How Does The Fed Prefer To Measure Inflation?

CPI vs. PCE: Untangling the Alphabet Soup of Inflation Gauges-Fed’s preferred measure of consumer-price growth may not be the one you think, but both have their place by Jo Craven McGinty of the WSJ. Excerpts:

"But when the Fed reviews economic conditions to decide what actions it will take to influence inflation and employment, it sets aside the century-old measure [CPI] in favor of something called the personal consumption expenditures price index [PCE].

The PCE includes a broader range of expenditures than CPI. It’s weighted according to data provided in business surveys, rather than the less reliable consumer surveys used to weight the CPI. And it uses a formula that adjusts for changes in consumer behavior that occur in the short term, something the standard CPI formula doesn’t do.

The result is a more comprehensive, if less familiar, gauge of inflation. That’s important for the Fed, which regards a small amount of inflation as a sign of a healthy, growing economy."

"Like CPI, PCE tracks changes in real prices paid by consumers for goods and services, but the two indexes differ in several important ways. For starters, the CPI, which typically is slightly higher than the PCE, captures only what urban consumers spend out-of-pocket for a common basket of goods and services.

“It represents what an average consumer buys in a typical year,” said François R. Velde, a senior economist with the Federal Reserve Bank of Chicago. “If it costs $1,000 this year and $1,200 the following year, it gives you an idea of how much the value of money has gone down.”

PCE, on the other hand, includes all goods and services consumed in the U.S. whether they are purchased by consumers or by employers or federal programs on behalf of consumers.

Medical expenses provide a good example of the differences in approach the gauges take. The CPI includes only the co-payments paid directly by consumers in its calculation, while the PCE captures co-payments as well as costs covered by employer-provided insurance and government programs."

"PCE, which is published by the U.S. Commerce Department’s Bureau of Economic Analysis, is derived from retail-sales data collected in business surveys, and in this data, medical care tends to carry the greatest weight. The CPI, on the other hand, is derived from consumer purchases reported in household surveys. Typically, consumers report spending more on shelter than anything else, giving that category more weight in the CPI."

"The CPI uses fixed weights generated from a basket of goods that is updated every two years, which doesn’t allow for the introduction of new products or price changes in the interim that might cause consumers to substitute one item for another.

The PCE accounts for this by using chained weighting. For example, if apples suddenly become very expensive, consumers may not buy as many. As a result, the apples will have one weight in one reporting period, and a different weight in the next. The chain-weight index essentially takes the average of the two."

What if companies pledge to adhere to social and environmental accountability guidelines?

See Etsy I.P.O. Tests Pledge to Balance Social Mission and Profit by HIROKO TABUCHI of the NY Times. Excerpts:

"Etsy is one of a growing number of companies, called B Corps, that pledge to adhere to social and environmental accountability guidelines set by a nonprofit organization called B Lab. And Etsy on Thursday became only the second for-profit company to go public out of more than 1,000 companies that have that certification."

“The success of our business model is based on the success of our sellers,” Mr. Dickerson said in an interview. “That means we don’t have to make a choice between people and profit.”

"It is also an experiment in corporate governance, a test of whether Wall Street will embrace a company that puts doing social and environmental good on the same pedestal with, if not ahead of, maximizing profits."

"Etsy declares in its public offering prospectus that it wants to change the decades-old conventional retail model of valuing profits over community. It states that its reputation depends on maintaining its B Corp status by continuing to offer employees stock options and paid time for volunteering, paying all part-time and temporary workers 40 percent above local living wages, teaching local women and minorities programming skills, and composting its food waste."

"If Etsy eventually reincorporates as a full-fledged benefit corporation, as required to do under B Lab rules, it could potentially become vulnerable to lawsuits from shareholders over any failure to achieve its social mission, in addition to the risk of potential litigation by shareholders over its fiduciary duties.

Still, “B Corps are reaching a tipping point in market acceptance,” said Jay Coen Gilbert, co-founder of B Lab, which assesses and certifies companies along social and environmental accountability standards. “The current shareholder model doesn’t meet the needs of entrepreneurs, business leaders and investors who want to make money and make a difference.”"

"B Lab has certified more than 1,000 companies in the United States as B Corps, including Patagonia, Warby Parker and Method. In addition, 27 states have adopted laws that can award companies status as “public benefit corporations,” letting them emphasize social or environmental concerns over profits, and more than a dozen others have introduced similar legislation."

"Under B Lab rules, companies incorporated in states with benefit corporation laws must eventually comply with their home states’ standards to maintain that benefit corporation status.

In Delaware, where Etsy is incorporated, even small shareholders of a public benefit corporation could sue the company, claiming it had failed to fulfill its social or environmental duties."

