Grades for Grad Students

Looks like Harvard and others will be ending the ban on Grad students disclosing their grades to prospective employers.

The ban on grade-sharing has been enormously popular with students since it was adopted in 1998. Supporters say that it discouraged (or at least kept to a reasonable level) the kind of cut-throat competition for which business schools are known. With the ban, students said they were more comfortable helping one another or taking difficult courses.

And over at Wharton:

The Wharton School as an institution does not have a ban or requirement on disclosing grades, but the student government adopted a policy in 1994 banning the release of grades.

Serhan Secmen, student body president at Wharton, said that students there are proud that the policy is not a “top down” rule like the one Harvard is ending, but is one that they have come up with themselves. He said that even though the student government has no way to enforce the rule, students abide by it.

He said that keeping grades from prospective employers encourages “teamwork and student collaboration.”

I suppose there is an interesting mix of issues at play. There are the obvious individual incentives provided by grades, with the possible perverse group incentives. Of course group projects and grading may ameliorate these to some degree, if you can overcome the free rider problem.

And then you have the importance of signaling. Taking the grade signal out of the employer/student matching equation helps some and hurts others. I imagine this policy is great for pretty, white, dumb people, but everyone else who isn't covered by one of those adjectives should rethink their position.

Keywords: Grades

How Scientific Progress is Made

The process should be an open, transparent, and collegial search for the truth. Levitt is an outstanding academic, he is open, transparent, honest, collegial, and still right.

Keywords: Abortion, Crime

Exchange Rates

I previously studied exchange rates. Well I suppose I still do, but with much less fervor than I once had. This post by the New Economist, does a great job of bringing some resources together concerning the micro-structure approach to understanding some puzzles of ERs.

Keywords: Exchange Rates, ECO120, ECO301

A Random Walk

You would think, given my blog title and my past research, I would have been able to spot the Random Walk. But I think I got the first one wrong?? However I did it auf deutsch, so that may have been my problem. I got the second and third ones right. The secret is the following: They generate the artificial series, by restricting it to the same start and end point. I'm not sure I can quite grasp how they generate a random walk from this, but remember a random walk crosses its mean less often then a stationary process.

The computer-generated price process is constructed such that its closing prices at the beginning and at the end of the year perfectly correspond to those of the real stock. However, the closing prices of the real stock may significantly deviate from the artificial ones during the year. In order for the computer-generated time series to look as realistic as possible its prices only change on days with positive trading volume in the real stock.

The standardized trading volume of the real stock is calculated as "Trading volume of the real stock on day t divided by the average trading volume during the depicted year."

Keywords: Random Walk, Stock Prices, ECO301

Minimum Markup Laws

Minimum markup laws are just plain dumb. Michael from The Knowledge Problem points us to a recent example involving gas prices.

Have you noticed how low gasoline prices have been lately? No? Apparently you haven't been paying attention.

Fortunately, a representative of Burch Oil, which sells gasoline in Southern Maryland from Burchmart convenience stores, was paying attention. When prices dropped too low at gas stations down the street last week ? to 199.9 ? he knew just what to do: get on the phone.

The arguments for these laws go something like this...if a big firm is allowed to sell for less than cost they will do so temporarily, driving the smaller suppliers out of business. Then once the competitors are vanquished the large firm will begin acting like a monopolist, raise their prices thus harming the consumer.

I'll take my chances. Give me the cheaper gas now, I'll risk the potential higher future gas prices. Why? Because it won't happen, that's why. Entry into the gas station market is relatively easy (even with all the regulations they face), as evidenced partially by the fact that there is one on every street corner.

And isn't it funny that the main proponents of these minimum markup laws are always the small firms, barely hanging on? They claim to have the best interest of the consumer in mind. But economics teaches us they likely only have thier own interest in mind. Well except for one upstanding retailer recently interviewed on WPR.

The funny thing is that this very same argument is used to protect certain domestic industries from international competition. The so called anti-dumping laws are merely international minimum markup up laws. But the great thing here is (note the sarcasm) we get to decide what the foreign producers costs are. And of course the domestic producers who claim that they have been harmed help the USITC develop estimates of the foreign producer's cost. Funny how they also claim that they are doing this in the best long term interest of the consumer.

You can find a list of all the active antidumping investigations at the linked web site.

But even when entry barriers appear to be insurmountable, things change. Look at the threat Google poses to Microsft. (via Newmark's Door) And to think just a few years ago we thought Microsoft was a monopoly that needed to be spilt up.

