Before You Criticize Free Trade, You Should Read Douglas Irwin's Book Free Trade Under Fire

Here is the the Amazon link:

Free Trade Under Fire: Third Edition

I think it does a good job of debunking and refuting many of the mis-conceptions about trade. Irwin is an economics professor at Darmouth Univiersity who has published many book. Here is the Aamzon description:

"Growing international trade has helped lift living standards around the world, and yet free trade is always under attack. Critics complain that trade forces painful economic adjustments, such as plant closings and layoffs of workers, and charge that the World Trade Organization serves the interests of corporations, undercuts domestic environmental regulations, and erodes America's sovereignty. Why has global trade become so controversial? Does free trade deserve its bad reputation?

In Free Trade under Fire, Douglas Irwin sweeps aside the misconceptions that litter the debate over trade and gives the reader a clear understanding of the issues involved. This third edition has been thoroughly updated to include the latest developments in world trade--including the practice of off-shoring services, the impact of trade on wages, and the implications of trade with China-based on the latest research."

My own review is below after a letter to the editor that I had published in the Wall Street Journal about NAFTA.

A student in my class said something like "free trade works in theory, but not in practice." I think it actually works pretty well in practice, as Irwin shows in his book. The Nobel prize winning economist Paul Krugman wrote a great article explaining how you need theory to understand what happens in practice. See The Accidental Theorist.

Now my letter and review. My letter is about how wages went up and unemployment went down in the years immediately after NAFTA was went into effect.

This was published for the most part as a letter to the editor to The Wall Street Journal on Wed., May 4, 2005, page A19. Links to all of the data sources from the Department of Labor are listed at the end of the article.


In the Sunday April 10 edition of the San Antonio Express-News, both Carlos Guerra and Stefanie Collins warned of the dangers of the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA). Any trade agreement is likely to be complex, with many clauses and stipulations worked out over the negotiating table. Perhaps there are dangers to workers and the environment that should be discussed. But I don’t want to defend DR-CAFTA here, since Henry Cisneros had already explained its good points the previous Sunday.

I want to address the job loss issue that both Mr. Guerra and Ms. Collins mentioned in their critiques of DR-CAFTA. They both mentioned large job losses, especially in manufacturing, that resulted from NAFTA, which went into effect in 1994. Mr. Guerra wrote, “more than 2 million manufacturing jobs vanished, most moving to Mexico…” Ms. Collins was more specific (although she mentioned a smaller figure): “Since NAFTA was signed in 1993, the U.S. trade deficit with Canada and Mexico has risen and led to the loss of 879,280 jobs through 2002. Most were high-paying manufacturing jobs.”

Was this the case? Did NAFTA cause the U.S. to lose so many jobs, especially high-paying manufacturing jobs? Probably not. I say probably, since causality, in any social science (economics included), is difficult to prove since so many factors change so quickly in the real world. But if many high-paying manufacturing jobs were lost, it took many years until after NAFTA went into effect before they were.

Let’s start with jobs in general. The U.S. unemployment rate was 6.9% in 1993, the year NAFTA was agreed to. It was 6.1% in 1994. The rate fell steadily until reaching 4.0% in the year 2000. Even in 2002, the year after we had a recession, the rate was 5.8%, lower than the year NAFTA went into effect.

But what about manufacturing jobs? We had just about 17 million in 1994. It actually rose to 17.56 million in 1998 and was at 17.26 in 2000 (still higher than in 1994 the year NAFTA went into effect). Then we had a recession in 2001 and since then the number of manufacturing jobs has fallen quite a bit, down to 14.3 million. So that is a loss of nearly 3 million since 2000, which might be due to the recession. If it were due to NAFTA, then why did it take so long for the loss to happen?

