Great Moments In Causation Vs. Correlation: Eat more chocolate, win more Nobels?

In chapter 1 of the macro textbook I use there is a discussion of association (correlation) vs. causation. Like if an NFC team wins the Super Bowl, the stock market goes up afterwards. But there was a great example of this in the news the other day called Eat more chocolate, win more Nobels? Here is the article:

"Take this with a grain of salt, or perhaps some almonds or hazelnuts: A study ties chocolate consumption to the number of Nobel Prize winners a country has and suggests it's a sign that the sweet treat can boost brain power.  

No, this does not appear in the satirical Onion newspaper. It's in the prestigious New England Journal of Medicine, which published it online Wednesday as a "note" rather than a rigorous, peer-reviewed study. The author — Dr. Franz Messerli, of St. Luke's-Roosevelt Hospital and Columbia University in New York — writes that there is evidence that flavanols in green tea, red wine and chocolate can help "in slowing down or even reversing" age-related mental decline — a contention some medical experts may dispute. Nevertheless, he examined whether a country's per-capita chocolate consumption was related to the number of Nobels it had won — a possible sign of a nation's "cognitive function."  

Using data from some major chocolate producers on sales in 23 countries, he found "a surprisingly powerful correlation." Switzerland led in chocolate consumption and Nobels, when looked at according to population. The United States is in the middle of the pack with the Netherlands, Ireland, France, Belgium and Germany. At the bottom were China, Japan and Brazil. The study only includes Nobels through last year — not the ones being announced this week.  

Curiously, Sweden should have produced only 14 winners according to its appetite for chocolate, yet it had 32. Messerli speculates that the Nobel panel, based in Sweden, may have "patriotic bias" toward fellow countrymen — or that Swedes are very sensitive to the effects of chocolate so that "even minuscule amounts greatly enhance their cognition."  

It is possible, he admits, that chocolate isn't making people smart, but that smart people who are more likely to win Nobels are aware of chocolate's benefits and therefore more likely to consume it. Sven Lidin, the chairman of the Nobel chemistry prize committee, had not seen the study but was giggling so much when told of it that he could barely comment.  

"I don't think there is any direct cause and effect," Lidin said. "The first thing I'd want to know is how chocolate consumption correlates to gross domestic product." Messerli also calculated the "dose" of chocolate needed to produce an additional Nobel winner — about 14 ounces per person per year, or about nine Hershey bars. He discloses that he is doing his part — he eats chocolate daily, mostly Lindt dark."

Maybe rich countries (with higher GDP) produce more prize winners since they can afford to spend more money on education and research. Those countries would also be able to afford to eat more chocolate. But, just to be on the safe side, eat more chocolate since the USA is only in the middle of the pack. It is your partriotic duty. And neither Obama nor Romney says what they will do about our chocolate deficit.

International Inflation Rates

OECD country inflation data. You will have to look for the pull down menu that says "Measure." Then pick the one that says "Percentage change from the previous period." That will get the annual inflation rates for different countries.

CIA World Factbook. Belarus had the highest with 52%. Ethiopia had 33.2% and Venezuela had 26.1. Four more countries had 20% or higher. Then another 24 countries had 10% or higher.

Supposedly Keynes said that in the German hyper-inflation of the 1920s, people would order 2 or more pitchers of beer at a time because the price would rise if they waited. But that meant the cost was drinking warm, stale beer later. Prices rose a trillion times in one year.

U.S. Fertility Rate Hits Lowest Level on Record

Click here to read the WSJ article by Conor Dougherty. The reason is the weak economy. Excerpt:

"The overall fertility rate for women in the U.S. — defined as the number of newborns per 1,000 women aged 15 to 44 — was 63.2 last year, down from 64.1 in 2010 and the lowest rate since the government started collecting these statistics in 1920.  

Ken Johnson, senior demographer at the Carsey Institute at the University of New Hampshire, notes that similar fertility drops occurred during the Great Depression — and never recovered. “The young women never made up for the births that they didn’t have,” he said.

Much of the delay in child-bearing has occurred among younger women, probably because they have more leeway in delaying their families than women who are closing in on the end of their fertility window. The most startling example: Hispanic women between 20 and 24 saw their fertility rate drop to 115 last year from 165 in 2007. White women between 20 and 24 saw their rate fall to 72 from 85 over the same period."

This has been going on for the past few years. See my earlier posts:

Did The Recession Help Lower The Birth Rate?

The Economy Affects The Birth Rate

Unemployment rate drops to 7.8% in September

Click here to read the LA Times story. The rate went down because of strong enough job growth, not because people dropped out of the labor force. The labor force participation rate rose from 63.5% to 63.6%. The percent of the adult population that has a job rose from 58.3% to 58.7%. The table below shows this latter number over time.

Click here and here to see the BLS data.

 

Click here to see international comparisons of unemployment rates by country from the CIA World Factbook

 

Click here to see international comparisons of unemployment rates by country from the OECD

 

The government does two different surveys that don't always give the same result. See Why Jobs Surveys Don't Always Tell the Same Story by BEN CASSELMAN of the WSJ. Excerpt:

 

"The monthly payroll number—how many jobs are gained or added in a month—is based on a survey of about 141,000 businesses and government agencies. The unemployment rate and related statistics are based on an separate survey of about 60,000 individual households.

 

The business survey is larger and generally more stable. Since the start of 2011, payrolls have grown by an average of 169,000 jobs a month. The growth, though slow, has been relatively consistent. Payrolls have risen by more than 250,000 only three times since the start of 2011, and by less than 50,000 only once.

 

The household survey is more volatile. The unemployment rate has fallen to 7.8% from 9% over the past year, but rather than a smooth downward trend, the rate has moved in fits and starts, and has even risen on occasion. The survey's tally of people with jobs—based on counting the number of people who say they are working, rather than the business survey's count of employees—has been even choppier."

Economist Has Plan To Save The Spiders

See Spiders and sense. It was a letter to the editor of The San Antonio Express-News:

"Re: “Rare spider has created a web of complications,” Front Page, Sept. 16:

The article pointed out how the finding of a rare cave spider has halted construction on the interchange between Texas 151 and Loop 1604. I would like to propose a simple, common-sense way to make the correct social choice and either proceed with the interchange or construct an alternative interchange at no added cost to the taxpayer.

I would propose that the cave containing the spider be sold at auction on eBay along with any genetic rights unique to spiders from that particular cave. Place as the reservation price, meaning the minimum bid that would be accepted, the extra cost arising from constructing an interchange without disrupting the habitat. I am sure the Texas Department of Transportation could estimate that cost.

That is all that needs doing. If the spider sells on eBay, that means the value of that spider and its habitat in the competitive market is greater than the cost of redirecting the interchange. The money raised from the sale would cover the cost of redoing the interchange. If the spider does not sell, that means preserving the spider and its habitat is simply not worth as much as the interchange would be. Either way, the result would be efficient. If only our regulators would allow it!"

Robert Collinge, retired economist and professor of economics, UTSA

Second Quarter GDP Revised From A 1.7% Increase To A 1.3% Increase!

My students know how sad and disappointing this news is. See GDP report: Economic growth revised lower. Why is this disappointing? Let's suppose that per gapita GDP is $50,000 (it is a little less than that right now). Now what if over the next 20 years GDP (actually real GDP) rises every year by 1.3% instead of just 1.7%? How much difference will this make?

First, we need to say what the annual per capita GDP increase will be. Per capital GDP is GDP divided by population. What if we assume that population grows 1% per year. Then instead of an increase in per capita GDP of 1.7%, it would be about 0.7% (and instead of 1.3%, it will be about 0.3%).