Keywords: ECO120

Overconsumption

People continue to decry the state of health care. They claim we spend too much, but do not realize commensurate improvements in life expectancy. I asked Robert Fogel this question when he was here last year, and his response was something along the lines of: We spend more on health care, not because costs are rising, but because consumption is rising, and rising in ways that do not improve longevity, but rather quality of care. Richard Lehman makes a similar point.

Have you been to a hospital lately? They no longer house patients in wards, in many cases you have your own room with TV and other amenities.

The sad truth is that if we are to reduce consumption we have to ration health care. That will likely happen, or be most effective if we ration the consumption of elderly near the end of their lives. Every dollar spent on a 90 year old provides the least bang for the buck in terms of spending and increasing life expectancy.

Keywords: Healthcare

I Love Technology

I Love Technology. Like Kip Dynamite said...

Pandora is a new website that creates a radio station based on providing them with the name of a favorite artist or song. They use the properties of that song to generate a playlist with similar properties. The properties are not simply genre...so far I've found a half a dozen bands I've never heard of with songs I like. Sweet. (Hat tip to the Door).

Keywords: Technology, Music

Porn: Some Research Questions

Here are some possible research questions. Or maybe they would be more appropriately labeled as unexplained differences between Hollywood and the Porn industry.

1. Why does sex no longer sell in Hollywood, yet it sells better than ever - and it has become more explicit than ever - in the porn industry?

2. Why does the average Hollywood movie lose money, yet the average porn movie makes money? Are power laws at work in Porn as well?

3. Why did Hollywood produce 500 movies last year, yet the porn industry produced 10,000?

4. Why does Hollywood continually resist new technologies, while the Porn industry embraces them?

5. Stars are not valuable to Hollywood Profits, what are the value of Stars in the Porn industry?

6. What are the value of Awards in the Porn industry?

7. Hollywood makes too few G movies, are there any genres in Porn that are over/under produced?

8. Hollywood is currently typified by project by project contracts which are usually fixed fee plus participation for the talent, but used to be typified by long term contracts without participation. The Porn industry is typified by project by project (actually scene by scene) fixed fee contracts, with no participation. The Porn industry has recently moved a few actresses to a contract reminiscent of old Hollywood. Why?

9. Marketing does not pay in terms of profitability for Hollywood. Does marketing pay for Porn land? More specifically, do those box covers really need to look that professional?

10. There is evidence that Hollywood is over screened, is Adult entertainment under screened? I doubt it, but to what degree have zoning regulations changed the nature of Porn?

There are many more interesting questions that could be asked, but these are a few of the immediate ones swimming in my head.

Keywords: Porn and Research

Minimum Wage Debate

Some shameless self promotion. Here is the latest op-ed I wrote on Wal-Mart and it's call for an increase in the minimum wage. Here is the rebuttal by Keith.

Finally Some Sanity

Well at least one municipality appears poised to remove much it's regulation of adult businesses. At least one Councilman realizes the regulation of adult consensual activities costs the city money.

“We don't need a whole new Metro department to baby sit a few strip clubs,” said Metro Councilman Adam Dread.

Metro Councilman Dread has proposed a bill to repeal the current laws on sexually oriented businesses.

“They were written eight years ago, when we did have businesses that were really brothels. Since then they've all been wiped out. Now we just have legitimate strip clubs,” said Dread.

Keywords: Strippers, Regulation

Why Oh Why Are We Administered by These Idiots?

In a hat tip to Brad Delong's "Why Oh Why Are We Ruled By These Idiots?" blog updates, I want to start a "Why Oh Why Are We Administered by These Idiots?" column. The first entry is from our recently initiated Provost's Digest:

No Internal E-mail Day – November 30, 2005
Feeling the information overload? Wonder why there is still a phone in your office? Offices next to each other in your building? While email is an extraordinarily convenient way to communicate with individuals and groups (witness this digest!), it can occassionally be overwhelming. Provost Hitch invites you to join her, the deans, directors, and division heads in a voluntary e-mail free day on November 30, 2005 . Exceptions to this “No Internal Email Day” include essential emails, emails to students, and emails to people outside UW–L. Otherwise, faculty and staff are invited to step back into an email-free past for just one day and rediscover other modes of interaction and face-to-face communication!

I wonder how many meetings they had in order to come up with this idea? I'm torn about what to do in response. Should I organize a campaign to phone the provost? Should we all show up at her office asking to talk to her? The funny thing is that most of the exceptions are email I would use, what I think she is saying to faculty is, "please don't email me".

