None Of The Contestants On Jeopardy Yesterday Knew What The Gini Coefficient Measures

They even had a pretty good hint. Click here to read all about it at Wikipedia.I cover the Gini coefficient every semester in my Principles of Microeconomics class.

The San Antonio College Newspaper Printed An Article I Wrote

Click here to read it

Percentage Of College Students Receiving Financial Aid Rises

See 7 in 10 Undergraduates Get Financial Aid, New Data From a Major Federal Study Show by Beckie Supiano of The Chronicle of Higher Education. Excerpts:

"Seventy-one percent of undergraduates received some form of aid in the 2011-12 academic year, up from 66 percent in 2007-8, according to the U.S. Department of Education's National Center for Education Statistics. Their average aid amount also went up, to $10,800 from $9,000 four years earlier..."

"Take the Pell Grant program, the main federal support for needy students. Forty-one percent of undergraduate students received a Pell Grant in 2011-12, up from 28 percent in 2007-8. Some of that increase was probably the result of lower-income adults going back to college in a weak economy and families finding themselves in worse financial positions as they faced the tuition bills for their children.

At the same time, policy changes expanding eligibility for the program also drove some of the increase."

"As for borrowing, the share of undergraduates with federal Stafford loans grew from 35 percent in 2007-8 to 40 percent in 2011-12, while the average amount they borrowed also went up, from $5,000 to $6,400."

The article also has some very detailed statistical tables.

See an earlier post called Are College Costs Actually Falling? The basic idea is that although the stated price (tuition) has been rising, so has financial aid.

Another post explained how financial aid is just price discrimination. Schools are just charging different prices to different students. See As college costs rise, sticker shock eased by student aid

Are People Driving Less Because Of The Economy Or Something Else?

See Americans Driving Less as Car Culture Wanes by JOAN LOWY of the Associated Press. Excerpts:

"After rising for decades, total vehicle use in the U.S. — the collective miles people drive — peaked in August 2007. It then dropped sharply during the Great Recession and has largely plateaued since, even though the economy is recovering and the population growing."

"... the average number of miles drivers individually rack up peaked in July 2004 at just over 900 per month..."

"By July of last year, that had fallen to 820 miles per month..."

"... the share of people in their teens, 20s and 30s with driver's licenses has been dropping significantly..."

"Researchers are divided on the reasons behind the trends. One camp says the changes are almost entirely linked to the economy."

"The other camp acknowledges that economic factors are important but says the decline in driving also reflects fundamental changes in the way Americans view the automobile. For commuters stuck in traffic, getting into a car no longer correlates with fun. It's also becoming more of a headache to own a car in central cities and downright difficult to park."

"Lifestyles are also changing. People are doing more of their shopping online. More people are taking public transit than ever before. And biking and walking to work and for recreation are on the rise.

Social networking online may also be substituting for some trips."

"Demographic changes are also a factor. The peak driving years for most people are between ages 45 and 55 when they are the height of their careers and have more money to spend, said transportation analyst Alan Pisarski, author of "Commuting in America." Now, the last of the baby boomers — the giant cohort born between 1946 and 1964 — are moving out of their peak driving years."

"There's also a driving gender gap. In a role reversal, there are now more women than men in the U.S. with driver's licenses"

"There are several economic factors that help explain the trends. Driving declines exactly mirror job losses among men during the recession, when male-dominated industries like manufacturing and construction were especially hard hit, researchers said. But average automobile use has declined recently even among those who have remained employed.

Economists say many Americans, especially teens and young adults, are finding that buying and owning a car stretches their financial resources. The average price of a new car is $31,000..."

"Then there's the cost of insurance, maintenance and parking. The price of gas has gone up dramatically over the past decade.

The share of younger workers who can find jobs is at an especially low ebb, while the cost of a college education — and with it student loans — is soaring."

"18- to 20-year-olds were three times more likely to have a driver's license if they lived in a household with an annual income above $100,000 than if they lived in a household with an income below $20,000."

Can Financial Stress Make It Harder To Think?

See Financial Stress May Hit Your Brain and Wallet by SETH BORENSTEIN, AP Science Writer. Excerpts:

"People worrying about having enough money to pay their bills tend to lose temporarily the equivalent of 13 IQ points, scientists found when they gave intelligence tests to shoppers at a New Jersey mall and farmers in India.