Compounding an annual increase of 0.7% over 20 years would leave us with a per capita GDP of $57,407. That is more than $4,000 above what it would be if we grow only 0.7% per year ($53,056). $4,000 less in everyone's pocket is bad news.

One technical note. When you see numbers like this reported in the media, real GDP did not increase 1.3% in the second quarter. It means that if it increased at the rate it actually did for that quarter for a whole year, then the yearly increase would be 1.3%. It would have increased about 0.325% for the quarter. If it does that for 4 straight quarters, the GDP will end up being about 1.3% higher than it was before.

The Supply And Demand Game

I play it in each class I teach. A former colleague taught it to me many years ago. As far as I know, I use the game invented by Edward Chamberlin and refined by Vernon Smith. Click here to see the Lessons From the Supply and Demand Game (a couple of people have emailed me about it recently).

How Much Do Environmental Regulations Cost?

See the interesting post at Freakonomics. It mentions a paper by Michael Greenstone, John List, and Chad Syverson. Here is the abstract:

"The economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago. Using detailed production data from nearly 1.2 million plant observations drawn from the 1972-1993 Annual Survey of Manufactures, we estimate the effects of air quality regulations on manufacturing plants’ total factor productivity (TFP) levels. We find that among surviving polluting plants, stricter air quality regulations are associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly large negative effects on productivity, though effects are also evident among particulates and sulfur dioxide emitters. Carbon monoxide regulations, on the other hand, appear to increase measured TFP, especially among refineries. The application of corrections for the confounding of price increases and output declines and sample selection on survival produce a 4.8 percent estimated decline in TFP for polluting plants in regulated areas. This corresponds to an annual economic cost from the regulation of manufacturing plants of roughly $21 billion, about 8.8 percent of manufacturing sector profits in this period."

Here is something I report in my microeconomics class:

"Thomas Hopkins at the Rochester Institute of Technology determined that the cost of all regulations over each year is about 8% of national income. The total cost from compliance and administration of both Economic and Social regulation, including state, local and federal levels, is more than $1 trillion annually (From the book Economics Today by Roger LeRoy Miller, 15e)"

Are "Soft" Skills Related To Unemployment?

See Hard Unemployment Truths About 'Soft' Skills by NICK SCHULZ in the WSJ. Excerpts:

"One of the [manufacturing] representatives looked sheepishly around the room and responded: "To be perfectly honest . . . we have a hard time finding people [workers] who can pass the drug test."

"... simply finding someone who could properly answer the telephone was sometimes a challenge."

"More than 600,000 jobs in manufacturing went unfilled in 2011 due to a skills shortage,..."

"...evidence suggests that many employers would be happy just to find job applicants who have the sort of "soft" skills that used to be almost taken for granted."

"...nearly 20% of employers cited a lack of soft skills as a key reason they couldn't hire needed employees. "Interpersonal skills and enthusiasm/motivation" were among the most commonly identified soft skills that employers found lacking. Employers also mention a lack of elementary command of the English language."

"More than half of the organizations surveyed reported that simple grammar and spelling were the top "basic" skills among older workers that are not readily present among younger workers. The SHRM/AARP survey also found that "professionalism" or "work ethic" is the top "applied" skill that younger workers lack."

"...manufacturers were finding it harder to find punctual, reliable workers today than in 2007..."

"Many people lack what the writer R.R. Reno has called "forms of social discipline" that are indispensable components of a person's human capital and that are needed for economic success."

How Did Astronauts Of The 60s "Purchase" Life Insurance?

See Neil Armstrong Couldn't Afford Life Insurance, So He Used a Creative Way to Provide for His Family If He Died. Excerpts:

"Back then astronaut captains made about $17,000 a year, NPR reports and a life insurance policy for Neil Armstrong would have run about $50,000 a year, or more than $300,000 in 2012 dollars."

So how did they "buy" insruance?

"It happened like this:

Because some guys from the prior Apollo missions had gotten colds and mild bouts of queasiness on their trips, NASA had implemented a quarantine procedure before liftoffs.

So about a month before they were set to go to the moon, Neil Armstrong, Michael Collins, and Buzz Aldrin were locked into a Plexiglas room together and got busy providing for their families the only way they could — they signed hundreds of autographs.

In what would become a common practice, the guys signed their names on envelopes emblazoned with various space-related images. The 'covers' would, of course, become intensely valuable should the trio perish on the mission. They're now often referred to as " Apollo Insurance Covers."

And to ensure the covers would hold maximum value, the crew put stamps on them, and sent them in a package to a friend, who dumped them all in the mail so they would be postmarked July 16, 1969 — the day of the mission's success — or its failure."

Has enough time passed so that everyone has forgotten that the economy ever had a problem?

It still doesn't seem like it. See Lehman Brothers, We Heard You Were Dead by ADAM DAVIDSON in Sunday's New York Times. He has a great quote from economist

"Kenneth Rogoff, who co-wrote the pre-eminent history of financial crises, “This Time Is Different,” told me that crises don’t end because new laws are enacted and politicians can be trusted again. In 1945, “the financial markets were devastated,” he said. “State and local governments had defaulted on everything. Lending had shrunk.” Somehow, though, the economy recovered and experienced nearly 30 years of robust growth. Confidence comes, he said, when “enough time passes so everyone forgets there was ever a problem.”"

I have quoted Rogoff before. See The Government Bailout: Are We Replacing Market Failure With Government Failure? and Gross public debt exceeding about 90% of annual economic output can slow growth.

Don't click on this link because it might be X-rated

Will Moving To NCAA Division I Status Pay Off For The University of the Incarnate Word?

See UIW looking to score more than points with football from The San Antonio Express-News.

"To understand why the University of the Incarnate Word is making the financially burdensome move to NCAA Division I status in coming months, University of Texas Professor Bob Heere suggests a quick trip downtown. There sits the Alamodome, which operates at an annual loss of more than $1 million. “The city of San Antonio uses the Alamodome to profile itself, to brand itself, to actually give their own citizens and residents a sense of community and something they can be proud of,” said Heere, a professor of kinesiology and health education who recently helped UTSA study the effect of adding Division I football to its athletic lineup. “College sports are exactly the same. You run at a loss, but in return, you hope it increases the sense of community.”"

"Like most of more than 340 Division I programs nationwide, UIW will extract millions from its general operating budget to subsidize athletics, counting on the intrinsic value of sports programs to counter the literal costs. Last season in Division II, UIW says it spent almost $9 million on athletics, including $4.9 million on scholarships. Of that, $1.6 million was committed to football operations and scholarships. In a buildup of expenses during the next four years, athletic director Mark Papich is targeting an eventual athletic budget of about $14 million, including almost $7.6 million for an additional 75 available scholarships for all sports."

"A recent study of NCAA data by Fulks showed virtually no Football Championship Subdivision program turns a profit in athletics. While the most successful Football Bowl Championship operations, such as Texas and Ohio State, can clear $35 million or more in a year, the typical FCS school spends about $9 million above what it generates in revenues annually."

“We do know that having a successful football team might have a positive effect on enrollment, but that's only temporary,” Heere said. “An unsuccessful team can have the opposite effect.” Added Michigan sports economics Professor Rod Fort: “The usual response is that it helps with student attraction and the quality of the undergrad and faculty pool. And there is a bit of evidence that is true — but in a very small amount.”"

Rod Fort has a sports/economics blog called Sports and Monsters. There is some evidence that a winning sports team can help a college. See The Flutie Effect: When The Teams Win, More Students Apply To The College.

A related post was There's A New Book On The Economics Of College Sports

Lobster Wars: U.S. vs. Canada

Update 9-19: The Washington Post reports US seafood catch reaches 17-year high, all regions show increases in catch numbers.