"B Corp legislation could allow companies to adopt values some would find objectionable and discriminatory, like religious beliefs, said Kent Greenfield, a professor at Boston College Law School. The Supreme Court justice Samuel A. Alito Jr., in his argument for last year’s Hobby Lobby ruling, cites B Corps as evidence that corporations can be religious.

“If you let companies opt in to their own set of obligations, there’s no constraint from them opting in to their view of ethics as something from the Old Testament,” Mr. Greenfield said."

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

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

From the Online Library of Liberty.

The B Corps are suggesting that people start businesses to intentionally try to help society while Adam Smith thought society benefited more if people pursued their own self-interest.

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

Do Tax Rates Affect Where Tennis Players Decide To Live?

See How Tennis Stars Handle the Tax Man’s Topspin: Players like Nadal and the Williams sisters show excellent footwork when protecting their income by Allysia Finley (from the WSJ in January). Excerpts: 

"The top five French players on the men’s circuit—Jo-Wilfried Tsonga,Gael Monfils,Gilles Simon,Julien Benneteau and Richard Gasquet, as well as Germany’s Philipp Kohlschreiber, all claim residence in Switzerland, ostensibly to avoid paying their home countries’ punitive 45% top personal income-tax rates (not including surcharges or social-security contributions).

Many Swiss cantons assess taxes on the living expenses of foreign high-rollers (typically fives times the market rate for renting out their residence) rather than on their income. As a result, Switzerland has become a tax haven for thousands of wealthy Europeans. Maybe New Jersey Gov. Chris Christie should consider applying the Swiss tax model in the Garden State. Jersey City might become the Geneva for New York’s professional athletes.

Yet the most popular haven for tennis players is the principality of Monaco, which doesn’t tax foreigners’ world-wide income. (French athletes choose Switzerland because la République Française taxes its citizens who live in Monaco.) Swedish tennis legends Bjorn Borg and Mats Wilander escaped to Monte Carlo during their primes in the 1970s and ’80s to dodge their home country’s 90% top marginal rate, which has since fallen to 57%. In 2002 Germany charged six-time Grand Slam title-winner Boris Becker with tax evasion for falsely claiming Monaco as his primary residence.

Today, Monaco is the putative home of many of the world’s top-ranked men and women players.  They include Serbia’s Novak Djokovic (1), the Czech Republic’s Petra Kvitova (4), Tomas Berdych (7) and Lucie Safarova (16); Canada’s Milos Raonic (8); Denmark’s Caroline Wozniacki (8); Bulgaria’s Grigor Dimitrov (11); and Ukraine’s Alexandr Dolgopolov (23). Players who hail from former communist countries are especially keen, it seems, on keeping their hard-earned money.

The U.S. has its own Monaco: no-income-tax Florida. It’s no coincidence that America’s top-ranked players Serena (1) and Venus Williams (18) and John Isner (21), as well as Russia’s Maria Sharapova (2) and Japan’s Kei Nishikori (5) live in the Sunshine State. So do twins Mike and Bob Bryan, who have won 16 Grand Slam doubles titles. Like the Williamses, they come from California, where the 13.3% state income-tax rate is the nation’s highest."

Odysseus Started The Industrial Revolution

Factory work may have been a commitment device to get everyone to work hard. Odysseus tying himself to the mast was also a commitment device. Dean Karlan, Yale economics professor explains how commitment devices work:

"This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.

Economists call this method of pushing your future self into some behavior a “commitment device.” [Related: a Freakonomics podcast on the topic is called "Save Me From Myself."] From my WSJ op-ed:

Most of us don’t have crews and soldiers at our disposal, but many people still find ways to influence their future selves. Some compulsive shoppers will freeze their credit cards in blocks of ice to make sure they can’t get at them too readily when tempted. Some who are particularly prone to the siren song of their pillows in the morning place their alarm clock far from their bed, on the other side of the room, forcing their future self out of bed to shut it off. When MIT graduate student Guri Nanda developed an alarm clock, Clocky, that rolls off a night stand and hides when it goes off, the market beat a path to her door."

 See What Can We Learn From Congress and African Farmers About Losing Weight?

Something like this came up recently in the New York Times, in reference to factory work and the Industrial Revolution. See Looking at Productivity as a State of Mind. From the NY Times, 9-27. By SENDHIL MULLAINATHAN, a professor of economics at Harvard. Excerpts:

"Greg Clark, a professor of economics at the University of California, Davis, has gone so far as to argue that the Industrial Revolution was in part a self-control revolution. Many economists, beginning with Adam Smith, have argued that factories — an important innovation of the Industrial Revolution — blossomed because they allowed workers to specialize and be more productive.

