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.”"

It's great having a personalized thermos

Student gave me a gift-a thermos with the name of my blog on it ("The Dangerous Economist")

Monte Vista University artist in residence apparently commits suicide-but some say it might have been murder

Don't worry, Nobel Prize winning economics professor Henry Spearman is on the case. The news account says:

"Spearman has accepted an invitation to lecture at Monte Vista University here in San Antonio. He comes in the wake of a puzzling art heist with plans to teach a course on art and economics. Now there is the alleged suicide of womanizing artist-in-residence Tristan Wheeler. But Wheeler had serious enemies.

Henry Spearman has a knack for solving crimes. He is considering the following questions in his investigation.

Was Wheeler killed by a jilted lover, a cuckolded husband, or a beleaguered assistant? Could there have been a connection between Wheeler's marketability and his death? What are the parallels between a firm's capital and an art museum's collection? What does the market say about art's authenticity versus its availability? And what is the mysterious "death effect" that lies at the heart of the case?"

If this sounds like a murder mystery, that's because it is. It is the plot of The Mystery of the Invisible Hand: A Henry Spearman Mystery by Marshall Jevons. It takes place in San Antonio and Monte Vista University bears a striking resemblance to Trinity University.

Marshall Jevons is just the pen name of the two co-authors, William Breit and and Kenneth G. Elzinga. Marshall Jevons is a fictitious crime writer invented and used by William L. Breit and Kenneth G. Elzinga, professors of economics at Trinity University, San Antonio and the University of Virginia, respectively (Wikipedia).

The name combines the names of two actual economists from the 19th century, William Stanley Jevons and Alfred Marshall. They have written three other Henry Spearman novels.

The sad news is that William Breit passed away in 2011. He once attended San Antonio College as a student (in the early 1950s). I think his economics teacher here was Truett Chance, the man for whom the building I teach in is named.

Were The Pilgrims Capitalists Or Socialists?

This was first posted in 2010.

See The Pilgrims Were ... Socialists? from The New York Times. There seems to be some controversy. One story has them owning property in common and not doing well until they went with private property. Not everyone agrees with that version of history. Here is what seems to be the most interesting thing from the report:

"Historians say that the settlers in Plymouth, and their supporters in England, did indeed agree to hold their property in common — William Bradford, the governor, referred to it in his writings as the “common course.” But the plan was in the interest of realizing a profit sooner, and was only intended for the short term; historians say the Pilgrims were more like shareholders in an early corporation than subjects of socialism.

“It was directed ultimately to private profit,” said Richard Pickering, a historian of early America and the deputy director of Plimoth Plantation, a museum devoted to keeping the Pilgrims’ story alive."

So when you eat turkey tomorrow, you might really be celebrating that great American institution...the corporation. Makes me feel real patriotic.

This part was interesting too.

"The competing versions of the story note Bradford’s writings about “confusion and discontent” and accusations of “laziness” among the colonists. But Mr. Pickering said this grumbling had more to do with the fact that the Plymouth colony was bringing together settlers from all over England, at a time when most people never moved more than 10 miles from home. They spoke different dialects and had different methods of farming, and looked upon each other with great wariness."

"“One man’s laziness is another man’s industry, based on the agricultural methods they’ve learned as young people,” he said."
"Bradford did get rid of the common course — but it was in 1623, after the first Thanksgiving, and not because the system wasn’t working. The Pilgrims just didn’t like it. In the accounts of colonists, Mr. Pickering said, “there was griping and groaning.”"

"“Bachelors didn’t want to feed the wives of married men, and women don’t want to do the laundry of the bachelors,” he said.

The real reason agriculture became more profitable over the years, Mr. Pickering said, is that the Pilgrims were getting better at farming crops like corn that had been unknown to them in England."

Tuition Trails Inflation for Many U.S. Colleges

From the WSJ this week. Excerpts:

"More than half of public colleges in the U.S. are failing to bring in enough tuition revenue to keep up with inflation, and nearly as many private schools are facing a similar financial crisis, according to a new report from Moody’s Investors Service.

Universities are forecasting that fiscal 2015 will be their weakest year of net tuition revenue growth in a decade, with 51% of public schools and 41% of private institutions unable to increase revenue at or above Moody’s projected 2% rate of inflation. Last year, an estimated 49% and 39%, respectively, fell short.

Overall, public and private institutions forecast net tuition revenue growth of 1.9% and 2.7%, respectively. Just a decade ago, the majority of schools regularly boosted net tuition revenue by upwards of 5% a year.

The Moody’s report, based on a survey of 290 public and private, nonprofit schools, highlights the tightrope school administrators must walk, using discounts to attract cost-conscious students from a shrinking pool of high school graduates while still generating enough net revenue to stay in business amid higher operational expenses."

"On a per-student basis, public universities forecast net tuition revenue to grow 1.5% in fiscal 2015, while private institutions forecast 2.3% growth. That reflects both an inability by families to pay much more for college, as well as an unwillingness by schools to even try charging higher rates."

"Thirty-seven percent of public institutions, and 45% of private ones, expect enrollment declines this fiscal year."

