the gym five days a week.

There's also the question of lifetime cost profile. Cleveland mostly isn't covering people in that expensive last year of life; that honor tends to go to Medicare and Medicaid. Cleveland saves money if its workers have fewer smoking-related problems, but if that keeps them alive long enough to get Alzheimer's, their lifetime health cost may go up.

Now, you can certainly argue that it's still a net gain--people live longer, healthier lives. And I agree that longer and healthier lives are a worthy goal. But from a cost perspective, I suspect that there's less to the Cleveland model than meets the eye."

Can Economists Learn To Be Ethical?

I'm not sure you can teach this old dog a new trick like that. See Economists Pen a Code of Ethics By JUSTIN LAHART of the WSJ. Excerpts:

"Academic economists are moving closer to adopting a code of ethics in response to criticism that ethical lapses in the profession helped precipitate the 2008 financial crisis.

Many economists work with companies, financial firms, governments and other organizations that are eager to tap their expertise. That has opened them up to charges that the often lucrative consulting fees they were receiving first blinded them to the risks to the economy heading into the financial crisis and then steered them toward offering policy responses that benefited their clients. But because the potential conflicts of interest weren't generally known, government officials, the news media and the public took their assessments at face value.

The American Economic Association, the largest professional society for economists, decided last January to consider creating ethical guidelines for its membership. That is something that other academic associations, such as the American Sociological Association, have already done, but that the AEA for years resisted.

The group's change of heart was partly motivated by the public attention the documentary "Inside Job"-winner last February of an Academy Award-drew to the consulting relationships of several influential economists. Among them: Harvard University's Martin Feldstein, who served on the board of American International Group Inc. in 2008, when the government saved it from the brink of collapse, and Columbia Business School's Frederic Mishkin, a former Federal Reserve governor, who in a 2006 report sponsored by the Iceland Chamber of Commerce painted a bright picture of that remote country's economy, two years before it collapsed."

"The group is focusing on providing disclosure guidelines to economists when they face conflicts of interest, Mr. Solow said."

These are related articles that discuss Adam Smith and moral sentiments:

Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of)

Adam Smith vs. Bart Simpson

Adam Smith vs. Ace Ventura

Can Giving Up Money And Material Things Lead To More Love?

Life is full of tradeoffs, as we often say in economics. But a recent study suggests that couples who make money and material things less of a priority have better marriages. So it looks like you can trade money for love. See Materialism May Erode Couples' Relationships. Excerpts:

"Couples who place money and material things high up in their order of priorities are generally less happy than couples who believe money and possessions are not important, researchers from Brigham Young University, Utah, USA reported in the Journal of Couple & Relationship Therapy. The authors say their research confirms The Beatles lyrics "Can't Buy Me Love" holds true - "the kind of thing that money just can't buy is a happy and stable marriage"."

"Their statistical analysis found that couples who did not feel money and possessions were important scored approximately 10% to 15% higher on marriage stability and other relationship measures, compared to those who did."

"...the detrimental effects of materialism occur despite income levels - i.e. it has a negative effect on those with and without money."

See earlier posts on related topics:

What Do Men In China Need To Get A Bride?

Adam Smith, Marriage Counselor

A Special Valentine's Message On Romantic Love

Can You Put A Price Tag On Love?

Do Opposites Attract? Not Usually, Except Maybe When It Comes To Money

Return of the Love Headhunters

Was Steve Jobs A Hero?

I provide some thoughts and links below, but first, a brief commercial message:



If you understand the title of this blog, you know I that I think that Jobs was a hero.

The NY Times recently said that Steve Jobs isn't particularly heroic

They had an interesting article about teaching character in schools but they had the following passage:

"The CARE program falls firmly on the "moral character" side of the divide, while the seven strengths that Randolph and Levin have chosen for their schools lean much more heavily toward performance character: while they do have a moral component, strengths like zest, optimism, social intelligence and curiosity aren't particularly heroic; they make you think of Steve Jobs or Bill Clinton more than the Rev. Martin Luther King Jr. or Gandhi"

See "What if the Secret to Success Is Failure?"