I'm going to push for a no talking day.

Strippers and Short Men

A recent paper entitled, Love, careers, and heights in France, 2001 makes me worried I might never marry.

Short men are less likely to be married or live in a permanent relationship than their taller counterparts. This pattern is not due to their social status. While blue-collar workers are shorter on average than managers, the effects of height on finding a mate are similar in the two social groups. Being tall is also economically advantageous for men. With identical educational attainment levels, tall men have better careers than short men as they are given greater supervisory responsibilities. In making a commitment, some women might take height into account as an anticipated indicator of future resources of the household. Choice of partner is also influenced by social norms – i.e., partners should be physically well-matched – which is more difficult for shorter men.

A simple inspection of match.com and you can't help but notice men tend to be shorter than average and women taller than average. Previous studies find that women prefer taller men, usually by about 4 inches or so. Making the now defunct marriage of Tom Cruise and Nicole Kidman an exception. Its pretty easy to understand this problem, if you picture two normal distributions with different means of about 5'9" for men and 5'4" for women. The distribution for women is shifted left by about 5 inches. So the upper tail of the male distribution can potentially match with the entire distribution of females, whereas the lower tail of the male distribution can only match with the distribution of females to its left, and left by about 4 inches, a much smaller proportion and therefore a much smaller number of potential matches.

So what does this mean for my research on strippers? Well, if one believes that men go to strip clubs to consume intimacy, intimacy they can't get from a relationship then it is likely that a disproportionate number of these men are shorter than average. Since taller men tend to be in a relationship, and at least some of them are presumably happy, then you would expect fewer of them to go to strip clubs. So why the hell do strippers wear those ridiculous boots?

I heard they think it makes them look thinner.

Anyhow, I suppose this goes for the consumers of porn as well.

Keywords: Height, Porn, Strippers

Sex on the Margin and Porn

Over at the Marginal Revolution, they have an excellent post on Sex on the Margin. It covers how people respond to the changing price of sex. As the intro suggests, raise the price of sex with women, then men will have sex with other men, as is the case in prison. I've shamelessly copied the post below, but I want to make one point before I turn over the microphone. One the post does not discuss the quantity dimension, nor does it discuss close substitutes such as masturbation. It seems to me that my research on porn and strippers intersects with this research. AIDS raised the cost of both homosexual male sex and heterosexual sex, thereby increasing the amount of homosexual female sex and reducing the amount of heterosexual sex and homosexual male sex. Thus one can partially explain the rise of porn - a complement to masturbation which is itself an imperfect substitute for sex - as a result of the increased price of sex due to AIDS.

Sexual preferences are primarily biological in origin. But sexual choice is about preferences and constraints. Raise the price of sex with women and more men will choose to have sex with other men - that's what happens in prisons.

In a remarkable paper, Andrew Francis (a graduate student at the University of Chicago) examines how AIDS has changed sexual choice. With admirable precision, Francis lays out the price of sex:

...it is thousands of times more likely that a male would get HIV having sex with a man than having sex with a woman. In terms of AIDS-related mortality, the expected cost of having unprotected sex once with a man is almost $2000, while the expected cost of having unprotected sex once with a woman is less than a dollar.

Thus AIDS changes the price of sex, do we observe changes in choice? Francis wants to be careful about causality so he uses a clever instrumental variables approach. He reasons that knowledge of AIDS and thus responsiveness to price is correlated with knowing someone who has AIDS and that knowing someone who has AIDS is exogeneous to other factors influencing sexuality. Unfortunately, it appears that he only has information on whether a relative has AIDS and genetic factors mean exogeneity is unlikely to hold. In fact, we would probably expect that simply knowing someone with AIDS is positively correlated with being homosexual (especially in 1992 when the survey was taken).

Indeed, Francis finds, as expected, that women who have a relative with AIDS are more likely to be engage in homosexual acts and identify as being homosexual. But Francis finds that men who have a relative with AIDS are significantly less likely to:

...have had sex with a man during the last sexual event...have had a male sexual partner in the last year... say they are sexually attracted to men...rate having sex with someone of the same gender as appealing...[or] think of themselves as homosexual or bisexual.

The tendency to greater homosexuality among women and less among men is exactly what the economic theory predicts given how AIDS affects the price of sex. Genetic and social factors will have greater difficulty resolving this bifurcation so I think Francis has the upper-hand on the argument, although there may be counter-arguments based on the gay-uncle theory).