But what about wages? Ms. Collins mentioned that we had lost many high-paying jobs. But real hourly wages have risen since 1994 for all workers. For all workers, hourly wages rose 38.4% while the Consumer Price Index (CPI) just rose 27.1%, hence the real gain. For manufacturing jobs, hourly wages also rose more than prices, with a 34.1% gain. But a pre-NAFTA comparison is in order. From 1984-1994, hourly wages for all workers rose 33.5%, while the CPI rose 42.2%, indicating a fall in real wages. The same happened for manufacturing jobs with hourly wages rising only 33%, well under the rise in prices. So it looks like workers did better in the years after NAFTA went into effect than before.

Economists generally like trade since it allows each nation to specialize in the goods it can produce most efficiently. The increased output can be traded to other nations for their increased output. In that case, jobs move from one industry to another. For example, although we lost manufacturing jobs, we gained about 2 million construction jobs from 1994-2004, which paid well. In 2004, the average hourly wage for construction workers was $19.23. Construction wages also showed real gains from 1994-2004 while showing losses in the 1984-94 pre-NAFTA period.

So my educated guess is that NAFTA caused no significant job loss or wage loss. We probably should not be against DR-CAFTA based on the job impact of NAFTA. I used data from various U. S. Department of Labor websites. Feel free to email me about these sources.

Book Review


Free Trade Under Fire: Second Edition
By Douglas A. Irwin
Princeton University Press, $19.95

“No nation was ever ruined by trade,” said Ben Franklin. Simply put, but in addition to Franklin, the case for free trade has an impressive intellectual lineage that includes supporters such as Montesquieu, Adam Smith, David Ricardo and John Stuart Mill. Many of their theories and observations about trade have been verified by modern statistical and economic analysis. This is all covered Irwin’s book.

Irwin, who shows that many popular beliefs about trade are wrong, is an economics professor at Dartmouth University. He has published a large number of articles on trade in peer-reviewed journals, including several in the American Economic Review. But he also taps the research of many other noted economists like Paul Krugman and Jagdish Bhagwati.

What is good about trade? It increases specialization in each nation which leads to greater efficiency and productivity which in turn leads to greater incomes. Consumers can buy a greater variety of goods, not just more goods. Nations that opened up to trade have generally taken advantage of these forces.

When nations close themselves to trade, as the U. S. did in 1807, the economy suffers (the embargo was lifted after about a year since everyone knew it was causing serious economic damage in terms of higher prices and lower incomes).

What popular beliefs about trade are wrong? Trade does not necessarily hurt the environment. Pollution often results from non-trade reasons. Sometimes blocking trade hurts the environment, since doing so depresses incomes and in the long run, higher incomes mean more resources to clean the environment.

In some countries that block agricultural imports, farming expands into ecologically sensitive areas while increasing the use of pesticides and fertilizers (which happens less in nations that are better suited to farming).

Developing countries that embraced free trade (like China and India) have generally done better than those who have not. Workers in third world countries are often helped by foreign investment by multi-national companies.

Imports and rising trade deficits don’t necessarily hurt wages (which are greatly affected by productivity growth) or raise unemployment in the United States (and if we try to protect domestic jobs with higher tariffs, foreign countries earn fewer dollars so they buy fewer U.S. goods, which reduces jobs here). Irwin points out, as does Paul Krugman, that if unemployment rates really do rise due to trade agreements, the U.S. government can use the appropriate macroeconomic policies to increase aggregate demand, thus raising employment.

But jobs are not usually lost, since exports and imports generally increase and decrease together (and when the import to export ratio rises it is usually because oil prices have risen, not because we are being flooded with cheap imports). In fact, protectionism is rarely beneficial. Protecting jobs can be expensive. It costs consumers $140,000 a year to preserve each domestic textile job since tariffs raise prices.

The book contains many interesting tidbits. Many fewer American workers are exposed to international competition now than in 1960. The United States runs surpluses in the trade of services, even computer services. The opening of McDonald’s restaurants in Hong Kong in the 1970s forced other restaurants to keep their bathrooms clean (which were filthy before).