Professor Clark argues that work rules truly differentiated the factory. People working at home could start and finish when they wanted, a very appealing sort of flexibility, but it had a major drawback, he said. People ended up doing less work that way.

Factories imposed discipline. They enforced strict work hours. There were rules for when you could go home and for when you had to show up at the beginning of your shift. If you arrived late you could be locked out for the day. For workers being paid piece rates, this certainly got them up and at work on time. You can even see something similar with the assembly line. Those operations dictate a certain pace of work. Like a running partner, an assembly line enforces a certain speed.

As Professor Clark provocatively puts it: “Workers effectively hired capitalists to make them work harder. They lacked the self-control to achieve higher earnings on their own.”

The data entry workers in our study, centuries later, might have agreed with that statement. In fact, 73 percent of them did agree to this statement: “It would be good if there were rules against being absent because it would help me come to work more often.”"

The workers, like Odyssues, tied themselves to the mast to resist the temptation of slacking. This made it possible for factories to generate the large output of the Industrial Revolution.

Student loan delinquency is higher than for other borrowing

Click here to read the article. Excerpts:

"Student loans had a higher delinquency rate than credit cards, auto loans and home mortgages over the past three years, the Federal Reserve Bank of New York reported recently.

Outstanding student loans in the country have reached $1.16 trillion, an increase of $77 billion from a year ago. About 11.3 percent were in default – more than 90 days delinquent – in the last quarter of 2014, compared with 11.1 percent in the previous quarter.

By comparison, 3.5 percent of car loans were past due, as were just 3.1 percent of mortgage loans."

"Outstanding household debt increased to $11.83 trillion, a 1 percent rise over the previous quarter. Home mortgages and student loans, which increased by $39 billion and $31 billion, respectively, are the biggest contributors to the rise in debt.

The student loan delinquency rate – payments missed for fewer than 90 days – may be much bigger than the default rate shown in the report. An earlier report by the New York Fed said the delinquency rate for student loans was 21 percent in 2012."

"During the recent financial crisis, Americans reduced other debts but they continued education financing, according to the New York Fed.

“I’m not that surprised, too much, about the findings,” said Mike Branch, a certificated financial planner at Focus Financial, based in Minneapolis.

He does college-planning workshops for parents of high school students.

“Schools are selling kids the idea of student loans,” Branch said. “They tell those young students, particularly teenagers still at high schools, not to worry too much about the money because they can borrow. But those kids really have no idea what it takes to pay those loans back, and how much money they’ll have to make, and how that’s going to affect their lives after college.”"

Are Computer Programs Replacing Journalists?

See If an Algorithm Wrote This, How Would You Even Know? by SHELLEY PODOLNY of the NY Times.

In my macroeconomics class, we talk about the types of unemployment. Here is one of them:

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs.

One example of this is when you are replaced by a machine. We don’t have as many bank tellers any more because people use ATMs. Another example is when there is a fall in demand for your product, so you get laid off, like with typewriters since people now use computers. A third example is geographical, when the jobs are not in your region of the country.

This article might be an example of this type of unemployment. Excerpts:

"these days, a shocking amount of what we’re reading is created not by humans, but by computer algorithms"

"Companies in this business aim to relieve humans from the burden of the writing process by using algorithms and natural language generators to create written content. Feed their platforms some data — financial earnings statistics, let’s say — and poof! In seconds, out comes a narrative that tells whatever story needs to be told."

"These robo-writers don’t just regurgitate data, either; they create human-sounding stories in whatever voice — from staid to sassy — befits the intended audience."

"when presented with sports stories [some written by humans, some by computers] ... study respondents couldn’t tell the difference."

"Then we have Quakebot, the algorithm The Los Angeles Times uses to analyze geological data. It was the “author” of the first news report of the 4.7 magnitude earthquake that hit Southern California last year, published on the newspaper’s website just moments after the event. The newspaper also uses algorithms to enhance its homicide reporting."

"90 percent of news could be algorithmically generated by the mid-2020s, much of it without human intervention."

The article even has a quiz you can take to see if you can tell the difference between a human written article and a computer written article. If journalists lose their jobs to computers, maybe professors are next. Are you even sure who or what wrote this blog post?

Here are two related posts:

Robot Journalists-A Case Of Structural Unemployment?

Structural Unemployment In The News-Computers Can Now Tell Jokes 

WHAT do you get when you cross a fragrance with an actor?

Answer: a smell Gibson.