Importantly, note also that Francis finds that not only is sexual choice malleable, as the prison story I opened with suggests, but so are sexual desire and identity. At least on the margin! (A point that non-economists are likely to miss.)

Keywords: Porn, AIDS, Sex

A Non-Debate

Looks like Ron Jeremy (aka the hedgehog), recently debated a feminist, Susan Cole on Pornography. It sounded interesting, until I noticed it was part of Wolfman Productions, the producers of the Heads vs. Feds debate. Its so unfortunate that this choreographed puppet show nonsense passes for debate. I was so very disappointed. I thought I wrote a post on my disappointment, but can't seem to find it. Maybe, like so many other posts, I never actually finished it.

BLS New Tool

For what its worth, the BLS has a new tool. The Location Quotient Calculator:

The new calculator generates location quotients, a measure that is familiar to regional labor economists as a way to readily compare the industrial activity levels among different areas of the country. In general, location quotients are ratios that compare the concentration of a resource or activity, such as employment, in a defined area to that of a larger area or base. For example, location quotients can be used to compare State employment by industry to that of the nation; or employment in a city, county, metropolitan statistical area (MSA), or other defined geographic sub-area to that in the State. The new BLS location quotient calculator uses a timely data source that is especially rich in comprehensive industry and area detail – BLS's Quarterly Census of Employment and Wages (QCEW).

Keywords: Economic Development

We Need More Like Him

Here is a guy I can respect, Arthur Seldon:

A classic liberal
In many ways Mr Seldon was a quintessential Thatcherite, if never a Conservative. He was born in the East End of London, to Russian-Jewish immigrants, but lost both parents in the 'flu epidemic of 1918, when he was three. Adopted by a cobbler, learning to repair shoes himself, he became a natural and lifelong believer in self-help. He won a state scholarship to the London School of Economics, where he was inspired to his life's work by Hayek, who was one of his tutors.

Rather than a Tory, Mr Seldon was essentially a classic liberal. Much of his early life was devoted to trying to revive the Gladstonian roots of the Liberal Party, even as it succumbed to the influence of Keynes and others. He always regretted that it was the Conservative Party that took up the IEA's agenda, not the Liberal Party, where his free-market ideas really belonged. This marked him out from most Thatcherites, who, much as they adored economic freedom, often had a Tory dislike of individual liberty in other spheres.

Keywords: Classic Liberal

Minimum Wage

A student asked me the other day about what the current minimum wage was, and given it has recently changed in Wisconsin, I didn't know.

The Federal Minimum Wage is still $5.15 an hour. Wisconsin's is currently $5.70 an hour for adult employees. The other states can be found here.

I wasn't 100% sure what happened to the local minimum wage proposal, but it looks like it passed. According to the article:

The council's action will raise the minimum wage from $5.15 per hour to $5.70 per hour as of Dec. 1, and $6.50 per hour as of Dec. 1, 2006.

It looks like I need to write an op-ed covering the research on this. But I just discovered the story behind the minimum wage is worse than one might think, I should have figured. From the Marginal Revolution:

It's no surprise that progressives at the turn of the twentieth century supported minimum wages and restrictions on working hours and conditions. Isn't this what it means to be a progressive? Indeed, but what is more surprising is why the progressives advocated these laws. A first clue is that many advocated labor legislation "for women and for women only."

Progressives, including Richard Ely, Louis Brandeis, Felix Frankfurter, the Webbs in England etc., were interested not in protecting women but in protecting men and the race. Their goal was to get women back into the home, where they belonged, instead of abandoning their eugenic duties and competing with men for work.

Unlike today's progressives, the originals understood that minimum wages for women would put women out of work - that was the point and the more unemployment of women the better!

Update: I forgot about this. Wal-mart has asked Congress to raise the Minimum Wage. The Division of Labour Blog has a nice synopsis of their motivation, though they say it is to increase the income of their customers, research shows it does not. From an NBER working paper:

The evidence indicates that workers initially earning near the minimum wage are adversely affected by minimum wage increases, while, not surprisingly, higher-wage workers are little affected. Although wages of low-wage workers increase , their hours and employment decline, and the combined effect of these changes is a decline in earned income.

Keywords: ECO120, Price Floor, Min. Wage

Skin Cancer

I just found out I have skin cancer. Maybe I shouldn't have had a biopsy done on that tumor?

This article makes the argument that we can actually screen too often. Because once you have find a tumor you have to operate, and since people die during operations all the time, some people may well have been better off not knowing they had a tumor.