Dirty industries don’t migrate to third world countries. Tariffs on textiles and apparel are like a regressive tax, hurting low-income groups the most through higher prices. Most of what the United States imports are intermediate goods that are used to produce other goods (if we raise tariffs we would directly hurt American companies that need these resources).
A very small percentage (like 2-3%) of jobs lost each year are lost due to imports or outsourcing. The share of the GDP made up by manufacturing has changed little since 1970, so that sector is not in decline. Organizations like Oxfam are beginning to see the benefits of trade. Dumping of low price imports into the United States causes little damage.

In some cases he perhaps goes into too much detail. A few theoretical aspects of trade could have been better explained. But there is so much good material in this book reading only part of it is valuable. He also gives a fair presentation of the arguments against free trade.

Irwin’s knowledge and understanding of the legal, political and historical aspects of trade and trade agreements is as impressive as his economic knowledge. But, as he notes, “free trade is not a magic bullet” for prosperity. What is needed is “Stable macroeconomic policies, the rule of law, and the protection of property rights that enable the market mechanism to function properly [which] are preconditions for reaping the full benefits of international trade.” With issues like Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) on the horizon, this book is timely and important.

You Can Make How Much Just For Passing A Drug Test?

See Regulator says pipeline fight raises issues for lawmakers. Excerpt:

"[Barry] Smitherman, whose agency regulates the oil and gas industry in Texas, spoke at a daylong energy conference hosted by the Greater Houston Partnership, offering an unabashed defense of fossil fuels and the shale oil and gas renaissance.

"I've always heard that solar panels are only two years away from parity with fossil fuels," he said. "The problem is, fossil fuels don't stand still either."

Smitherman, a former Harris County prosecutor and former chairman of the Texas Public Utility Commission, said he had never been to Midland before he was appointed to the Railroad Commission in 2011.

Now, he said, it is once again the epicenter of the state's oil boom, with 20 percent of the nation's oil and gas produced in the Permian Basin.

"If you can pass a drug test, you can drive a truck and make $80,000 a year in Midland," he said.

But the Eagle Ford Shale in South Texas is "the hottest play in America," he said, with some experts predicting its reserves may hold more crude oil than any find in U.S. history."

Wow, The World Series Sure Is Expensive-It Costs $140 . . . Just To Park!

See Better bring a lot when parking at World Series. Excerpt:

"The San Francisco Giants have been among the industry leaders in "dynamic pricing" of tickets, basing certain games' ticket values on market forces. Across the street from AT&T Park, a valet parking stand has certainly taken that concept to a higher level for the World Series. At MoMo's, a restaurant at 2nd and King streets near the ballpark's entrance, valet prices reached what season-ticket holders said was a new high -- $90 for a compact car, $100 for a standard size and $130 for a large truck or SUV. "It is gouging," said John Byun of Los Angeles, moments after forking over $140 (a hidden $10 fee not included on the sign) to park his Lexus SUV. "But it's the World Series. Whatever the price is, you have to pay."

A World Series game will probably have the greatest demand of any games a team plays in a year. But if the number of parking spots is fixed, the price will naturally rise alot. Now maybe people could open up their driveways for fans to park in, but I don't know the neighborhood and there may not be any driveways available. And city zoning ordinances could prohihit that kind of thing. So it could be impossible for the quantity supplied of parking slots to increase.

If the city outlawed higher prices than normal for such events, then they would go to whomever shows up first. People would show up several hours ahead of time and then have to find something to do. Maybe the ball park might not even be opened yet. Some people might have to leave work even earlier than they planned. So it could result in some inefficiencies.

A Good Spanish Blog On Economics By Noé Hernández Cortez

Noé Hernández Cortez is a professor at Universidad del Valle de México, Campus Coyoacá. Here is the link to his blog: Noehernandezcortez's Blog.

Philosophy Professor Says We Should Let People Sell Their Vote

No, kidding, really. See The argument for vote buying by James Stacey Taylor, an associate professor of philosophy at the College of New Jersey. I hate it when philosophers work my side of the street. Oh, well, Adam Smith was a philosopher. At least Taylor uses economics jargon like externalities. Excerpts:

"Of course, there are objections to this vote-buying plan — you’re probably thinking of some right now.