Robot jockeys in camel races

50 College Majors With the Best Return on Investment

From Business News Daily. Excerpts:

"Topping this year's rankings were computer programming and entrepreneurship, both of which have average annual salaries of more than $85,000 for graduates and above-average job growth. Overall, degrees in information technology, computers programming/computer science, business/management, medical support, and retail and administration were the five categories that offer the largest return on investment."

Here is the top 10:

1. Computer programming, specific applications
2. Entrepreneurship/entrepreneurial studies
3. Network and system administration
4. Information technology
5. Computer software technology
6. Osteopathic medicine/osteopathy
7. Business/commerce, general
8. Computer systems networking and telecommunications
9. Business administration and management, general
10. Computer and information systems security/information assurance

$60,000 fine for driving14 mph over the speed limit

See Why Finland fined this driver $60,000 for going 14 mph over the limit. Excerpts:

"Reima Kuisla was on his way to the airport when he got caught going 103 km/h (64 mph) in an 80km/h (50 mph) zone, setting him back 54,024 euros. It’s a seemingly excessive penalty until you realize how Finland calculates its fines.

Unlike in the United States, where the flat fine is based on location and speed over the limit, Finland bases the penalty also as a percentage of daily income, according to the previous year’s tax return. Since Reima Kuisla earned over 6.5 million euros ($7 million) in 2013, he had a penalty equivalent to a brand-new BMW M3. The rationale is that the fine should sting for anyone, whether they’re scraping by or living in the lap of luxury."

"He wasn’t the only one to pay a hefty sum in Finland — a Nokia executive had pay 116,000 euros (over $103,00) back in 2002 for speeding on a Harley. Say what you will about excessive fines, but that's a penalty no one forgets."

CPI Lower Than A Year Ago

See Gas’s Drop Drives U.S. Into Deflation Territory: Consumer-price gauge shows 0.1% year-over-year decline in January, first since October 2009, amid sharp fall in gas costs from the WSJ.

The Bureau of Labor Statistics has records going back to 1913. See CPI Detailed Report: Data for January 2015. It is a PDF file and you need to find Table 24.

It might be easier to see all the data at this site.

The base year (or period) is 1982-84. The Consumer Price Index was closest to 100 in 1983 when it was 99.6. For all of 2014 it was 236.736. That means it took $236.736 to buy what cost $100 in 1983.

The CPI in January 2014 was 233.916. The CPI in January 2015 was 233.707. So that was down. Prices rose 0.8% from December 2013 to December 2014, though.

Excerpt from the WSJ article:

"Driven by a tumble in oil prices since mid-2014, the consumer-price index fell 0.1% in January from a year earlier, the Labor Department said Thursday. It was the first year-over-year decrease since October 2009. Prices fell 0.7% from December.

While the reading indicates little upward price pressure across the U.S. economy, it’s different from the downward forces plaguing other major economies.

“We haven’t suddenly become the eurozone or Japan,” said Richard Moody, chief economist at Regions Financial Corp. The dip in overall prices doesn’t reflect the “underlying health of the U.S. economy.”

In Japan and parts of Europe, negative forces such as weak demand and constrained credit caused a drop in prices for a broad swath of goods and services.

In the U.S., falling consumer prices can be pinpointed to a single sector: energy. Energy costs fell almost 20% over the past year, and gasoline prices alone fell by more than a third.

Consumer prices outside of energy advanced a healthy 1.9% in January from a year earlier. Prices for many staples are growing even faster. Food costs are up 3.2% from a year earlier, shelter costs rose 2.9% and medical care advanced 2.3%.

Removing both food and energy costs, consumer prices rose 0.2% last month and are up 1.6% from January 2014. The year-over-year change in so-called core prices held steady in January from December, after trending down from a recent peak of 2% last May."

All is not well (financially) in the world of college football

See Time for a Presidential Panel to Investigate College Sports by Andrew Zimbalist in The Chronicle of Higher Education. He is a professor of economics at Smith College who specializes in the economics of sports. Excerpts:

"The median revenue of athletic programs within the Football Bowl Subdivision (FBS) of Division I grew to $61.9-million in 2012-13 from 28.2-million in 2003-4—an inflation-adjusted increase of 76 percent. And it continues to grow. College football’s new playoff system, which held its national championship game last night, yielded a 12-year contract with ESPN worth $7.3-billion."

"only a couple dozen universities that are pulling in the big bucks. According to the NCAA’s most recent figures, out of 128 schools in FBS, only 20 athletic programs have an operating surplus."

"Overall, the median operating deficit in FBS athletic departments is approximately $12-million."

"So, what’s going on—how can losses be piling up as revenues soar? First, costs are growing faster than revenues. There are no stockholders in Division I athletics. That is, athletic departments do not have to answer to a board of directors or company owners who are looking for profits to go up each quarter so the company’s stock price will rise.