Here is an article which says Jobs was a hero:

Why Steve Jobs is my hero by Sunil Sethi

Here is an article which says Jobs was not a hero:

Jobs no hero to working class by Harold Meyerson

Some Information On This Year's Winners Of The Nobel Prize In Economics

See Nobel Winners Saved Macroeconomics After Keynes by Edward Glaeser, writing for Bloomberg (Edward Glaeser is an economist as well). The winners were Thomas Sargent, of New York University, and Christopher Sims, of Princeton University, for work on “empirical macroeconomics.” The article mentions some things that we have been discussing or will soon discuss in macro:

John Maynard Keynes

The business cycle

Milton Friedman

Phillips curve

The relationship found between unemployment and inflation

Expectations

Economics Helps Swedish Poet Win The 2011 Nobel Prize in Literature

See Swedish Poet Transtromer’s ’Translucent Images’ Win Nobel from Bloomberg Businessweek. Excerpts:

"Tomas Transtromer, a Swedish poet and translator known for his depiction of nature and his economy of form, won the 2011 Nobel Prize in Literature.

He won the prize “because, through his condensed, translucent images, he gives us fresh access to reality,” the Swedish Academy said today in Stockholm."

"His lyrical, surreal works explore the natural world, “falling somewhere between dream and nightmare,” the Griffin Trust for Excellence in Poetry said on awarding him a Lifetime Recognition Award in 2007."

(some students might not be surprised to see economics and nightmare go together)

How Much Tax Revenue Could Legalizing Marijuana Raise?

This question came up in class this week and a student sent me a link about it. See The Budgetary Implications of Marijuana Prohibition by Harvard economist Jeffrey A. Miron. Here is the Executive Summary:

•Government prohibition of marijuana is the subject of ongoing debate.
•One issue in this debate is the effect of marijuana prohibition on government budgets. Prohibition entails direct enforcement costs and prevents taxation of marijuana production and sale.
•This report examines the budgetary implications of legalizing marijuana – taxing and regulating it like other goods – in all fifty states and at the federal level.
•The report estimates that legalizing marijuana would save $7.7 billion per year in government expenditure on enforcement of prohibition. $5.3 billion of this savings would accrue to state and local governments, while $2.4 billion would accrue to the federal government.
•The report also estimates that marijuana legalization would yield tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco.
•Whether marijuana legalization is a desirable policy depends on many factors other than the budgetary impacts discussed here. But these impacts should be included in a rational debate about marijuana policy.

"Data guys" More Important In Business Due To "Moneyball"

See When Data Guys Triumph by CADE MASSEY and BOB TEDESCHI, NY Times business section, 10-2-11.

Oakland A's general manager Billy Beane and author Bill James are entrepreneurs who created a whole new way of running baseball teams based on statistics and this creative spirit is starting to have an impact in the business world.

The Nobel prize winning physicist Richard Feynman said that "science is the belief in the ignorance of the experts." By challenging the experts in baseball, Beane and James were true scientists, asking questions and looking at data in new ways. Excerpts:

"JOSHUA MILBERG has plenty of business cred: an M.B.A. from Yale, experience in the mayor’s office in Chicago, a job as a vice president for an energy consulting firm. But all of that, Mr. Milberg says, matters less than his reputation as “the data guy” — someone who can offer insights through statistical analysis. And for that, he and a growing number of young executives can credit none other than “Moneyball: The Art of Winning an Unfair Game,” by Michael Lewis."

The book "...examines how the Oakland Athletics achieved an amazing winning streak while having the smallest player payroll in Major League Baseball. (Short answer: creative use of data.)

These managers are savvier with data and more welcomed in business circles in part because of the book."

"At its heart, of course, “Moneyball” isn’t about baseball. It’s not even about statistics. Rather, it’s about challenging conventional wisdom with data."

"This evangelism has created opportunities for the analytically minded."

The article calls this work "creative empiricism."

"But “Moneyball” dramatized the principles behind these forces: a reliance on data to exploit inefficiencies, allocate resources and challenge conventional wisdom — and thus broadened their appeal.

“Moneyball” traces Billy Beane’s use of unorthodox analytics to the work of Bill James. Working as a baseball outsider, Mr. James began self-publishing his analysis and commentary in 1977 and built a passionate following."

"Once people see the value of a batter’s O.P.S. — on-base plus slugging percentage, a key measure in the book — it’s a short step to applying similar principles in their own organizations."

"Generation Moneyball isn’t yet in charge. But as the Nobel laureate Max Planck once said, “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”"

How Well Do You Really Know The Rules of Acquisition?

Where would the economy of this quadrant of the galaxy be without the entrepreneurial spirit of the Ferengi? What is the foundation for their insatiable thirst for profits? It must be the aphorisms, guidelines, and principles called the Rules of Acquisition.

Rule number 1 is "Once you have their money, you never give it back."

My two favorites are

Rule 34: War is good for business

Rule 35: Peace is good for business.

And the one that has saved me more times than I can count

Rule 59: Free advice is seldom cheap.