The idea is that financial stress monopolizes thinking, making other calculations slower and more difficult, sort of like the effects of going without sleep for a night.

And this money-and-brain crunch applies, albeit to a smaller degree, to about 100 million Americans who face financial squeezes, say the team of economists and psychologists who wrote the study published in Friday's issue of the journal Science.

If you are always thinking about overdue bills, a mortgage or rent, or college loans, it takes away from your focus on other things. So being late on loans could end up costing you both interest points and IQ points, Mullainathan said.

The study used tests that studied various aspects of thinking including a traditional IQ test, getting the 13 IQ point drop, said study co-author Jiaying Zhao, a professor of psychology and sustainability at the University of British Columbia."

Does Getting A College Degree Cause Income To Rise?

See The Tuition is Too Damn High, Part II: Why college is still worth it, by Dylan Matthews of the Washington Post.

The article says that the median income for people with a bachelor's degree is $49,600 (age 25 or older as of 2011). For people who stopped with a high school diploma it is $28,600.

But the article raises two interesting questions about whether or not the extra education caused the higher incomes

"But that alone doesn’t tell you that college is causing those earnings differentials. Maybe it’s just that naturally smart people tend both to get a lot of education and to earn a lot, but the two aren’t actually related. For example, Mark Zuckerberg and Bill Gates both went to Harvard and became billionaires, the theory goes, because they were smart. Harvard didn’t cause their riches. They dropped out before earning degrees, in fact. Their smarts caused both Harvard and the riches."

And

"There’s another strand of criticism that alleges that whatever effect college has on wages is an effect of signaling. It’s the degree that matters, as a way to tell employers you’re smart and accomplished, rather than what you learn in pursuit of the degree, under this theory. Note, first of all, that this doesn’t really negate the finding that college causes higher earnings. It just presents a slightly cynical explanation of how it is that college causes that earnings bump."

But then the article goes on further to describe some research that shows that, yes, the extra education does cause incomes to rise, over and above what you might expect even when you take the above issues into account.

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?

Can Morgan Stanley Help Bring Meaning To Your Money?

Click here to see their ad where they suggest that they can

Reminds me of an interesting book by the philosophy professor Jacob Needleman called Money and the Meaning of Life

Here is the Amazon summary

"If we understood the true role of money in our lives, writes philosopher Jacob Needleman, we would not think simply in terms of spending it or saving it. Money exerts a deep emotional influence on who we are and what we tell ourselves we can never have. Our long unwillingness to understand the emotional and spiritual effects of money on us is at the heart of why we have come to know the price of everything, and the value of nothing. Money has everything to do with the pursuit of an idealistic life, while at the same time, it is at the root of our daily frustrations. On a social level, money has a profound impact on the price of progress. Needleman shows how money slowly began to haunt us, from the invention of coins in Biblical times (when money was created to rescue the community good, not for self gain), through its hypnotic appeal in our money-obsessed era. This is a remarkable book that combines myth and psychology, the poetry of the Sufis and the wisdom of King Solomon, along with Jacob Needleman's searching of his own soul and his culture to explain how money can become a unique means of self-knowledge. As part of the Currency paperback line, it includes a "User's Guide" an introduction and discussion guide created for the paperback by the author -- to help readers make practical use of the book's ideas."

Are The San Antonio Spurs Guilty Of Outsourcing?

See Spurs Coach Gregg Popovich Says Foreign Hoops Players Are 'Fundamentally Harder Working'. According to the article "The eight foreigners on the Spurs constitute the most in the NBA in a season when there were a record number of foreigners."

Is The Rich-Poor Education Gap Getting Bigger?

See No Rich Child Left Behind SEAN F. REARDON, a professor of education and sociology at Stanford. From yesterday's NY Times. Excerpts:

"the children of the rich perform better in school, on average, than children from middle-class or poor families. Students growing up in richer families have better grades and higher standardized test scores, on average, than poorer students; they also have higher rates of participation in extracurricular activities and school leadership positions, higher graduation rates and higher rates of college enrollment and completion."

"...in the United States over the last few decades these differences in educational success between high- and lower-income students have grown substantially."