Athletic departments are not profit maximizers. They are win maximizers."

"Without pressure to maximize profits, when revenues rise, the athletic directors find ways to spend it in pursuit of winning."

"the top athletes at FBS schools produce a value well in excess of $1-million. The surplus produced by these players goes in part to the coaches who recruit them and in part to support the "nonrevenue" sports at the school."

"The NCAA now allows colleges to provide four-year scholarships to players, to increase the value of a full-ride scholarship by several thousand dollars to cover the full cost of attendance, and to provide better benefits."

"these additional costs of $1-million-plus will (a) make it more difficult for the vast majority of colleges—unable to afford the financial burden—to compete effectively on the playing field, (b) force these colleges into larger athletic deficits, robbing funds from the academic budget, or (c) impel some colleges to follow the lead of the University of Alabama at Birmingham and end their football program."

"college sports is faced with increased inequality and greater insolvency. Every extra dollar going to intercollegiate athletics is a dollar lost to academic programming. At the top 24 spenders in college sports between 2005 and 2012, football coaches’ salaries calculated on a per-player basis rose more than 60 percent (several now exceed $5-million and in 41 of 50 states a head coach is the highest-paid public official in the state), while academic spending per student dropped 2 percent."

"The NCAA functions as a trade association of the athletic directors, conference commissioners, and coaches, especially those from the big five conferences, and has proven time after time that it is incapable of constructively reforming itself."

"Congress can stand idly by, as it is wont to do, and refuse to get involved in the business of college sports. Or, it can recognize that it is already involved in that business—via an elaborate network of tax preferences and subsidies"

Study Finds Wealth Gap in Graduation Rates

By Melissa Korn of the Wall Street Journal. Excerpts:

"In 2013, 77% of adults from families in the top income quartile earned at least a bachelor’s degree by the time they turned 24, up from 40% in 1970"

"In the lowest income quartile, 9% of people earned a bachelor’s degree by age 24 in 2013, up from 6% in 1970."

"Forty-five percent of dependent 18- to 24-year-olds from the lowest income quartile—with family income of $34,160 or less—enrolled in 2012, up from 28% in 1970. The enrollment rate of the highest-income students—with family income of $108,650 or more—also rose, to 81% from 74%, so the gap in enrollment between the two groups shrank.

Still, most low-income students who pursue degrees fail to make it to graduation. About one in five students from the lowest income bracket completed a bachelor’s degree by age 24 in 2013, about flat with the 1970 figure. Among students from top-earning families, meanwhile, 99% of students who enrolled completed their degrees, up from 55% in 1970, the report said."

So the college graduation rate for the upper quartile is 8.5 times higher than for the bottom quartile (because 77/9 is about 8.5).

A Special Valentine's Message On Romantic Love

Below is a repeat of last year's Valentine's day post. I am not sure if the links are still working:

The first one is Researchers at AAAS Annual Meeting Explore the Science of Kissing . The following quote gives you an idea of what it is all about: "Kissing, it turns out, unleashes chemicals that ease stress hormones in both sexes and encourage bonding in men, though not so much in women." I guess economists call this "interdependent utility functions." Meaning that what brings one person pleasure brings brings the other person pleasure, and vice-versa.

The other is Cocoa Prices Create Chocolate Dilemma. The article opens with "Soaring cocoa prices are creating a Valentine's Day dilemma for chocolate makers. They don't want to raise retail prices when recession-weary consumers are trying to limit their spending." The problem is crop diseases in Ivory Coast and Ghana. You might need to be a WSJ subscriber to read the whole article.

Here is a new article from yesterday's San Antonio Express-News (2-13-2011). Romance in bloom at workplace: Survey indicates 59% have taken the risk-filled leap. It seems like many people admit to having a romance at work and/or meeting their spouse at work. So what starts out as economic activity leads to some other needs being met.

Now the economic definition of romantic love.

 Abstract: "Romantic love is characterized by a preoccupation with a deliberately restricted set of perceived characteristics in the love object which are viewed as means to some ideal ends. In the process of selecting the set of perceived characteristics and the process of determining the ideal ends, there is also a systematic failure to assess the accuracy of the perceived characteristics and the feasibility of achieving the ideal ends given the selected set of means and other pre-existing ends.

The study of romantic love can provide insight into the general process of introducing novelty into a system of interacting variables. Novelty, however, is functional only in an open system characterized by uncertainty where the variables have not all been functionally looped and system slacks are readily available to accommodate new things. In a closed system where all the objective functions and variables must be compatible to achieve stability and viability, adjustments in the value of some variables through romantic idealization may be dysfunctional if they represent merely residual responses to the creative combination of the variables in the open sub-system."