It looks like supply and demand are the main weapons. See Cheap Maine lobsters spark protests in Canada. Excerpt:

"Maine-caught lobster, whose abundance this summer has driven prices here to the lowest levels in a generation, has sparked angry protests among lobstermen in New Brunswick.

Fishermen in Cap-Pele, New Brunswick, blocked access to several processing plants Thursday to protest an influx of Maine lobster after being told they would be expected to provide fewer lobsters when their season opens next week.

Maine truck driver Leonard Garnett of Steuben talks with police at a Shediac, New Brunswick, processing plant after fishermen blocked his truck with the intention of leaving his load of lobsters to rot.

On Thursday morning, emergency tactical police teams responded to calls for help from two lobster processing companies in Cap-Pele, a small French-speaking town on the Northumberland Strait, 200 miles east of Calais.

The police encountered about 200 lobstermen and followed them as they moved from one plant to the other, demanding that the owners stop processing U.S. lobster, the CBC reported.

Both plants were reportedly closed, with workers sent home.

At midday, lobstermen in nearby Shediac spotted a tractor-trailer truck with Maine plates carrying a load of lobsters, according to the CBC, and blocked it in a driveway with the intention of leaving the lobsters to rot.

The blockades followed a meeting Wednesday night called by the Maritime Fishermen's Union, at which 400 lobstermen commiserated about cheap soft-shell lobsters from Maine that are flooding local processing plants before the opening of their summer fishing season.

Reports say they expressed concern that Maine lobster -- for which lobstermen are getting well under $3 a pound -- will undermine demand and prices for locally caught lobster."

Did a Nobel prize winning economist mathematically prove that character matters?

See Opting Out of the 'Rug Rat Race': For success in the long run, brain power helps, but what our kids really need to learn is grit. It is from the WSJ last week. Heckman found that students who don't graduate from high school but who later go on to get their GED have the same cognitive ability as those who did graduate. But they are way behind in things like graduating from college. Exerpt:

"What matters most in a child's development, they (psychologists) say, is not how much information we can stuff into her brain in the first few years of life. What matters, instead, is whether we are able to help her develop a very different set of qualities, a list that includes persistence, self-control, curiosity, conscientiousness, grit and self-confidence. Economists refer to these as noncognitive skills, psychologists call them personality traits, and the rest of us often think of them as character.

If there is one person at the hub of this new interdisciplinary network, it is James Heckman, an economist at the University of Chicago who in 2000 won the Nobel Prize in economics. In recent years, Mr. Heckman has been convening regular invitation-only conferences of economists and psychologists, all engaged in one form or another with the same questions: Which skills and traits lead to success? How do they develop in childhood? And what kind of interventions might help children do better?

The transformation of Mr. Heckman's career has its roots in a study he undertook in the late 1990s on the General Educational Development program, better known as the GED, which was at the time becoming an increasingly popular way for high-school dropouts to earn the equivalent of high-school diplomas. The GED's growth was founded on a version of the cognitive hypothesis, on the belief that what schools develop, and what a high-school diploma certifies, is cognitive skill. If a teenager already has the knowledge and the smarts to graduate from high school, according to this logic, he doesn't need to waste his time actually finishing high school. He can just take a test that measures that knowledge and those skills, and the state will certify that he is, legally, a high-school graduate, as well-prepared as any other high-school graduate to go on to college or other postsecondary pursuits.

Mr. Heckman wanted to examine this idea more closely, so he analyzed a few large national databases of student performance. He found that in many important ways, the premise behind the GED was entirely valid. According to their scores on achievement tests, GED recipients were every bit as smart as high-school graduates. But when Mr. Heckman looked at their path through higher education, he found that GED recipients weren't anything like high-school graduates. At age 22, Mr. Heckman found, just 3% of GED recipients were either enrolled in a four-year university or had completed some kind of postsecondary degree, compared with 46% of high-school graduates. In fact, Heckman discovered that when you consider all kinds of important future outcomes—annual income, unemployment rate, divorce rate, use of illegal drugs—GED recipients look exactly like high-school dropouts, despite the fact that they have earned this supposedly valuable extra credential, and despite the fact that they are, on average, considerably more intelligent than high-school dropouts.

These results posed, for Mr. Heckman, a confounding intellectual puzzle. Like most economists, he had always believed that cognitive ability was the single most reliable determinant of how a person's life would turn out. Now he had discovered a group—GED holders—whose good test scores didn't seem to have any positive effect on their eventual outcomes. What was missing from the equation, Mr. Heckman concluded, were the psychological traits, or noncognitive skills, that had allowed the high-school graduates to make it through school."

Captain Morgan's spiced rum at $47.52 a half gallon?

That is in Longview, Wash. See Liquor Buyers Cross State Line: Prices Went Up—Not Down—After Washington State Ended Control of Booze Sales, from the WSJ earlier this week. The state of Washington just recently privatized all of its liquor stores. Before that, privately owned stores could only sell beer and wine. Anyone wanting hard liquor had to go to a state owned store. Prices did not fall as expected because the state added some required fees.:

"Even before privatization, Washington had some of the nation's highest liquor taxes and fees, at $26.70 a gallon. The national average is $7.02 a gallon, said the Tax Foundation, a research group. Washington state's levies included government stores' 52% markup, a 21% liquor sales tax and a $3.77-per-liter excise tax.

And while those sales and excise taxes remain under privatization, new fees further raised prices: Liquor distributors must pay an additional 10% levy, and retailers another 17%. Distributors also are on the hook for any shortfall to the state if they don't generate $150 million from the 10% fee by April."

So Washington residents are crossing the border.

"In Rainier, the Oregon liquor commission said sales jumped 60%, compared with the same period last summer. Ms. Brumbles, of Rainier Liquor, added staff and store hours to meet demand from Washington shoppers. "You know how the week is before Christmas? It's like that every single day," she said."

The new, higher fees are helping to drive up the price in Washington. Part of those fees are passed along to the consumers in the form of higher prices. Businesses are not usually able to pass all of a tax like this along to the buyers. See If You Lower The Excise Tax On A Good By $1.00, Does A Firm Save $1.00 On Each Unit Sold?

Why Would A Weak College Football Team Agree To Play A Vastly Superior Team That Everyone Knows Will Win Easily?

Money. See Thrash-for-cash not such a bad thing for a financially strapped Savannah State. Yes, there is a Savannah State University and it needs money. So they agreed to play powerhouse Oklahoma State last week for a $385,000 payday. Oklahoma St. won 84-0. This week Savannah State University plays Florida State University and will recieve $475,000. Last week 6th ranked Florida State University beat Murray State University 69-3. Savannah St. must be getting a share of the ticket revenue and TV revenue when the go to play these other schools on the road.

Maker Of Thalidomide Apologizes

Thalidomide was sold to pregnant women in the 1950s and early 1960s to cure morning sickness. It was made by the German company Grunenthal. It caused serious birth defects before being taken off the market. See Thalidomide victims reject 'insulting' apology from drug company.

Thalidomide came up in my micro classes this week since we read a chapter from the book The Economics of Public Issues that discussed the dilemma the FDA faces in approving drugs.

There is a danger that the FDA will make a Type I error, meaning an unsafe drug is allowed onto the market. To try to avoid that, they can test a new drug for a long time to make sure it is safe. But in the mean time people might be dying because they cannot get the drug. When that happens, it is called a Type II error. This happened with Septra, an antibiotic. 

The book reports that "in 2006, the FDA gave physicians the OK to use it (thalidomide) in treating bone marrow cancer."

Another Semester Has Started

Welcome to any new students. I usually post something three times a week on Wed., Fri. and Sun. The next post should be next Wed. The entries usually have something to do with a basic economic principle that is related to a recent news story. If you want to learn more about me go to Why is college so hard?