One common argument is that, if vote-buying were allowed, elections would always be won by the wealthiest candidate, rather than the person with the best policies.

Another objection is that vote-buying would lead to the disenfranchisement of the poor, because they would be most likely to sell their votes and thus would lose their political voice.

And another objection is that allowing vote-buying would lead to what economists call negative externalities — bad effects that will occur for people who don’t participate in the vote-trading.
They’re all reasonable arguments — but none shows that a market in votes should be outlawed.

For starters, allowing vote-buying would not result in public offices going to the highest bidder. Some people would still refuse to sell their vote, giving it away just as they do now — and not necessarily to the wealthiest candidate who offers them the best deal.

There’s evidence all around us: Consider low-income Republicans who vote for candidates who will shrink entitlement programs; or consider wealthy Democrats who votes for candidates who will raise their taxes.

Political ideologies transcend straight cost-benefit calculations, which is why we can be sure that people with the freedom to sell their votes would not necessarily offer them to the highest bidder.

Allowing a market in votes also would not disenfranchise the poor: Candidates would compete for their votes, just as they do now. Currently, they can legally offer to enrich the poor via government policies.

But why compete only on policies? Since poor voters decide which “bundle” of policies they prefer, why shouldn’t they be allowed to choose from different bundles of policies and prices in a market for votes — especially since this will give them the immediate benefit of the price of their vote with money that hasn’t been plundered from taxpayers?

The last objection — that a politician could buy his way into office and favor some over others — has merit. But it also happens already."

Is College Still A Good Investment?

See Regardless of the Cost, College Still Matters by Michael Greenstone and Adam Looney of the Brookings Institution. Excerpts:

"In most respects, a college degree has never been more valuable. As highlighted in a recent Hamilton Project piece, recent college graduates earn more money and have an easier time finding employment than their peers who only have a high school diploma. What may be less intuitive is that these gaps have been growing in recent years. ..., a young college graduate earned about $4,000 more per year in the 1980s, adjusting for inflation, than someone of the same age who did not attend college (averaged across the entire population, not just those in the workforce). Over the last three decades, that figure has climbed to $12,000 per year.

Differences in employment rates between college graduates and non-graduates have not demonstrated as clear of a trend over this period, with one key exception. In recent years—particularly in the aftermath of the Great Recession—college has become an increasingly important determinant of one’s employment status. Today, a college graduate is almost 20 percentage points more likely to be employed than someone with only a high school diploma. This “employment gap” between college and high school graduates is the largest in our nation’s history."

"While the evidence is clear about the lifelong value of more education, skeptics are increasingly pointing to rising tuition costs to claim that college is not as sound of an investment as it once was. And it is true that tuition has increased significantly over the past few decades. In 1980, it cost an average of about $56,000 (adjusting for inflation) to attend a university for four years. This figure includes tuition, fees, and the “opportunity cost,” or income one foregoes to attend school instead of holding a job. (This figure excludes room and board: one must eat and sleep whether she is in college or not.) In 2010, four years of college cost more than $82,000, a nearly 50 percent increase over that 30-year period.

This increase in tuition is based on calculations from the National Center for Education Statistics but it may overstate the rise in the costs of college. First, this rise in tuition does not account for recent increases in financial aid. Thus, while the sticker price of college may have gone up, it is unclear to what extent the cost to students and their families has increased. Indeed, according to the College Board, the actual cost of a four-year degree has remained relatively constant over the last 15 years.

Regardless of the magnitude of the exact increase in tuition, a sole focus on the cost of college is misleading because it only tells half of the story. Specifically, the monetary benefits of a college degree have increased dramatically over the last few decades. An individual who entered college in 1980 could expect to earn about $260,000 more over the course of her life compared to someone who received only a high school diploma. In contrast, for someone starting college in 2010, the expected lifetime increase in earnings relative to a high school graduate was more than $450,000. These estimates are adjusted both for inflation and the fact that most of this additional income will come much later in a graduate’s life, and the calculations are described in more detail here.