The author was K. K. Fung of the Department of Economics, Memphis State University, Memphis. It was from a journal article in 1979. More info on it is at this link. The entire article, which is not too long, can be found at this link.

Then there was this related article: Love really is blind, U.S. study finds. Here is an exerpt:

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

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

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

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

More links:

How to Be a Better Valentine, Through Economics by economist Paul Oyer.

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

What Do Men In China Need To Get A Bride?

Adam Smith, Marriage Counselor

A Special Valentine's Message On Romantic Love

Can You Put A Price Tag On Love?

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

Return of the Love Headhunters

eHarmony To Provide Personal Counselors To Help You Find Mr. Or Ms. Right

Economist Paul Zak, aka Dr. Love (he studies the brain with "neuroeconomics")

This is your brain on love   (brain scans and biology seem to confirm the economic definition given above)

Dollars & Sex: The Blog of Marina Adshade

A Special Valentine's Message On Romantic Love

Below is a repeat of last year's Valentine's day post. I am not sure if the links are still working:

The first one is Researchers at AAAS Annual Meeting Explore the Science of Kissing . The following quote gives you an idea of what it is all about: "Kissing, it turns out, unleashes chemicals that ease stress hormones in both sexes and encourage bonding in men, though not so much in women." I guess economists call this "interdependent utility functions." Meaning that what brings one person pleasure brings brings the other person pleasure, and vice-versa.

The other is Cocoa Prices Create Chocolate Dilemma. The article opens with "Soaring cocoa prices are creating a Valentine's Day dilemma for chocolate makers. They don't want to raise retail prices when recession-weary consumers are trying to limit their spending." The problem is crop diseases in Ivory Coast and Ghana. You might need to be a WSJ subscriber to read the whole article.

Here is a new article from yesterday's San Antonio Express-News (2-13-2011). Romance in bloom at workplace: Survey indicates 59% have taken the risk-filled leap. It seems like many people admit to having a romance at work and/or meeting their spouse at work. So what starts out as economic activity leads to some other needs being met.

Now the economic definition of romantic love.

 Abstract: "Romantic love is characterized by a preoccupation with a deliberately restricted set of perceived characteristics in the love object which are viewed as means to some ideal ends. In the process of selecting the set of perceived characteristics and the process of determining the ideal ends, there is also a systematic failure to assess the accuracy of the perceived characteristics and the feasibility of achieving the ideal ends given the selected set of means and other pre-existing ends.

The study of romantic love can provide insight into the general process of introducing novelty into a system of interacting variables. Novelty, however, is functional only in an open system characterized by uncertainty where the variables have not all been functionally looped and system slacks are readily available to accommodate new things. In a closed system where all the objective functions and variables must be compatible to achieve stability and viability, adjustments in the value of some variables through romantic idealization may be dysfunctional if they represent merely residual responses to the creative combination of the variables in the open sub-system."

The author was K. K. Fung of the Department of Economics, Memphis State University, Memphis. It was from a journal article in 1979. More info on it is at this link. The entire article, which is not too long, can be found at this link.

Then there was this related article: Love really is blind, U.S. study finds. Here is an exerpt:

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

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

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

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

More links:

How to Be a Better Valentine, Through Economics by economist Paul Oyer.

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

What Do Men In China Need To Get A Bride?

Adam Smith, Marriage Counselor

A Special Valentine's Message On Romantic Love

Can You Put A Price Tag On Love?

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

Return of the Love Headhunters

eHarmony To Provide Personal Counselors To Help You Find Mr. Or Ms. Right

Economist Paul Zak, aka Dr. Love (he studies the brain with "neuroeconomics")

This is your brain on love   (brain scans and biology seem to confirm the economic definition given above)

Dollars & Sex: The Blog of Marina Adshade

Trees Are Scarce In San Antonio!

See Hundreds dodge rain for tree giveaway by Elda Silva, San Antonio Express-News.

A good is scarce if there is not enough to go around when it is given away free of charge. Something like this happened with the tree giveaway. Excerpts from the article:

"Neither gray skies nor drizzle were enough to keep away the crowd that lined up for free fruit and nut trees Saturday morning at the Pearl.

More than an hour before the Jammin’ Jams Fruit and Nut Tree Adoption began, people began gathering in the parking lot of La Gloria restaurant, where organizers set up tents to give away about 900 young trees planted in black plastic pots."

"“We probably already had a couple of hundred people here well before 8 o’clock,” said Ross Hosea, city forester.