During his 14-year career at Dartmouth, Black has become nationally known and respected as one of the most vocal radiologists when it comes to questioning screening tests. He has coauthored numerous papers on the topic, often with Welch, and served on several National Cancer Institute (NCI) committees, including the 1993 International Workshop on Screening for Breast Cancer, which concluded that there is no proven benefit from mammography for women in their forties.

In his book, Welch offers some advice to those who are concerned about being overdiagnosed. Probably the best way to minimize the harmful effects of screening is to be willing to take some timeÂ? with the small, questionable abnormalities, he writes. Even when 'cancer' is agreed on, it may make sense to wait and be sure the cancer is really growing.Â? Watchful waiting, as the wait-and see strategy is called, can be hard for patients and doctors alike because in some ways, just like screening, watchful waiting is a gamble.

Hopefully when I go to my dermatology appointment they won't kill me with some treatment.

A Good Choice

Delong is reporting via reuters, that the President will announce Ben Bernanke as Greenspan's replacement as the Chair of the Federal Reserve Board of Governors.

Finally the President does something right. I wonder if this will bring us closer to Inflation Targeting?

Update: Cafe Hayek is reporting (tongue in cheek) that Bush really nominated his personal accountant.

Keywords: ECO301, ECO120, ECO305

Grade Deflation at Princeton

Well it looks like Princeton has been able to bring average grades down with their new policy. The press release discusses the benefits this policy has had by giving those in the softer disciplines a spine. I mean an ability to "call them as they see them".

In English, to take another example, the approach was to use the new grading expectations to enhance rather than abridge the ability of the faculty to employ their own expertise and experience to make informed grading decisions. The chair suggested to the faculty "that we view the policy as a tool to help us call grades as we see them and to resist the impulse to award high and higher grades for work we know is undeserving. Together we agreed that no one knew better than faculty themselves how to evaluate their students' work, and we decided that each faculty member would keep the expectations in mind and be trusted to do the right thing. Before mid-terms and once again before finals, colleagues were reminded via email of the new guidelines. We also distributed to faculty and preceptors guidelines about the meaning of particular grades, and we scheduled a special meeting with preceptors to discuss these. Upon reviewing the grade sheets in January, I concluded that efforts had indeed been honestly made to lower grades and we would stay this particular course."

Commenting on the results for 2004-05, Dean of the College Nancy Malkiel congratulated the faculty on making significant headway in implementing Princeton's new institutional grading expectations. "Many departments are at or very close to the desired standards; in others, while there is more work to be done, the progress made in a very short time has been nothing short of remarkable. Culture change is hard to achieve, and we always imagined that it would take several years to implement the new grading expectations. We are clearly on our way."

Keywords: Grade Inflation

Resisting Change Will Cost You Money

Google's CEO, Eric Schmidt has a great opinion piece up over at the WSJ. Thanks to Mark Thoma for the link. He talks about the resistance of publishers to allow Google Print to index their books, despite the likelihood of increasing their sales.

Even those critics who understand that copyright law is not absolute argue that making a full copy of a given work, even just to index it, can never constitute fair use. If this were so, you wouldn't be able to record a TV show to watch it later or use a search engine that indexes billions of Web pages. The aim of the Copyright Act is to protect and enhance the value of creative works in order to encourage more of them -- in this case, to ensure that authors write and publishers publish. We find it difficult to believe that authors will stop writing books because Google Print makes them easier to find, or that publishers will stop selling books because Google Print might increase their sales.

Indeed, some of Google Print's primary beneficiaries will be publishers and authors themselves. Backlist titles comprise the vast majority of books in print and a large portion of many publishers' profits, but just a fraction of their marketing budgets. Google Print will allow those titles to live forever, just one search away from being found and purchased. Some authors are already seeing the benefits. When Cardinal Ratzinger became pope, millions of people who searched his name saw the Google Print listing for his book "In the Beginning" (Wm. B. Eerdmans) in their results. Thousands of them looked at a page or two from the book; clicks on the title's "Buy this Book" links increased tenfold.

Doe this sound familiar? Maybe if a publisher said: "Google Print is to the printed book as the Boston strangler is to a woman home alone!". Thats what Jack Valenti said of the VCR.

"I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone," he argued in congressional testimony.

Valenti is often chided for the infamous quote, but he maintains it was a rhetorical statement intended to persuade Congress to give the industry a copyright royalty fee for every video produced. The Supreme Court ruled against Universal's and Sony's attempt to ban the VCR, and home-video sales now account for more than 50% of Hollywood's revenue.