Cartoon Teaches Economics "By Word Of Mouse"

It has Sylvester the cat but the real star is a little mouse who is an econmics professor. It is called "By Word Of Mouse." It was produced by Warner Brothers in 1954. Here is what IMDB says about it:

"This was the first of three cartoons on economic subjects underwritten by the Alfred P. Sloan Foundation. It was followed by Heir-Conditioned and Yankee Dood It."

Here is what Wikipedia says about it:

"Starting in 1950, New York University’s Institute of Economic Affairs received annual grants for projects concerned with educating the public on economics issues, including a series of educational animated short films through Warner Bros. Animation starring Sylvester and Elmer Fudd and directed by Friz Freleng that illustrate basic elements of capitalism. This series includes By Word of Mouse (1954), Heir-Conditioned (1955) and Yankee Dood It (1956)."

Great New Book On Neuroscience By Economist Paul Zak

It is called The Moral Molecule: The Source of Love and Prosperity. Zak coined the term neuroeconomics but this book seems to be about so much more than the title suggests. I doubt I can convey how interesting and well written this book is (I may not be totally objective since I am among the people thanked for their help in the acknowledgements).

Zak wrote a good summary article in The Wall Street Journal. See The Trust Molecule.

The "moral molecule" is oxytocin and the book explains many experiments that show that we tend to be more trusting when it is present or increases (how oxytocin affects us and works with other hormones and neurotransmitters is alot more complex than this, though, as Zak's work shows). How this is related to empathy is discussed and this is where Adam Smith comes in (his theories on sympathy).

The book examines when and why people are nice and when they are not. When are we altruistic and when are we selfish? The role that evolution played is examined. How this all affects us socially and politically is discussed. Zak is an expert on how trust is a key ingredient to the success of economies and trust is related to oxytocin. His experiments show what happens when people have their amount of oxytocin increased. How this is all related to relgion is discussed.

The book is also full of humorous anecdotes and personal stories. It is highly entertaining and thought provoking. The insights into human nature are amazing. I especially liked the discussion of "in-groups" and "out-groups." You don't have to be a neuroscientist or economist to understand it and it might be a great book for professors to assign to undergraduates.

It received an excellent review in The Wall Street Journal. See Kin and Kindness by MICHAEL SHERMER, publisher of Skeptic magazine and a monthly columnist for Scientific American.

Here are two articles about professor Zak's 2010 Mind Science Foundation 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 (these are two short articles by Zak that give you some idea of what he does in his experiments):

Neuroeconomics Explained, Part One

Neuroeconomics Explained, Part Two

Adam Smith vs. Bart Simpson. (A post of mine from last year and it also has a link to a video of Zak lecturing on all of this)

Joseph Campbell Meets Joseph Schumpeter (The Entrepreneur As Hero)

(Published in The New Leaders: The Business Bulletin for Transformative Leadership, November/December 1992.)

Entrepreneurs are heroes. They are not like heroes, they are heroes. Heroes and entrepreneurs are called to and take part in the greatest and most universal adventure that life has to offer: the simultaneous journey of self-discovery, spiritual growth, and the personal creativity they make possible. In fact, the entrepreneur’s journey closely resembles the journey of the “hero” in mythology, as outlined in the book The Hero With a Thousand Faces, by Joseph Campbell. There is an amazing and profound similarity between not only the journey that entrepreneurs take and the adventure of heroes but also in their personality traits. The comparison is profound because the myths are about universal human desires and conflicts that we see played out in the lives of entrepreneurs. 

But what is the hero's adventure? Campbell writes "The standard path of the mythological adventure of the hero is a magnification of the formula represented in the rites of passage: separation-initiation-return, which might be named the nuclear unit of the monomyth. A hero ventures forth from the world of common day into a region of supernatural wonder; fabulous forces are there encountered and a decisive victory is won; the hero comes back from this mysterious adventure with the power to bestow boons on his fellow man." How is the hero's adventure similar to the entrepreneur's adventure?

The hero's journey begins with a call to adventure. He or she is awakened by some herald which touches his or her unconscious world and creative destiny. The entrepreneur, too, is "called" to the adventure. By chance, he or she discovers a previously unknown product or way to make a profit. The lucky discovery cannot be planned and is itself the herald of the adventure.

The entrepreneur must step out of the ordinary way of producing and into his or her imagination about the way things could be to discover the previously undreamt of technique or product. The "fabulous forces" might be applying the assembly line technique or interchangeable parts to producing automobiles or building microcomputers in a garage. The mysterious adventure is the time spent tinkering in research and development. But once those techniques are discovered or developed, the entrepreneur now has the power to bestow this boon on the rest of humankind. 

Heroes bring change. Campbell refers to the constant change in the universe as "The Cosmogonic Cycle" which "unrolls the great vision of the creation and destruction of the world which is vouchsafed as revelation to the successful hero." This is similar to Joseph Schumpeter's theory of entrepreneurship called “creative destruction.” A successful entrepreneur simultaneously destroys and creates a new world, or at least a new way of life. Henry Ford, for example, destroyed the horse and buggy age while creating the age of the automobile. The hero also finds that the world "suffers from a symbolical deficiency" and "appears on the scene in various forms according to the changing needs of the race." The changing needs and the deficiency correspond to the changing market conditions or the changing desires for products. The entrepreneur is the first person to perceive the changing needs. 

Regarding personality traits, the hero and entrepreneur are risk-takers and creators. But what is the source of their creativity? People become creative when in the words of Campbell, they "follow their bliss." This is the message of mythology. It means you should engage in an activity, pursue a career or entrepreneurial venture because it is what you love to do and it gives you a sense of personal importance and fulfillment, not because the social system dictates that you do so. The drive comes from within. It is this courageous action that opens up doors and creative possibilities that did not previously exist. This is the journey of self-discovery and spiritual growth. Although it may be long, painful, and lonely, it is very rewarding.

Both the entrepreneur and hero are aided by mentors, are humble enough to listen to others in order to learn (and thus become creative), and face a road of trials where they must continually slay the demons and dragons of their own unconscious (such as fear, their egos) in order to discover their creative ability which ultimately comes from giving themselves up to a higher power. 

Ultimately, they become selfless and can see the creative possibilities that the universe offers. They become masters of two worlds, one of imagination and creativity and the other of material things and business. This mastery makes it possible for them to bestow the boon.

Here is a link to a longer, more academic version.

The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?  

A transcript of an interview when Joseph Campbell called entrepreneurs heroes

Is There A Tradeoff Between Helping The Poor And Protecting The Environment?

See Brazilian Forestry Legislation Advances By JOHN LYONS of The Wall Street Journal. It is about a law that Brazil just passed. Excerpts:

"The law, which eases restrictions for forest set-asides on farms and waives some fines for past clear-cutting, was backed by a new generation of lawmakers with links to Brazil's economically vital rural hinterlands. Farmers there long complained that existing laws were so strict as to classify the majority of farms as illegal and their owners as criminals."

"At the heart of the bid to update the law is an unsettling fact for environmental groups: Much of the Amazon forest slashed and burned in past decades is today extremely productive farmland."

"The controversies reflect a broader political dilemma for President Dilma Rousseff. Many of her left-wing Workers Party supporters also back environmental causes. At the same time, her administration is seeking to develop Brazil's vast natural resources to speed growth and help fund programs to lift millions of poor into the middle class."

Does Neuroscience Prove That You Should Follow Your Bliss?