By 9:30 a.m., the line stretched beyond the parking lot and around the Koehler Garage and the Culinary Institute of America-San Antonio. The varieties of trees available included pecan, apple, apricot, fig, peach, pear, plum, pomegranate, Fuyu persimmon, improved Meyer lemon, orange and tangerine."

"Last year, about 750 trees were given away at the event. While there were more trees this year, there were also more people. Rough estimates put the number of would-be adopters at 2,000."

"Typically the most popular, the citrus trees were the first to go. As the morning went on, organizers kept the crowd informed about what trees remained available.

Adriana Segundo waited about an hour for her turn to select a tree. She didn’t get the orange tree she had hoped for, but she was pleased with a pecan." 

Can The Way You Tell A Story Affect How Willing People Will Be To Donate Money To Charity?

See Why Inspiring Stories Make Us React: The Neuroscience of Narrative by Paul Zak. Zak is an economist who uses neuroscience in his research. In fact, he coined the term "neuroeconomics." Excerpts from his article:

"My lab was the first to discover that the neurochemical oxytocin is synthesized in the human brain when one is trusted and that the molecule motivates reciprocation. We found that the human oxytocin response was similar to that found in social rodents,  signaling that another person (or rodent) is safe and familiar. Perhaps most surprising, we found that in humans, this “you seem trustworthy” signal occurs even between strangers without face-to-face interactions."

"After years of experiments, I now consider oxytocin the neurologic substrate for the Golden Rule: If you treat me well, in most cases my brain will synthesize oxytocin and this will motivate me to treat you well in return. This is how social creatures such as humans maintain themselves as part of social groups"

He had subjects watch different short videos. One told an emotional story, the other lacked strong emotions.

"We found that the narrative with the dramatic arc caused an increase in cortisol and oxytocin. Tellingly, the change in oxytocin had a positive correlation with participants’ feeling of empathy"

"Heightened empathy motivated participants to offer money to a stranger who was in the experiment."

"emotionally engaging narratives inspire post-narrative actions—in this case, sending money to a stranger."

Then he gave oxytocin to subjects who watched short Public Service Announcements (PSAs).

"We found that those who received oxytocin donated, on average, 56 percent more money to charity compared with participants who received the placebo. This confirmed the causal role of oxytocin on post-narrative prosocial behavior. But why did this happen? We discovered that participants who were given oxytocin showed substantially more concern for the characters in the PSAs. This increased concern motivated them to want to help by donating money to a charity that could alleviate the suffering these stories depicted."

"stories that sustain attention and generate emotional resonance produce post-narrative donations—even stories on difficult topics. To the brain, good stories are good stories, whether first-person or third-person, on topics happy or sad, as long as they get us to care about their characters. 

Psycholinguists have shown that effective stories induce “transportation” into the narrative. Transportation happens when one loses oneself in the flow of the story"

"Both narrative transportation and concern predicted post-story donations. This shows why stories affect behavior after the story has ended: we have put ourselves into the narrative. Even a week after the experiment, accurate story recall was predicted by a single measure: narrative transportation."

The article is long so I have just given the highlights. But it is all very interesting.

My lab was the first to discover that the neurochemical oxytocin is synthesized in the human brain when one is trusted and that the molecule motivates reciprocation. ^{1 2 3} We found that the human oxytocin response was similar to that found in social rodents, ⁴ signaling that another person (or rodent) is safe and familiar. Perhaps most surprising, we found that in humans, this “you seem trustworthy” signal occurs even between strangers without face-to-face interactions.   - See more at: http://www.dana.org/Cerebrum/2015/Why_Inspiring_Stories_Make_Us_React__The_Neuroscience_of_Narrative/#sthash.9gpX7ps9.dpuf

My lab was the first to discover that the neurochemical oxytocin is synthesized in the human brain when one is trusted and that the molecule motivates reciprocation. ^{1 2 3} We found that the human oxytocin response was similar to that found in social rodents, ⁴ signaling that another person (or rodent) is safe and familiar. Perhaps most surprising, we found that in humans, this “you seem trustworthy” signal occurs even between strangers without face-to-face interactions.   - See more at: http://www.dana.org/Cerebrum/2015/Why_Inspiring_Stories_Make_Us_React__The_Neuroscience_of_Narrative/#sthash.9gpX7ps9.dpuf

My lab was the first to discover that the neurochemical oxytocin is synthesized in the human brain when one is trusted and that the molecule motivates reciprocation. ^{1 2 3} We found that the human oxytocin response was similar to that found in social rodents, ⁴ signaling that another person (or rodent) is safe and familiar. Perhaps most surprising, we found that in humans, this “you seem trustworthy” signal occurs even between strangers without face-to-face interactions.   - See more at: http://www.dana.org/Cerebrum/2015/Why_Inspiring_Stories_Make_Us_React__The_Neuroscience_of_Narrative/#sthash.9gpX7ps9.dpuf

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)

A fake job reference can be just a few clicks away

In economics, signaling theory says that we send out signals to convince people we have certain traits. For example, a college degree is a signal to employers that you might be smarter and more hard working than the average person.