It seems that at every turn, those who earn money from creative industries with copyright protections vehemently resist new technology. Look at the RIAA and P2P technology. Do we really think on net it destroys the urge to create? Porn has been way out in front on this. They embraced the vcr, and were the only ones making money in the early days of the internet. I think these publishers are just missing the boat. Or maybe the publishers realize that the technology may cut them out of the revenue steam, and the creators and the consumers will benefit. I need to think about this more.

Anyhow David Levine maintains a useful page on intellectual property and copy right issues here.

Mark my words, Google will rule the world, despite what Adam L. Penenberg says.

Some Quick Links

Hamilton has a good post on the importance of savings here.

Thoma has a great post on Poole's speech on monetary policy rules here. I need to use this in my Money and Banking class, and maybe even my principles class.

I also need to write an op-ed for the local paper on the topic of funding education. Mark Thoma makes an excellent point about the problems associated with decreased state support, but not decreased state regulation in this post.

Keywords: Education, Rules, ECO301, ECO120

Whose Rules?

Mike Sheffler of posts a comment on my last entry. I quote:

I could be off my rocker, but I was under the impression that the ... uh ... talent has always been obligated to maintain a four-foot clearance from the customer in Washington.

I'm from Spokane, and the sentiment there was that Washington strip clubs were lame because the girls always had to maintain that distance. Hence, everyone would flock to the Stateline strip club, situated just barely on the potato side of the Washington/Idaho border, where there was no such mandatory spacing.

Actually, it is determined entirely by local municipalities, subject to the usual First Amendment constraints. In California v. Larue the majority held that exotic dancing operates on the periphery of First amendment protections. Therefore any restrictions on it must satisfy strict scrutiny and be time, place, manner and content neutral. So how are buffer zones content neutral? I mean we don't require waitresses or hairstylists to maintain a buffer zone. Well the buffer zone ordinances have been found legal by the "Liberal" 9th Circuit Court of Appeals in their Colacurcio v. City of Kent decision where they found the bufferzones to be insignificant restrictions on speech, which do not fundamentally alter the message the dancer is trying to convey.

They were merely following the lead of the Supreme Court who felt in Barnes v. Glenn Theatres that wearing G-strings and pasties did not alter the expressive content of the speech and therefore was a minimal intrusion on the First Amendment. But then what justifies the need for buffer zones? The municipalities interest in preventing secondary effects. Souter was the first to apply the doctrine to nude dancing in Barnes v. Glenn Theatres, but it was later extended by the rest of the court in City of Erie v Pap's A.M. , ironically much to the chagrin of a remorseful Justice Souter.

Keywords: Buffer Zones, Secondary Efects

The War Marches On...

Looks like the War on Porn continues. Chris of nowthatsfuckedup.com (nsfw) is sitting in the slammer for allowing people - subscribing members - to post pictures to his servers which are located in Amsterdam. I'm quite sure this is payback for this story. I can't imagine this has a snowball's chance in hell of holding up. I've checked out the site, there is nothing that I've seen that remotely approaches a modern definition of obscene. It is clearly a case of harassment.

And on the exotic dancing front, we can now add L.A. to the parade of towns, like Seattle attempting to impose a rule requiring dancers to maintain a 4 foot buffer from their customers. Imagine what getting a haircut would be like if they had to operate under these laws?

Nobel Prize

This morning brings news of the Nobel recipients in Economics. Or more correctly, the Bank of Sweden prize in memory of Alfred Nobel. The winners are Thomas Shelling and Robert Aumann. This is another win for Game Theory. Here is a good synopsis by the selection committee.

There are good discussions of Shelling and Aumann over at Marginal Revolution.

Keywords: Nobel Prize, Game Theory

More Savings or Less?

In the long run more savings, means more investment, which means a larger capital stock, which means higher output in the future. In the short run model an increased desire to save means less consumption, which means less output through the multiplier effect. This is often a little confusing, but can completely justified.

James Hamilton has a more in depth explanation here.

Keywords: ECO120, ECO305

The War Begins

The first shot in the War on Porn was fired by the AG's Porn Squad, with a raid on Max Hardcore.

Max released a statement through his attorney:

“Once again, the government is wasting tax dollars and otherwise invaluable law enforcement resources to try to force a minority view of morality on all of America. Five of my movies have been targeted by the Federal Prude Patrol. There is no indication of any crime to be alleged except obscenity. If indicted, I will fight to protect my liberty, as well as the liberty of consenting adults to watch other adults engage in lawful, consensual, pleasurable sexual action. Shame on the Bush Department of Justice. I am proud of the movies I make and proud of those who buy and sell those movies.”