The Freakonomicis guys, STEPHEN J. DUBNER and STEVEN D. LEVITT wrote an article in 2006 in the NY Times magazine called A Star Is Made. In it, they discussed the research of Anders Ericsson, a 58-year-old psychology professor at Florida State University. Here is a relevant passage:

"Ericsson's research suggests a third cliché as well: when it comes to choosing a life path, you should do what you love — because if you don't love it, you are unlikely to work hard enough to get very good. Most people naturally don't like to do things they aren't "good" at. So they often give up, telling themselves they simply don't possess the talent for math or skiing or the violin. But what they really lack is the desire to be good and to undertake the deliberate practice that would make them better."

See Never Too Late to Learn. It is a book review from Saturday's WSJ. The book reviewed was Guitar Zero by Gary Marcus. Here is the passage:

"Brain scans show that musicians' new neuronal connections vary according to the instrument they play. Violinists have their signature brain changes, brass players theirs. Loving what we do helps to form these new connections, because the same dopamine chemistry that gives us the pleasurable rush of reward consolidates new brain connections."

Of course, mythologist Joseph Campbell said "follow your bliss."

What does it mean to follow your bliss? In general, it means three things:

1. Money and material things are secondary (Campbell, 1988, pp. 148,229). The following is dialogue between Joseph Campbell and Bill Movers from The Power of Myth (1988,p. 148):

C: My general formula is "Follow your bliss." Find where it is, and don't be afraid to follow it.

M: Is it my work or my life?

C: If the work you're doing is the work that you choose to do because you are enjoying it, that's it. But if you think, "Oh, no! I couldn't do that!" that's the dragon locking you in. "No, no, I couldn't be a writer," or "No, no, I couldn't do what So-and-so is doing."

M: In this sense, unlike heroes such as Prometheus or Jesus, we're not going on our journey to save the world but to save ourselves.

C: But in doing that, you save the world (emphasis added).

Elsewhere, Campbell says that the savior is the one who can transcend the pairs of opposites (Briggs & Maher, 1989, p. 45). This means going beyond the duality of individual and group that is stressed in socio-economics (Campbell 1988, p. 229):

C: Each incarnation has a potentiality, and the mission of the life is to live that potentiality. How do you do it? My answer is, "Follow your bliss." There's something inside you that knows when you're in the center, that knows when you're on the beam or off the beam. And if you get off the beam to earn money, you've lost your life. And it you stay in the center and don't get any money, you still have your bliss.

Finally, Leeming sums up the Jungian importance of myths:

The person who lives without myths lives without roots, without links to the collective self which is finally what we are all about. He is literally isolated from reality. The person who lives with a myth gains 'a sense of wider meaning' to his existence and is raised 'beyond mere getting and spending" (Leeming, 1973, p. 321).

2. If you follow your bliss, doors (opportunities) will open up for you where they would not have opened up before. They will also open up for you where they would not have opened up for anyone else (Cousineau, 1990, p. 214). This echoes one of Campbell's favorite writers, Goethe:

Concerning all acts of initiative and creation, there is one elemental truth-the ignorance of which skills countless ideas and splendid plans: that the moment one definitely commits oneself, the Providence moves, too. All sorts of things occur to help one that would never otherwise have occurred (Catford & Ray, 1991, p. 5).

3. Following your bliss has to be contrasted with following a system or a social system. A system creates roles for us that are not of our own choosing. This dehumanizes us (Campbell, 1988, p. 143-144). The following is also dialogue between Joseph Campbell and Bill Movers from The Power of Myth (pp. 143-144):

M: Do movies create hero myths? Do you think, for example that a movie like Star Wars fills some of that need for a model of the hero?

C: I've heard youngsters use some of George Lucas' terms-"the Force" and "the dark side.' So it must be hitting somewhere. It's a good sound teaching, I would say.

M: I think that explains in part the success of Star Wars. It wasn't just the production value that made that such an exciting film to watch, it was that it came along at a time when people needed to see in recognizable images the clash between good and evil. They needed to be reminded of idealism, to see a romance based upon selflessness rather than selfishness.

C: The fact that the evil power is not identified with any specific nation on this earth means you've got an abstract power, which represents a principle, not a specific historic situation. The story has to do with an operation of principles not of this nation against that. The monster masks that are put on people in Star Wars represent the real monster force in the modern world. When the mask of Darth Vader is removed, you see an unformed man, one who has not developed as a human individual. What you see is a strange and pitiful sort of undifferentiated face.

M: What is the significance of that?

C: Darth Vader has not developed his own humanity. He's a robot. He's a bureaucrat, living not in terms of himself but in terms of an imposed system. This is the threat to our lives that we all face today. Is the system gong to flatten you out and deny you your humanity, or are you going to be able to make use of the system to the attainment of human purposes? How do you relate to the system so that you am not compulsively serving it? It doesn't help to try to change it to accord with your system of thought. The momentum of history behind it is too great for anything really significant to evolve from that kind of action. The thing to do is to learn to live in your period of history as a human being. That's something else, and it can be done.

M: By doing what?

C: By holding to you own ideals for yourself and, like Luke Skywalker, rejecting the system's impersonal claims upon you.

M: When I took our two sons to see Star Wars, they did the same thing the audience did at that moment when the voice of Ben Kenobi says to Skywalker in the climactic moment of the last fight, "Turn off your computer, turn off your machine and do it yourself, follow your feelings, trust your feelings." And when he did, he achieved success, and the audience broke out into applause.

C: Well, you see, that movie communicates. It is a language that talks to young people, and that's what counts. It asks, Are you going to be a person of heart and humanity-because that's where the life is, from the heart-or are you going to do whatever seems to be required of you by what might be called "intentional power"? When Ben Kenobi says, "May the Force be with you," he's speaking of the power and energy of life, not of programmed political intentions.

In the movie Star Wars, Luke Skywalker turns off his computer (the impersonal system) and relies on the "Force" or his intuition to destroy the Death Star.

Generally speaking, following your bliss unlocks your creative potential because you separate from your community or system. "You can't have creativity unless you leave behind the bounded, the fixed, all the rules" (Campbell, 1988, p. 156). Attaining the joy of being a creative, spiritually fulfilled person is probably the best thing we can do for ourselves.

Sources:

Briggs, D., & Maher, J.M. (1989). An open life: Joseph Campbell in conversation with Michael Toms. New York: Harper and Row.

Campbell, J. (1988). The power of myth. New York: Doubleday.

Catford, L., & Ray, M. (1991). The path of the everyday hero. Los Angeles: Tarcher.

Cousineau, P. (1990). The hero's journey: Joseph Campbell on his life and work. San Francisco: Harper.

Leeming, D.A. (1973). Mythology: The voyage of the hero. Philadelphia: J. B. Lippincott.

You've Heard About Death And Taxes, But What About Taxes And Death?

See Fatal car wrecks jump on tax day by Aaron Smith of CNN. Excerpts:

"The odds of getting into a fatal crash increase by 6% on tax filing day, according to a study published Wednesday in the Journal of the American Medical Association."

""One explanation is that stressful deadlines lead to driver distraction and worsen short-term human error," Dr. Redelmeier told CNNMoney. He said that sleep deprivation, greater use of alcohol, lower tolerance for other drivers, and the "unwanted distraction" of filing taxes could all contribute to a jump in accidents."

Are rich taxed less than secretaries?

Click here to read the article

Should the unemployment rate be lower given the current job-vacancy rate?

See On Jobs, No Time for a Celebratory Beveridge by JUSTIN LAHART of The Wall Street Journal. Excerpt:

"There were 3.5 million job openings at the end of February, the Labor Department said Tuesday, up from three million a year earlier. The job-vacancy rate, which measures job openings as a percentage of total jobs in the U.S., was 2.6%.

In the seven years before the recession, a vacancy rate of 2.6% was associated with an unemployment rate of about 5.7%. Now, the unemployment rate is much higher—it was 8.2% in March, down from 8.3% in February. That may augur a disturbing shift in the labor market that will keep more people out of work, slow the economy and make U.S. companies less profitable.