Even if we assume that all students actually pay tuition at the published rates, the bottom line is this: while college may be 50 percent more expensive now than it was 30 years ago, the increase to lifetime earnings that a college degree brings is 75 percent higher. In short, the cost of college is growing, but the benefits of college—and, by extension, the cost of not going to college—are growing even faster."

Is Storytelling Important For The Economy?

"It's the economy, stupid"-James Carville, strategist for Bill Clinton in the 1992 presidential campaign

"The human mind is a story processor, not a logic processor."-from the book The Righteous Mind: Why Good People Are Divided by Politics and Religion by social psychologist Jonathan Haidt.

Wouldn't it be great if there was a blog that looked at the intersection of the economy and storytelling or mythology? Well, there is! See Dollars and Dragons.

Here is one example of how storytelling and economics come together. See Giving Your Brand Primal Power Through Storytelling by Nick Nanton & JW Dicks. Excerpt:

"At our agency, we make what we call “story-selling” an essential component of our branding efforts with our clients. We’ve seen firsthand that, when you create the proper story, you’ve done most of the heavy lifting required to build a successful brand.

The question, though, is why--why do stories have such “primal power” when it comes to influencing an audience?

It turns out there’s a perfectly good scientific explanation: Stories affect us on both on an incredibly deep intellectual and emotional level that we are just beginning to understand.

That quest began when scientists discovered that fictional stories affected the same region of the brain that reacts when we ourselves are engaged in real-life drama. Stories create a bonding empathy which causes us to strongly identify with the made-up protagonist, as if we were, in fact, that person. In other words, stories have such impact because our brains actually get a little mixed up as to what’s real and what’s not."

There is also a great book out there called The Storytelling Animal: How Stories Make Us Human by Jonathan Gottschall. Here is the review I wrote at Amazon:

"If you liked "The Moral Molecule" by Paul Zak, "The Righteous Mind" by Jonathan Haidt or "The Power of Myth" by Joseph Campbell, you will probably like this book, too. It would be worthwhile if only for the anecdotes. The explanation about how a scientist proved that cats dream. Or that going to an opera greatly influenced Hitler. You want to keep reading. You never grow tired of it. How stories are a deeply inherent part of our nature is entertainingly explored. Stories affect business and economics because CEOs and brands need to tell a story. The role that evolution played in making stories important is explained. His theories and conclusions are supported by science. But it is still enjoyable. Gottschall himself is a good story teller. I love the line about stories being the flight simulators for life. The moral and socials role of stories are also explored. But stories are personal, too. We each have a story we tell ourselves. As Jung said, we should all try to discover what myth we are living by. Books like this should help us out on that quest."

A related post is Economists Love Fables And Parables (Or, What Is The Essence Of Economic Analysis?)

Where are the most affluent counties in the nation?

"Seven of the 10 most affluent counties in the nation are near Washington, D.C." That is according to a NY Times article by George Mason University economist Tyler Cowen called That Blurry Line Between Makers and Takers. Here is an excerpt:

"The problem is that taking, rather than making wealth, appears to be growing in relative influence.  

Most of us are actually both makers and takers. Consider farmers who produce food and favor agricultural subsidies. The question is whether the role of wealth maker has more influence over our politics, at any given time, than does the taker role. Is public policy being adjudicated on grounds of ethics and efficiency, or is the real story about lobbying and the relative power of different interest groups?  

It isn’t easy to measure whether politics is less public-spirited these days, and we should resist the tendency to idealize the past. Still, job creation, median income and other measures of economic well-being have done poorly since the late 1990s. That suggests that America isn’t paying enough attention to creating wealth and increasing general prosperity. 

FOLLOW THE MONEY Seven of the 10 most affluent counties in the nation are near Washington, D.C. That means a growing number of educated people are making a very good living advising, lobbying and otherwise influencing the federal government. This is a talent drain. It’s far from obvious that we are getting better policy as a result, and true wealth creation has not kept pace."

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.""