But sometimes people try to fake the signal. Click here to read the article by L.M. Sixel of the Houston Chronicle. Here is an excerpt:

"Did I ever mention that I used to be the CEO of a fast-food operation based in San Francisco? And before that I boosted burger sales 100 percent in just one year when I was vice president of a growing but small fast-food chain on the East Coast?

None of it's true, but it would be really easy to fabricate that story by hiring a company that will design fake websites of my "companies," provide folks to verify my credentials and write dazzling letters I could show potential employers about my amazing on-the-job successes.

I know there are plenty of examples of people embellishing their resumes by adding degrees they never received or job titles they never had. But fabricating companies, supervisors, co-workers - essentially creating a whole new work history - takes the fakery to a whole different level.

At CareerExcuse the motto is, "You fake it, we make it!"

Among the services it advertises is "Eliminate Gaps in Resume." The company's "blue collar plan" will establish a five-page company website along with a "professionally located street address," local phone number, corporate voicemail greeting and one live reference provider acting as "your supervisor."

That basic plan, which is designed for those who don't make more than $20 an hour, costs $100 followed by a $25 monthly subscription.

Optional upgrades include a reference letter from your supervisor for $50, a real company office that will receive mail monthly for $150 and registering the company in your state for $150.

A more expanded white-collar version that includes more live references, including "co-workers," and more elaborate website design is $195, followed by a $50 monthly subscription fee."

There is much more to this interesting article.

Russians rush to stores to pre-empt price rises

Click here to read the article. One of the factors that can shift demand curves is expectation of future price. If, for some reason, you expect a fairly big price increase in the near future, your demand today will increase. That is, the demand curve will shift to the right.

It seems like this happened this past December in Russia. Here are excerpts from the article:

"Russian consumers flocked to stores Wednesday, frantically buying a range of big-ticket items as they looked to pre-empt price rises following the staggering fall in the value of the ruble over recent days.

As the government looked at ways of easing the selling pressure on the ruble, which has slid 15 percent in just two days and raised fears of a bank run, many Russians were buying cars and home appliances — in some cases in record numbers — before prices for these imported goods shoot higher.

Swedish furniture giant Ikea, for one, has already put consumers on notice that its prices will rise Thursday, which resulted in weekend-like crowds on a Wednesday afternoon.

Shops selling a broad range of items are reporting record sales while some have had to suspend operations, unsure how far down the ruble will go. Apple, for one, has halted all online sales in Russia."

"The ruble has suffered catastrophic losses this week as traders fretted over the impact of low oil prices on the Russian economy, as well as the impact of Western sanctions imposed over Russia’s involvement in Ukraine’s crisis."

 If the value of your country's currency falls, it makes imports more expensive.

Another Semester Has Started

Welcome to any new students. I usually post something 2-3 times a week. 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? (you may have to be patient with this site but the article is not long)

If that link is not working try this one

Dagwood Bumpstead Explains The Hedonic Treadmill

Click here to see the strip.

Dagwood: Boss, I need to talk to you about my need for a little raise.

Dithers: Bumpstead, haven't you heard that little raises are gateway raises to unhappiness?

Dagwood: Gateway raises?

Dithers: Of course little raises merely create cravings for bigger raises. Before you know it your little raise only makes you hungry for more extravagant raises. It never ends my boy, the hunger grows and grows and it all begins with one little tiny raise!

Dithers: Trust me son...I'm only trying to save you from years of unhappiness down the road.

(later Dagwood gets home and talks to Blondie)

Blondie: Gateway raises?

Dagwood: It's complicated.

This reminds me of a WSJ article Can Money Buy You Happiness? by Andrew Blackman. Excerpt: 

"One of the main reasons why having more stuff doesn’t always make us happy is that we adapt to it. “Human beings are remarkably good at getting used to changes in their lives, especially positive changes,” says Sonja Lyubomirsky, psychology professor at the University of California, Riverside. “If you have a rise in income, it gives you a boost, but then your aspirations rise too. Maybe you buy a bigger home in a new neighborhood, and so your neighbors are richer, and you start wanting even more. You’ve stepped on the hedonic treadmill. Trying to prevent that or slow it down is really a challenge.”"