High job-vacancy rates come about because employers are having a hard time filling jobs. So they are associated with low unemployment rates. When vacancy rates are low, the opposite is true. Plot out unemployment rates against vacancy rates, and you get what is called the Beveridge curve, a downward-sloping line named after the late British economist William Beveridge.

But the Beveridge curve, nearly three years after the economy began to recover, looks different than it did before the recession struck in late 2007. Unemployment rates are much higher versus vacancy rates than they used to be. Shifts like that in the Beveridge curve suggest the labor market has become less efficient at matching workers with jobs, something that can happen when workers don't have the skills that employers need."

The problem could be a mismatch between the skills of the unemployed and the skills employers want (this is an example of structural unemployment). For those workers, they could be unemployed for a long time.

What’s the Easiest Way to Cheat on Your Taxes?

Click here to read this NY Times Magazine article. The easiest way is:

"Run your own company. More specifically, as Greg Kyte, a Utah C.P.A., puts it, be the sole proprietor of a Schedule C business. Then you can buy stuff for yourself and probably write it off as a business expense."

Other excerpts:

"When the modern income tax was created in 1913, the code was 27 pages long. Last year, it was 5,296 pages."

"“I’ve seen people with infant children claiming that their kids are doing work,” says Howard Rosen, a St. Louis-based C.P.A. “I’m talking about a 3-year-old doing filing,” Rosen says. “He didn’t even know the alphabet.”"

"For 2006, the most recent year for which data are available, the I.R.S. collected 86 percent of what it was owed in taxes. Most of this $385 billion shortfall came from underreporting income, which is often more creative than it sounds. Gambling winnings, for example, are taxable..."

"Loop­holes will cost the gov­ern­ment rough­ly $1 tril­lion in lost rev­e­nue this year..."

"The mortgage-interest deduction, which lets people deduct the interest they pay on their mortgages, requires the government to essentially write an annual check to everyone with a mortgage. The incentive was supposed to encourage more people to buy houses, but there’s not much evidence for this..."

"It does, however, encourage people to take out even bigger mortgages. It will cost the government an estimated $84 billion this year."

"Why is the tax code so complicated? The answer, according to most accountants, is simple: “exceptions to the exceptions,” which, typically, are extremely complicated."

Keynes As An Investor

See Keynes: One Mean Money Manager by Jason Zweig of The Wall Street Journal. This generated many comments and Zweig's response to them is at Keys to Thinking About Keynes. But not everyone thought Keynes was a great investor. See Was Keynes really a savvy investor? by Greg Mankiw of Harvard.

Here are excerpts from Zweig's article:

"From 1924 through 1946, while writing numerous books and overhauling the global monetary system, Keynes also found time to run the endowment fund of King's College at Cambridge.

Over that period, according to Messrs. Chambers and Dimson, Keynes outperformed the U.K. stock market by an average of eight percentage points annually, adjusted for risk.

Such great investors as Benjamin Graham, Peter Lynch, John Templeton and Warren Buffett beat the market by an annual average of three to 13 percentage points over their careers. Most of them, however, didn't have to cope with the Great Depression or World War II.

How did Keynes do it?

Flexibility, resilience and independence.

Keynes began as what we would today call a "macro" manager, relying on monetary and economic signals to rotate in and out of stocks, bonds and cash. He traded foreign currencies and commodities. As a director of the Bank of England, Keynes was privy to inside information about interest-rate changes, although there isn't evidence that he traded on it.

But Keynes wasn't a very good macro manager. He lagged behind the British stock market miserably until 1928, and he had 83% of his primary portfolio in stocks going into the fall of 1929.

"It's hard to time the markets," Mr. Chambers says. "Keynes struggled with it, and then he missed the 1929 crash—even with an unrivaled network of information sources."

So Keynes made a series of radical changes: He switched from being a "top down" asset allocator to a "bottom up" stock picker. He tilted sharply toward undervalued small and midsize companies.

Keynes also made titanic bets on industries he thought were cheap..."

Are Monkeys More Rational Than Humans?

See The Hard Science of Monkey Business by AMY DOCKSER MARCUS of The Wall Street Journal. It is about the research that Yale professor Laurie Santos and the economic experiments she does with primates (Capuchin monkeys). Excerpts:

"The primate lab is home to 10 "shockingly smart" brown Capuchin monkeys trained to trade tokens for food. It was a short leap for Dr. Santos and her team to decide to study how monkeys make decisions about money."

"In one experiment, they gave each monkey a wallet filled with 12 flat aluminum tokens, monkey money that the animals could trade for food. Right away, the scientists saw the similarities to human behavior. When researchers slashed the price on certain foods, the monkeys sought out the best deal. They also typically spent all their cash at once and didn't bother to save.

Then researchers decided to test a more complex economic theory which shows that people do not judge price in a vacuum. Sitting with the team at the coffee shop, Dr. Santos could see how the concept worked in her own life. Many days, she feels guilty about spending $2.20 on a cup of coffee. But when she looks up at the chalk board listing drink prices, the Nutella Latte goes for $3.85 and the Ginger Snap is $4.15. "My $2 cup doesn't seem as expensive anymore," she said.

Monkeys make similar assessments. In one experiment, a researcher showed a monkey two pieces of apple but handed over one in exchange for a token. A second researcher showed one piece of apple and gave the slice to the monkey for the token. The monkeys strongly preferred to trade with the second researcher. They did not like being offered two apple pieces and then only getting one."

"Researchers wondered whether monkeys, like humans, desire an expensive item more. For the same number of tokens, the monkeys could choose whether they got a tiny square of blue Jell-O or a big chunk of red Jell-O. Later, the monkeys were allowed to choose which kind they wanted. If the monkeys were like humans, they would have gone for the blue Jell-O, the more "expensive" choice. But the monkeys gorged happily on both.

The researchers are still gathering and analyzing the data. One possibility: Human taste preferences are based on many factors, whereas the monkeys' are not. Some might argue that human economic behavior is more advanced since it includes "culture and meta-awareness" in decision-making, said Dr. Santos. There's another, less flattering possibility too. "The monkeys," she said, "are more rational.""

Which Type Of Unemployment Is The Biggest Problem?

Ben Bernanke raised this issue in a recent speech. See Fed Signals Resolve on Rates: Cheap Credit Still Needed Despite Recent Employment Gains, Bernanke Says by JON HILSENRATH And KRISTINA PETERSON of the Wall Street Journal. Excerpt:

"The Fed chairman took on some thorny economic issues in making his case for low rates. Among them is the question of whether the nation's still-high unemployment rate represented a so-called cyclical problem that can be resolved simply by encouraging economic growth with low interest rates, or a fundamental structural problem in the labor markets that growth itself and the Fed can't fix.

Mr. Bernanke came down on the side of those who argue the problem is predominantly cyclical and low interest-rate policies are helping to alleviate it. But many economists disagree with him, and he acknowledged the matter isn't settled.

The debate about cyclical and structural unemployment has been going on for a couple of years. Economists generally say cyclical unemployment is caused when weakness in the overall economy pushes down demand for goods and services and therefore the need for workers that provide them. Structural unemployment reflects deeper problems, such as a gap between the skills workers have and those that employers want. Structural problems don't necessarily disappear as the economic recovery gains traction.

Mr. Bernanke—in making his case for primarily cyclical unemployment—pointed out that newly unemployed workers and long-term unemployed workers all experienced diminished prospects of getting new jobs during and after the downturn. That suggests the job market hasn't punished one group of people disproportionately to others. Instead, he said, there weren't enough jobs for a wide range of workers in a wide range of industries. "The fact that labor demand appears weak in most industries and locations is suggestive of a general shortfall of aggregate demand, rather than a worsening mismatch of skills and jobs," he said.