"While troubling, the enrollment declines weren’t unexpected. The population of high school seniors ballooned a decade ago as children of the baby boom generation came of age, but those figures have since fallen, especially in the Northeast and Midwest regions."

 What is normally called financial aid comes upwhere it says "using discounts to attract cost-conscious students." They never really give you financial aid. There is not some vault of money that they open and take some cash out of to give you. 

They are really engaging in price discrimination. That is when firms charge different prices to different customers and the difference is not based on the cost of producing the good or service.

Different groups of consumers may have different demand curves so firms can make more profit if they charge each group a different price. For example, senior citizens might get a discount for lunch at restaurants. They have more time to shop around than others so price matters more to them. Their demand is more elastic.

Who Is My Favorite Economist?

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The secret strategy to buying and selling used textbooks

It seems like it is all in the timing. See Textbook Arbitrage: Making Money Off Used Books by David Kestenbaum of NPR. Click here to see the definition of arbitrage.

 Excerpts from the NPR post: 

"... he guessed that the prices of the textbooks were going up and down with the college calendar. His theory was that prices would fall in summer (no one is looking for a nice textbook in July to curl up with on the beach) but then rise when classes begin and students really need the books."

"Over a year Bob and Kenny gathered data from Amazon on sales of all kinds of used textbooks, and they found the pattern was there for lots of textbooks — prices fell in the summer and jumped back up as classes started at the beginning of a semester. It was as if they'd found a stock that went up and down at very regular times, so that they could know exactly when to buy it, and exactly when to sell it."

Some Good News: Productivity Up, Percent Of Population Employed Up

See US Productivity Suggests Economy Can Grow 'Without The Threat Of Inflation' and Employment status of the civilian noninstitutional population 16 years and over, 1979 to date.

The productivity report said "Productivity, or the U.S. economy’s output per hour of work, increased at a 2.0 percent annual rate during the third quarter as output increased 4.4 percent and hours worked increased 2.3 percent, the U.S. Bureau of Labor Statistics reported Thursday. "

Higher productivity means an increase in supply. When supply shifts to the right, prices fall (or at least it will help keep down price increases caused by demand increasing).

The unemployment rate fell to 5.8% in October from 5.9% in September. But the percent of the population employed jumped from 59.0% to 59.2%. That is important because the unemployment rate can fall if people drop out of the labor force. The labor force participation rate went from 62.7% to 62.8%.

The percent of the population employed was 63.0% in 2007 (the recession started in December 2009). So we are still well below that, although about half the difference is from retired people dropping out of the labor force.

Third-Quarter G.D.P. Rose 3.5% And More On Airline Prices

Click here to read the NY Times story by PATRICIA COHEN. The news, however, is mixed. There are good signs and maybe some signs of concern mentioned in the article. Here is an excerpt:

"Unlike the seventh game of the World Series, the debate over the economy’s strength sometimes seems like a playoff competition that goes on forever between skeptics and believers. But on Thursday, the boosters won at least a temporary victory with a government report that estimated the nation’s economic output rose at a healthy 3.5 percent annual rate in the third quarter.

After an even faster pace of growth in the spring, the higher-than-expected advance in gross domestic product — a measure of all the goods and services produced in the United States — was driven by gains across the board, bolstered by an unusual burst of military spending and a more favorable trade balance.

“This is the strongest six-month interval we’ve had in 10 years,” said Carl R. Tannenbaum, chief economist at the Northern Trust Company. “The pace of the expansion has clearly increased.”

 While the G.D.P. report is mostly a look to the past, markets were generally cheered by the latest economic news, which also included an upswing in consumer confidence and further evidence from weekly unemployment claims that the labor market is on the mend. Bond prices barely moved as the Standard & Poor’s 500-stock index rose 0.6 percent to 1,994.65 and the Dow Jones industrial average increased more than 221 points to close at 17,195.42."

Now for airline prices. Last week I posted about how fuel prices were down yet airlines were not lowering their prices, which might indicate that the industry is an oligopoly. But this week there was a conflicting report. See International Low-Cost Airlines Drive Transatlantic Fares Into The Ground by Grant Martin of Forbes. Excerpts:

"If you’ve been wondering why airfare to Scandinavian countries has been so inexpensive for the past few seasons, you have one particular airline to thank: Norwegian Air. For the last year, the self-described low cost carrier has expanded aggressively across the globe, and as a result of the new low fares they brought into the United States, domestic carriers have lowered their prices to compete. These days, a ticket from San Francisco to Copenhagen with a layover in London can often be cheaper than a sole ticket from San Francisco to London.

Norwegian Air gets away with charging rock-bottom prices by taking advantage of low operating costs and charging passengers via an a là carte model. Passengers who book air passage on the airline get just that; baggage, seats and food all cost extra. Conversely, a legacy airline such as American, Delta or United usually provides all of that bundled together with their international fare."

"Norwegian’s popularity has grown so much that they’re trying to expand into different US markets, but complications with permits and strong resistance from the legacy airlines have caused delays.

While Norwegian continues to address its teething problems, other airlines have grown and replicated their success. Just last week, Wow Air, an Icelandic low cost carrier announced service to the east coast of the US for as little as $99 one-way. Lufthansa, the flag carrier of Germany, is also working on the launch of an international low cost carrier."