"...the rich-poor gap in test scores is about 40 percent larger now than it was 30 years ago."

"In the 1980s, on an 800-point SAT-type test scale, the average difference in test scores between two such children would have been about 90 points; today it is 125 points. This is almost twice as large as the 70-point test score gap between white and black children. Family income is now a better predictor of children’s success in school than race."

"...the proportion of students from upper-income families who earn a bachelor’s degree has increased by 18 percentage points over a 20-year period, while the completion rate of poor students has grown by only 4 points."

"...15 percent of high-income students from the high school class of 2004 enrolled in a highly selective college or university, while fewer than 5 percent of middle-income and 2 percent of low-income students did."

"The most potent development over the past three decades is that the test scores of children from high-income families have increased very rapidly. Before 1980, affluent students had little advantage over middle-class students in academic performance; most of the socioeconomic disparity in academics was between the middle class and the poor. But the rich now outperform the middle class by as much as the middle class outperform the poor"

"The income gap in academic achievement is not growing because the test scores of poor students are dropping or because our schools are in decline. In fact, average test scores on the National Assessment of Educational Progress, the so-called Nation’s Report Card, have been rising — substantially in math and very slowly in reading — since the 1970s. The average 9-year-old today has math skills equal to those her parents had at age 11, a two-year improvement in a single generation"

"...there is no evidence that average test scores have declined over the last three decades for any age or economic group."

"The achievement gaps between blacks and whites, and Hispanic and non-Hispanic whites have been narrowing slowly over the last two decades..."

"If we look at the test scores of white students only, we find the same growing gap between high- and low-income children as we see in the population as a whole."

"...schools don’t seem to produce much of the disparity in test scores between high- and low-income students. We know this because children from rich and poor families score very differently on school readiness tests when they enter kindergarten, and this gap grows by less than 10 percent between kindergarten and high school"

"The academic gap is widening because rich students are increasingly entering kindergarten much better prepared to succeed in school than middle-class students."

"Money helps families provide cognitively stimulating experiences for their young children because it provides more stable home environments, more time for parents to read to their children, access to higher-quality child care and preschool and...access to preschool test preparation tutors or the time to serve as tutors themselves."

"But rising income inequality explains, at best, half of the increase in the rich-poor academic achievement gap."

"High-income families are increasingly focusing their resources — their money, time and knowledge of what it takes to be successful in school — on their children’s cognitive development and educational success'

"But even though middle-class and poor families are also increasing the time and money they invest in their children, they are not doing so as quickly or as deeply as the rich."

"...from 1972 to 2006 high-income families increased the amount they spent on enrichment activities for their children by 150 percent, while the spending of low-income families grew by 57 percent over the same time period. Likewise, the amount of time parents spend with their children has grown twice as fast since 1975 among college-educated parents as it has among less-educated parents."

"The economists Garey Ramey and Valerie A. Ramey of the University of California, San Diego, call this escalation of early childhood investment “the rug rat race,"



 

The Pot Business Is Very Competitive In Colorado

The only question is if its perfect competition or monopolistic competition. See The Pot Business Suffers Growing Pains by ANA CAMPOY of The Wall Street Journal. Excerpts:

"But it turns out that trying to make a profit in this business is harder than expected. When grown and sold legally, marijuana can be an expensive proposition, with high startup costs, a host of operational headaches and state regulations that a beet farmer could never imagine. In Colorado, for example, managers must submit to background checks that include revealing tattoos. The state also requires cameras in every room that has plants; Mr. Klug relies on 48 of them.

Prices for pot, meanwhile, have plummeted, in large part because of growing competition."

"A major drag on earnings for marijuana growers is the labor-intensive nature of the business. Payroll can make up more than a third of production costs, says Jason Katz, chief operating officer of Local Product of Colorado. Managing workers is challenging too, he adds, in an industry where many learned their trade by growing clandestinely. His company went through six growers in three years before one worked out. "They aren't used to being part of regular society," he says.

Costs and management issues aside, the biggest shock to most marijuana growers has been pot prices. As the industry becomes more competitive and there is more pot available, the price for a pound of high-quality weed in Denver has slid from $2,900 at the beginning of April in 2011 to $2,400 in the same period in 2012 to $2,000 this year, according to Roberto's MMJ List, a service that connects wholesale sellers and buyers. At the height of summer demand in 2011, a pound sold for as much as $3,900.