But some economists disagree and the stakes are high. "You could be seeing a policy error in the making," said Wells Fargo economist John Silvia, who lists an array of factors that he says point to structural problems in the job market, which he says faster economic growth can't resolve.

Employment of college graduates is up 5.8% in this recovery, while employment of high school dropouts is down 3.9%, according to Labor Department data. This suggests that low-skill workers are having a harder time finding work.

Mr. Silvia also notes that unemployment is especially high in certain occupations, such as construction. It is also high in places, such as Nevada, where many people can't move because they owe more on their mortgages than their homes are worth. He worries that the Fed's low-interest-rate policies might cause inflation and do little to resolve deeply embedded unemployment problems."

The WSJ also had an article called Time Not on Side of the Jobless. It mentions:

"But some economists argue that in the wake of a severe recession, the lines between cyclical and structural unemployment can become blurred. Workers who lose their jobs because of cyclical factors—a factory that lays off workers, a restaurant that closes, an office that decides to go without a front-desk receptionist—might stay out of work so long that they become effectively unemployable. Their skills erode, they fall behind on the latest technologies and industry trends, or they become stigmatized by employers who assume there must be something wrong with anyone who's been unemployed so long."

I discussed similar issues in one of my earliest posts from back in 2006. It was called Edmund Phelps, Meet Harry Hopkins. Phelps is a Nobel prize winning economist and Harry Hopkins was an adviser to FDR

Other related posts:

Structural Unemployment In The News

Untangling the Long-Term-Unemployment Crisis

A Reversal Of Structural Unemployment?

Robot Journalists-A Case Of Structural Unemployment?

Some Reasons Why Firms Are Not Hiring

Some Good Economic News

As a card carrying dismal scientist, I should not display optimism. But Google business news had 4 positive stories listed. Here they are:

S&P 500 Heads for Best First Quarter Since 1998. It is up 12% for the year!

Texas Unemployment Rate Down To 7.1 Percent. Excerpt:

"The state's jobless rate was down from 7.3 percent in January and has dropped a full percentage point since August, the Texas Workforce Commission said. February's unemployment rate is the lowest since March 2009." (The U. S. unemployment rate was 8.3% for February)

US consumer spending rises as unemployment falls. Excerpt:

"Consumer spending climbed 0.8pc in February, the Commerce Department said on Friday, following a 0.4pc increase in January.

The figure was better than the 0.6pc Wall Street economists had expected, and came as a separate survey put consumer confidence at its highest level since February last year."

Consumer sentiment index at highest rate since late 2007. Excerpt:

"High oil prices or not, American consumers are feeling more confident about conditions than at any time since the recession began in late 2007.

That's according to the latest survey by Thomson Reuters/University of Michigan, which reported Friday that its March consumer sentiment index climbed to 76.2 from 75.3 a month ago. That pushed up the average reading for the first quarter to the highest level since the fourth quarter of 2007.

What's been boosting sentiment? In a word, jobs.

The last three months have seen an acceleration of job growth, and the Reuters/Michigan survey found that more people heard news about employment gains than at any other time in the 60-year history of the survey. And only 19% said they thought the jobless rate would increase in the year ahead."

Economists see more reasons for optimism this year.

"Economists are increasingly confident that some pillars of the U.S. economy will improve this year, but they still remain cautious in their expectations on the overall pace of economic growth.

The National Association for Business Economics said Monday that forecasters have raised their expectations for employment, new home construction and business spending this year. But they held on to their average prediction that America's gross domestic product, or GDP, will grow at a rate of 2.4 percent. That's a slight improvement from 2011, when economists believe the economy grew 1.6 percent. Final economic growth numbers for 2011 are due out Wednesday.

GDP reflects the economy's total output of goods and services. The latest forecast is in line with one issued by the group in November that called for the economy to grow 2.4 percent this year. Forecasters predict growth will be stronger in the second half of 2012 than it will be through June."

I think this guy captures the excitement:

How can an economy that is growing so slowly produce such big declines in unemployment?

See Piecing Together the Job-Picture Puzzle by Jon Hilsenrath of The Wall Street Journal. Excerpts:

"Back in 1962, Yale University economist Arthur Okun described a long-running relationship between economic growth and jobs. When the economy grew faster than its long-run trend, the unemployment rate tended to fall by about half as much as the additional growth in percentage terms. So growth of 3.5% in a year—one percentage point above a long-run trend of 2.5%—would bring down the unemployment rate by a half percentage point in that year. And it worked the same way in reverse. Growth one percentage point below trend would push the unemployment rate up half a percentage point.

Economists called the relationship "Okun's Law." Forecasters still depend on this principle to make predictions about the future. But the law has been unreliable lately. Under the old rule of thumb, it would take growth between 4% and 5% to explain the improvements in unemployment in the past year—much more than the recovery has actually delivered."

"...Okun's Law also broke down in the other direction a few years ago..."

"Some of the miss was because the downturn turned out worse than expected and much of it was because unemployment rose more than Okun's Law predicted."

Why might Okun's Law not be working?

"...company managers were so shocked by the financial crisis in 2008 and 2009 that they fired workers more aggressively than they would in a conventional downturn."

"Over the past six months ... as fear and uncertainty have dissipated, firms appear to have reversed course and gone back toward more normal staffing levels."

One economist said

"these overshoots might soon run their course and that Okun's Law will reassert itself. When it does ... the unemployment rate could stall out at high levels because the economy isn't growing fast enough to justify more hiring.

"The only way unemployment will keep coming down is if GDP growth picks up substantially,"

But there are other potential sides to the story:

"Other story lines could be at play. The government's growth data are always a work in progress. Government statisticians regularly revise it as more information—such as more complete tax returns from businesses and households—becomes available. Revisions to the data could someday show the economy is actually growing more robustly than the data currently show. It is also possible that companies are on to something and they are hiring aggressively because they anticipate more growth than the data currently show.

A less sanguine explanation could be a dangerous productivity slowdown. It might be the case that the workers being hired aren't improving their productivity as much as workers had before. If they aren't as productive, companies need more of them."

Click here to read an earlier post about Okun's Law

Click here to read "Is Okun’s Law Really Broken?" by Justin Wolfers. It from 2010. A little on the technical side but very interesting.

Do Looks Help In The Job Market?

Maybe it is unfair, but it seems so. See The Beauty Premium by Christopher Shea of The Wall Street Journal. It describes a study done in Argentina where it is common for job applicants to include a picture with their resume. Here are excerpts:

"... attractive job candidates get called back 36% more often than unattractive ones,....

10.3 % of the attractive fictional candidates got called, compared with 7.6% of the unattractive candidates — and attractive people got called sooner. Attractive member of both sexes benefited from the beauty advantage."

Here are two earlier posts on related topics:

Do looks matter? (Yes, good looking workers get paid more even when taking other factors into account)

From The Life Is Not Fair Category: Better Looking, Tall, Thin People Make More Money

Bolivians fight over quinoa land

Not much I can add to this story. Click here to read it.

"LA PAZ, Bolivia (AP) — Bolivian authorities say at least 30 people have been injured in a fight between two communities over land for growing quinoa, the Andean "supergrain" whose popularity with worldwide foodies has caused its price to soar.

Oruro state police chief Ramon Sepulveda says combatants used rocks and dynamite against each other Wednesday and Thursday. A government commission was dispatched to the two high plains communities south of La Paz.

Farmland in the region is owned not by individuals but communities.

Authorities say the dispute is related to climate change because quinoa can now be cultivated in areas previously subject to frequents frosts.

Bolivia produces 46 percent of the world's quinoa, which has nearly tripled in price in the past five years."