Keywords: Porn, Obscenity

Give Me Liberty or Give Me Death

Or maybe that should read In Death Give Me Liberty? It appears as though Roberts has wasted no time in showing his true colors as a Bush conservative. By that I mean someone who is conservative for religious reasons, not historical ideological reasons.

Although one should be cautious when interpreting a Supreme court Justice's questions, it appears Roberts is no champion of States rights. In the doctor assisted suicide case testing Oregon's voter backed alteration of federal drug laws.

Roberts repeatedly raised concerns that a single exception for Oregon would allow other states to create a patchwork of rules.

"If one state can say it's legal for doctors to prescribe morphine to make people feel better, or to prescribe steroids for bodybuilding, doesn't that undermine the uniformity of the federal law and make enforcement impossible?" he asked.

Ahh...John...it's called states rights. Maybe the feds shouldn't be enforcing federal drug laws? I guess we know where he would stand on the Marijuana case

After reading this I'm starting to like Thomas even more. He is a predictable states rights guy. And while I'd be in favor of more federalism, if I got to decide what it looked like, I think the better approach is to let the tyranny of the majority reign on a state level, that way there might be the option of finding a state whose laws match your preference. So I'm moving to Oregon, not Seattle.

On another Supreme Court Note, I have read a lot of criticism of the Meirs nomination, for a good list check out the Volokh Conspiracy.

Keywords: Supreme Court

Sons of Provo

Porn is often regulated under the guise that there is a chance some unknowning innocent person might accidently see it. You know, like religious zealot that accidently goes into an adult bookstore and accidently buys one(note the sarcasm). It turns out accidents do happen, though even in this case I'm not sure the people accidently viewed pornography, so much as a movie about a porn actor. Here is the rather humorous story.

SALT LAKE CITY Copies of a movie aimed at a Mormon audience have been pulled from store shelves after a recording mix-up left buyers watching ``Adored: Diary of a Porn Star'' instead of the squeaky clean ``Sons of Provo.''

The PG-rated ``Sons of Provo'' chronicles the life of an LDS boy band, Everclean, on its relative journey to stardom.

``Adored: Diary of a Porn Star'' is an unrated independent film that is not pornographic, said Corey Eubanks, spokesman for Wolfe Video, the largest distributor of films featuring gay and lesbian characters and stories. However, the film does contain sexual situations and its subject is the life of a gay porn star.

Keywords: Porn

Trailer Parks are a Bad Idea

So this has been traveling the blogosphere for a bit, but I wanted to put some links here. I think this is a great example of Economists being ignored, despite our near unanimous agreement. Much like we are ignored despite our agreement on trade.

The Bush administration is looking to build trailer parks to house Katrina and Rita victims. There are several reason that his is a bad idea a very bad idea, and economists almost universally endorse the alternative of offering housing vouchers. You need look no further then the failure of public housing projects throughout the country to see why trailer parks might be a bad idea, but even more applicable is the FEMA housing project constructed in the aftermath of hurricane Charley.

"FEMA City is now a socioeconomic time bomb just waiting to blow up," said Bob Hebert, director of recovery for Charlotte County, where most FEMA City residents used to live. "You throw together all these very different people under already tremendous stress, and bad things will happen. And this is the really difficult part: In our county, there's no other place for many of them to go."

"Having lived through the last year here, this is my advice to New Orleans and the other Gulf Coast towns: Don't make big camps with thusands of people, because it doesn't work," Hebert said. "It takes a bad situation and, for many people, actually makes it worse."

Here is Mark Thoma's take on the issue. Marginal Revolution also passed on this recommendation by Ed Olson

Instead the idiots are talking about renting cruise ships, building mobile home parks - or worse yet - converting steel shipping containers. All of this despite the enormous availability of vacant rental units. As Ed Olson points out:

The rental vacancy rate in the United States is at a historically high level. For all metropolitan areas as a group, it is over 10 percent. The largest metropolitan areas in the south central region have some of the highest vacancy rates Â? 15.6 percent in Houston, 14.4 percent in San Antonio, 12.8 percent in Dallas, 12.2 percent in Memphis, 13.1 percent in Birmingham and 18.5 percent in Atlanta. Vacancy rates for smaller metropolitan areas and non-metropolitan areas are also at historically high levels. In short, many rental units in the south central region and throughout the country are available for immediate occupancy by people with the ability to pay the rent.