To be sure, some experts say it is possible to do well. Roberto Lopesino Seidita, who runs the price list and consults for the industry, says some growers are pulling in double-digit margins by focusing on price, not just quality. They have developed ways to produce large amounts of pot cheaply, and offer it at unbeatable prices, driving hundreds of customers through the door every day. "It's run like Wal-Mart, he says."

"Offering an assortment of marijuana varieties with different flavors and prices, Mr. Klug says, has been key to building a client base. In the wood-and-metal displays at one of his stores, Mr. Klug offers high-end strains such as Phantom OG for $70 a quarter ounce, and cheaper ones such as Andy's Blue Dream, at $50 a quarter ounce."

"His advice for anyone who wants to become rich by legally dealing pot: "Start with lots of money.""

Students: Would You Like A Free College Education And Stipends Of $990 A Month For Six Years?

See Danes Rethink a Welfare State Ample to a Fault by SUZANNE DALEY of The New York Times. Even some liberal or left-wing politicians think the government has been too generous. Excerpt:

"Students are next up for cutbacks, most intended to get them in the work force faster. Currently, students are entitled to six years of stipends, about $990 a month, to complete a five-year degree which, of course, is free. Many of them take even longer to finish, taking breaks to travel and for internships before and during their studies."

There is even a man known as “Lazy Robert”

"Robert Nielsen, 45, made headlines last September when he was interviewed on television, admitting that he had basically been on welfare since 2001.

Mr. Nielsen said he was able-bodied but had no intention of taking a demeaning job, like working at a fast-food restaurant. He made do quite well on welfare, he said. He even owns his own co-op apartment.

Unlike Carina, who will no longer give interviews, Mr. Nielsen, called “Lazy Robert” by the news media, seems to be enjoying the attention. He says that he is greeted warmly on the street all the time. “Luckily, I am born and live in Denmark, where the government is willing to support my life,” he said"

Interesting New Book: With Charity for All

The full title is: With Charity for All: Why Charities Are Failing and a Better Way to Give. It is by Ken Stern. Click here to read the WSJ review by MEGHAN CLYNE. Excerpts:

"D.A.R.E. (Drug Abuse Resistance Education) didn't work. Long-term studies have shown overwhelmingly that the program produced no meaningful reduction in drug use and in some cases actually made kids more likely to use drugs. Yet the nonprofit survives, having consumed an estimated $10 billion to $15 billion in donor and taxpayer funds over the past decade."

"From one-person startups to powerhouses like the Red Cross, charities have plenty of good intentions, slick fundraisers and promotional "happy sheets," but they often fail to solve the social problems they are intended to address. As an example, Mr. Stern highlights fashionable water charities that drill wells in Third World countries with much fanfare but are then unable to maintain them."

"The charitable sector is also plagued by corruption and fraud. Even when nonprofits obey the letter of the law, many defy the spirit of their tax-exempt status, differing in no meaningful respect from for-profit enterprises. Among the more laughable examples are the nation's college-football bowl games, which defend their charitable status by pointing out that they donate some of their proceeds to other nonprofits."

"The IRS approves more than 99.5% of all charitable applications, creating more than 50,000 new charities each year. Once a nonprofit is started, the IRS and state regulators exert negligible oversight; even charities exposed as scams can be nearly impossible to shut down."

"According to one survey, 65% of donors don't research the effectiveness of the organizations to which they contribute; the remaining 35% tend to make only a cursory effort."

I wonder what Adam Smith would say. Although he said people were motivated by self-interest and that is how things got done in the market place, he also thought people could be motivated by sympathy. See this earlier post: Adam Smith vs. Bart Simpson.

Another article that is relevant and interesting is Have We Evolved to Be Nasty or Nice? by MATT RIDLEY of the WSJ. It suggests that whether we are selfish or cooperative depends on the circumstances. If we are nice, then we would never see charities being corrupt. But if we were nasty, we would never donate money to charities. So the truth may be complicated.

How Recessions Affect Young People

This is actually a post from 2010. But this kind of issue came up in a NY Times magazine article last week. See Do Millennials Stand a Chance in the Real World? by ANNIE LOWREY.