Supply And Demand And Comic Books

See Man's childhood comic collection fetches $3.5M by Jamie Stengle of the Associated Press. Excerpts:

"A copy of Detective Comics No. 27, which sold for 10 cents in 1939 and features the debut of Batman, got the top bid at the New York City auction Wednesday. It sold for about $523,000..."

"Action Comics No. 1, a 1938 issue featuring the first appearance of Superman, sold for about $299,000..."

Why would a 10 cent comic from 1938 sell for so much now? There must be a great demand and it looks like there is not much of a supply since

"Of the 200,000 copies of Action Comics No. 1 produced, about 130,000 were sold and the about 70,000 that didn't sell were pulped. Today, experts believe only about 100 copies are left in the world..."

And barring fakes or forgeries or specially marked reprints, more copies of Action Comics #1 cannot be produced. So the price is not likely to fall very much.

DC Comics did issue some reprints in the 1970s, but they were over-sized and clearly marked as reprints. Click here to see some of them.

The CPI is about 16 times higher today than in 1939. That would make the price of Detective Comics #27 $1.60 instead of 10 cents. If you put $1.60 in an investment in 1939 and if it grew 19.29% per year for 72 years, it would end up being about $523,000 in 2011. If you put the $1.60 in the stock market and if it grew 10% per year for the 72 years, it would only end up being about $1,529 in 2011.

The Future Is Better Than You Think

That is the subtitle of a book recently reviewed in The Wall Street Journal. See Defying the Doomsayers: "Abundance" argues that growing technologies have the potential not only to spread information but to solve some of humanity's most vexing problems. The review mentions that some optimism might be good in these negative times although it discusses how over-optimism can be damaging. Perhaps the human race is always searching for the right or optimal amount of optimism.

The book they reviewed is called Abundance: The Future Is Better Than You Think by Peter H. Diamandis and Steven Kotler.

Here are excerpts from the review:

"Mr. Diamandis is the chairman and chief executive of the X Prize Foundation and the founder of more than a dozen high-tech companies. With his journalist co-author, he has produced a manifesto for the future that is grounded in practical solutions addressing the world's most pressing concerns: overpopulation, food, water, energy, education, health care and freedom. The authors suggest that "humanity is now entering a period of radical transformation where technology has the potential to significantly raise the basic standard of living for every man, woman, and child on the planet.""

"Given all the talk nowadays about income inequality, the authors' discussion of poverty is especially instructive. The number of people in the world living in absolute poverty has fallen by more than half since the 1950s. At the current rate of decline it will reach zero by around 2035. Groceries today cost 13 times less than 150 years ago in inflation-adjusted dollars. In short, the standard of living has improved: 95% of Americans now living below the poverty line have not only electricity and running water but also Internet access, a refrigerator and a television—luxuries that Andrew Carnegie's millions couldn't have bought at any price a century ago."

"Predictions of a rosy future have a way of sounding as unrealistic as end-is-nigh forecasts. But Messrs. Diamandis and Kotler are not just dreamers. They lay out a plausible road map, discussing, among other things, the benefits of do-it-yourself tinkering—like the work by geneticist J. Craig Venter in beating the U.S. government in the race to sequence the human genome—and the growing willingness of techno-philanthropists like Bill Gates to tackle real-world problems.

The biggest hurdles, however, are not scientific or technological but political. There are still too many corrupt dictators and backward-looking governments keeping millions in penury. But as we have seen lately, the misruled have a way of throwing off despotic governments. With ever more people reaching for freedom, countless millions are tacitly embracing the Diamandis motto: "The best way to predict the future is to create it yourself.""

Another book coming out now with a similar theme is The Coming Prosperity: How Entrepreneurs Are Transforming the Global Economy by Philip Auerswald.

Does high social class lead to unethical behaviors?

See New Studies Determine Which Social Class More Likely to Behave Unethically from the National Science Foundation. Excerpts are below but George Mason University economist Tyler Cowen had some interesting counterpoints. See How good are the upper classes?

"A series of studies conducted by psychologists at the University of California, Berkeley and the University of Toronto in Canada reveal something the well off may not want to hear. Individuals who are relatively high in social class are more likely to engage in a variety of unethical behaviors.

That is the finding of new research published in today's Proceedings of the National Academy of Sciences and it's a doozy.

"Our studies suggest that more positive attitudes toward greed and the pursuit of self-interest among upper-class individuals, in part, drive their tendencies toward increased unethical behavior," said lead researcher Paul Piff of UC Berkeley."

"Participants then played a "game of chance" in which a computer "randomly" presented them with one side of a six-sided die on five separate rolls. Researchers told participants higher rolls would increase their chances of winning a cash prize and were asked to report their total score at the end of the game. In fact, die rolls were pre-determined to sum up to 12. The extent to which participants reported a total exceeding 12 served as a direct behavioral measure of cheating.

Greed "is a robust determinant of unethical behavior," the researchers write in the report. "Plato and Aristotle deemed greed to be at the root of personal immorality, arguing that greed drives desires for material gain at the expense of ethical standards." For this study, the researchers conclude that, in part, due to their more favorable beliefs about greed, upper-class individuals are more willing to deceive and cheat others for personal gain."

(Hat Tip: Bruce Norton)

Sale Of The Nike All-Star Collection Sneakers Causes A Riot

See Riot erupts at Florida Mall during Nike All Star collection sneaker release event. Excerpt:

"A riot erupted late Thursday night at the Florida Mall as hundreds of people became disordelry vying to buy special NBA All Star sneakers at a special event at the Foot Locker. It was so bad police with riot shields and on horseback had to be called in."

"The full name of the sneakers is the Foamposite One Galaxy. It has a constellation-like print with a glow-in-the-dark sole and they were set to go on sale for the first time in stores at midnight Thursday at a retail price of $220.00. One thing that may have led to the increased demand at the store is that Nike decided not to sell the shoes online."

It seems like even $220 is below the equilibrium price if the quantity demanded is greater than the quantity supplied (at least on the first day or two). Perhaps part of what people are buying is being first. So any time price is too low you get a shortage and some other allocation method besides price takes over (like waiting in line).

If stores are so concerned about safety, they should consider selling it at a much higher price on the first day (with things like Play Stations, they end up getting sold for much more than the retail price on eBay very soon after the first day anyway). If some people object to such a high price or claim gouging, the store can remind people that they are trying to keep the peace and keep consumers safe. They could also pledge to donate some of the extra profit to charity. That could create some good will.

Back in 2006, police officers were allowed to go to the head of the line when the Play Station 3 came out. See If Prices Are Not Used, Other Allocation Methods Emerge: Police Officers Get PS3's First

See also How to Stop the PlayStation Violence

What’s an Oscar Really Worth?

Click here to read this CNBC article by Julia Boorstin. Excerpt:

"Oscar winners bring in 7.6 percent higher box office return on average than nominees that don’t win, according to IBIS world. On average, winners of Best Picture earned 57 percent of their total revenue before the nominees were announced, 27 percent once they were nominated and more than 15 percent after winning an Oscar. Nominees that didn’t bring home the gold earn just 5 percent of their total take after the awards show."

That means that, for example, “Extremely Loud and Incredibly Close,” which has grossed $31 million so far (not very much by Hollywood standards), would end up making about $36.5 million if it wins and $32.6 if it does not. So about an extra $4 million at stake.

It is not quite clear to me if those percentages are right. For winners we have 57 + 27 + 15 = 99, which is pretty close to 100% and it could just be a rounding issue. But for losers, it only adds up to 89%. Since they only get 5% after the awards show, the earlier numbers have to be higher than 57 and 27. If the earlier 95% has a 57/27 ratio, it would be something like 64% and 31%.

The article also discusses the economics of the cost of ads and ratings issues.