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

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

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

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

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

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

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

The Herfindahl-Hirschman Index & The Anheuser-Busch InBev/Grupo Modelo Merger

The Herfindahl-Hirschman Index is a way of measuring how competitive or concentrated an industry is. The market share of each firm in an industry is squared and then all those numbers are added up to get the HHI. This number can play a role in decisions by the Justice Department on mergers.

The Anheuser-Busch InBev and Grupo Modelo want to merge. They both make beer. Anheuser-Busch InBev has 39% of the market and Grupo Modelo has 7%. The increase in the HHI would be 2*39*7 = 546. That would raise the HHI to over 2800. The Justice Department wants to stop the merger becuase the increase in the HHI is too big for a highly concentrated industry. Competition would be hurt too much.

Click here to read the Justice Department complaint. It includes a nice pie chart showing the market shares of brewers. Miller is 2nd with 22%. So right now two firms have more than half the U. S. market. The Justice Department document also shows that in many local markets the HHI could be much higher. Most textbooks say an HHI of 1800 means a concentrated industry while this document uses 2500.

Click here to read a Wall Street Journal editorial about the merger from February that also mentions the HHI.

Study of Men’s Falling Income Cites Single Parents

Click here to read the NY Times article by BINYAMIN APPELBAUM from March 20. Excerpts:

"The decline of two-parent households may be a significant reason for the divergent fortunes of male workers, whose earnings generally declined in recent decades, and female workers, whose earnings generally increased, a prominent labor economist argues in a new survey of existing research.
      

David H. Autor, a professor at the Massachusetts Institute of Technology, says that the difference between men and women, at least in part, may have roots in childhood. Only 63 percent of children lived in a household with two parents in 2010, down from 82 percent in 1970. The single parents raising the rest of those children are predominantly female. And there is growing evidence that sons raised by single mothers “appear to fare particularly poorly,” Professor Autor wrote in an analysis for Third Way, a center-left policy research organization.

      

In this telling, the economic struggles of male workers are both a cause and an effect of the breakdown of traditional households. Men who are less successful are less attractive as partners, so some women are choosing to raise children by themselves, in turn often producing sons who are less successful and attractive as partners.

      

“A vicious cycle may ensue,” wrote Professor Autor and his co-author, Melanie Wasserman, a graduate student, “with the poor economic prospects of less educated males creating differentially large disadvantages for their sons, thus potentially reinforcing the development of the gender gap in the next generation.”

      

The fall of men in the workplace is widely regarded by economists as one of the nation’s most important and puzzling trends. While men, on average, still earn more than women, the gap between them has narrowed considerably, particularly among more recent entrants to the labor force."
 

"...one study finding that single mothers spent an hour less per week with their sons than with their daughters. Another study of households where the father had less education, or was absent entirely, found the female children were 10 to 14 percent more likely to complete college. A third study of single-parent homes found boys were less likely than girls to enroll in college." 

Should Employers Penalize Employees Who Don't Engage In Healthy Behavior?

See Employers increasingly are looking to lower their health care costs by using incentives such as cash rewards by Katie Thomas of the New York Times. Excerpts:

"Employers increasingly are looking to lower their health care costs by using incentives such as cash rewards to persuade workers to make better lifestyle choices, according to survey findings released Monday.

But the survey, by Aon Hewitt, a human resources consulting company, also found that employers aren't always so benevolent: A growing number also are penalizing workers who do not make healthy changes, such as quitting smoking or losing weight.

The survey, of 800 large and midsize employers in the United States, found that 84 percent use some kind of carrot or stick to try to nudge employees to improve their health. Of those, 79 percent offer rewards, while 5 percent imposed penalties. Sixteen percent used a mix of both."

"CVS Caremark, the large pharmacy and drug-benefit provider, recently said it would require its employees to report their weight, blood sugar and cholesterol or be forced to pay an annual penalty of $600. It also will require that smokers try to quit."

Is there sufficient evidence to conclude that women experience systematic pay discrimination?

In one of my micro sections we read a chapter about pay for men and women in the book The Economics of Public Issues.

Is there sufficient evidence to conclude that women experience systematic pay discrimination? Not according to Harvard economist Claudia Goldin. See The Truth About the Pay Gap: Feminist politics and bad economics by Steve Chapman. Here is an excerpt from that article:

"I [Chapman] 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."

The divergent career paths of men and women may reflect a basic unfairness in what's expected of them. It could be that a lot of mothers, if they had their way, would rather pursue careers but have to stay home with the kids because their husbands insist. Or it may be that for one reason or another, many mothers prefer to take on the lion's share of child-rearing. In any case, the pay disparity caused by these choices can't be blamed on piggish employers.

June O'Neill, an economist at Baruch College and former director of the Congressional Budget Office, has uncovered something that debunks the discrimination thesis. Take out the effects of marriage and child-rearing, and the difference between the genders suddenly vanishes. "For men and women who never marry and never have children, there is no earnings gap," she said in an interview."

This issue came up recently in the San Antonio Express-News. See Texas wage gap 12th-lowest. The problem with saying women make 77 cents for every dollar that men make is that it does not take things like occupation and years of experience into account. In 2007 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 never heard back:

"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?"

The Federal Reserve Bank of St. Louis just issued a report that says Gender Wage Gap May Be Smaller Than Many Think. Excerpts:

"...the gap between the median earnings for men and women was 16.5% in the second quarter of 2011, a historical low and down from 30% in 1989. ... the gender wage gap is very likely affected by the disparity of men in higher paying professions. That disparity, while troublesome all on its own, may be skewing the data.

“Research suggests that the actual gender wage gap (when female workers are compared with male workers who have similar characteristics) is much lower than the raw wage gap,” the authors write.

... after having children many women prefer jobs that have lower pay but better benefits — either better health-care coverage or other perks like a more flexible work schedule.

Economists Eric Solberg and Teresa Laughlin applied an index of total compensation, which accounts for both wages and benefits, to analyze how these benefits would affect the gender gap. They found a gender gap in wages of approximately 13%. But when they considered total compensation, the gender gap dropped to 3.6%,” the authors write."

Is There Economic And Political Meaning In "The Wizard of Oz?"

To get a handle on this, you can read Money and Politics in the Land of Oz By Quentin P. Taylor. Also, for my students, there is an article in chapter 15 of the micro book by Tucker and in chapter 18 in the macro book.Below is an excerpt:

"Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle Henry-is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?"

But not everyone agrees with this. Economist Bradley Hansen wrote an article titled The Fable of the Allegory: The Wizard of Oz in Economics in the Journal of Economic Education in 2002. Here is his conclusion:

"Rockoff noted that the empirical evidence that Baum wrote The Wonderful Wizard of Oz as an allegory was slim, but he compared an allegorical interpretation to a model and suggested that “economists should not have any difficulty accepting, at least provisionally, an elegant but controversial model” (Rockoff 1990, 757). He was right—we did not have any difficulty accepting it. Despite Rockoff’s warning, we appear to have accepted the story wholeheartedly rather than provisionally, simply because of its elegance. It is as difficult to prove that The Wonderful Wizard of Oz was not a monetary allegory as it is to prove that it was. In the end, we will never know for certain what Baum was thinking when he wrote the book. I suggest that the vast majority of the evidence weighs heavily against the allegorical interpretation. It should be remembered that no record exists that Baum ever acknowledged any political meanings in the story and that no one even suggested such an interpretation until the 1960s. There certainly does not seem to be sufficient evidence to overwhelm Baum’s explicit statement in the introduction of The Wonderful Wizard of Oz that his sole purpose was to entertain children and not to impress upon them some moral. The Wonderful Wizard of Oz is a great story. Telling students that the Populist movement was like The Wonderful Wizard of Oz does seem to catch their attention. It may be a useful pedagogical tool to illuminate the debate on bimetallism, but we should stop telling our students that it was written for that purpose."

What Do An Obama Economic Advisor And A Bush Economic Advisor Agree On?

They both agree that the Earned Income Tax Credit (EITC) program is a better anti-poverty program than the minimum wage.

Click here to read what the Bush advisor says (Greg Mankiw, who was the chair of the Council of Economic Advisors under GW Bush)

Click here to read what the Obama advisor says (CHRISTINA D. ROMER, who was the first chair of the Council of Economic Advisors under Obama)