Keywords: ECO120, ECO305, Subsidies

Global Imbalances

Governor MacFarlane from the Reserve Bank of Australia, delivers an excellent talk explaining the current global situation. Mark Thoma points to it in his post here, and the latest issue of The Economist surveys much of the same ground.

Keywords: ECO305, ECO301

Equity Premium Puzzle

A great post on the Equity Premium Puzzle can be found here, at the New Economist.

Keywords: ECO301

Porn: Giffen Goods vs. Veblen Goods?

So economists often like to talk about things we think don't exist. Such as a free goods. Marginal Revolution has a post entitled Giffen goods, yet another thing we can't seem to find in the real world. From Marshall's Principle of Economics a Giffen good is:

As Mr. Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it.

The MR post quotes Bill Margold:

"As soon as we get a universal or national porn tax, we get what we've always wanted -- that comfort zone of respectability that cigarettes, alcohol and gambling have," said Bill Margold, a former porn performer who now advocates for adult performers.

But what we really have here is probably a Veblen good. A Veblen good is:

if people's preference for buying it increases as a direct function of its price.

The definition does not require that any Veblen goods actually exist. However, it is claimed that some types of high-status goods, such as expensive wines or perfumes are Veblen goods, in that decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive or high status products. The Veblen effect is named after the economist Thorstein Veblen, who invented the concepts of conspicuous consumption and status-seeking.

Marginal Revolution has a more recent post on the Veblen effect in the case of paid sex here.

Keywords: Porn, Giffen Good, Veblen Good

H.R. 3726

I'm just a Bill sitting on Capitol Hill. Remember that School of Rock? Well Bill H.R. 3726 Titled Child Pornography Prevention Act of 2005, has been attached as an amendment to the Child Safety Act of 2005 (H.R. 3132). Apparently it was added without any debate. This bell needs to die a horibble death.

The Free Speech Coalition has a bit here and their press release is here.

Among other provisions, the bill targets adult citizens who record visual images of consensual sexual activity in the privacy of their own homes, adds nudity and clothed images of pubic areas to the definition of “explicit sexual activity” as defined in U.S.C. 18 §2256, and criminalizes the production and distribution of R-rated mainstream motion pictures that fail to comply with the record creation and notice provisions of 2257, and possibly for violation of obscenity laws.

Better not snap any polaroids of the wife, that would be illegal.

Hat Tip to Radley Balko.

Tenure and Porn

Some of my regular readers (who am I kidding, no one reads this) may have noticed a marked change in some of the topics I'm posting. You see I've recently be awarded (or maybe I earned?) tenure. With tenure comes academic freedom, the ability to pursue research that truly interests me. That is not to say that my previous research on exchange rates did not interest me, but I feel as though I need a change of pace. Really, do we actually need another article on PPP? I think my marginal contribution is too small to warrant spendng much more time on the topic. I won't completely give up on it, but I need to make room for my new research agenda.

Strippers and Porn. Thats right, I want to study the Adult Entertainment industry. You may (or may not) be surprised to find that there is almost no work by academic economists on the industry. Sure plenty of sociologists have taken a crack at trying to understand the industry, but when it comes to the important economic questions, they completely drop the ball. It is amazing how socioliologist can report that strippers say the main reason they got into the business was for the money, yet they NEVER ask how much money they make.

In the case of porn can you think of a better way to understand the evolution of contractual relationships, then by comparing Hollywood to Van Nuys?

So A Random Walk will start to track articles I'm reading for my research, I'll try to point out when they are not safe for work, but no guarantees. After all, its just research for me and I can't be fired. I still want to talk about Teaching and Learning and I'll continue to point to macro topics of interest.

Keywords: Tenure

Where are They Now?

The stars of Debbie Does Dallas. Where are they now?

Keywords: Porn

Lynne Lays the Smack Down

Lynne Kiesling of The Knowledge Problem, lays the proverbial smack down on a former professor of mine, Don Nichols.

The WaPO quoted Nichols:

Historically, Nichols said, the markup between the price of a gallon of crude and a gallon of gasoline is about 85 to 90 cents a gallon, including refining, distribution and taxes.

The study estimated that for pump prices to reach $3 a gallon, the price of crude oil would have to be about $95 a barrel, but crude prices have been holding around $65 a barrel, and Katrina has not caused a surge in crude oil prices.

"The disconnect between gasoline and crude oil prices is quite remarkable," Nichols said.

And Lynne said:

On its face I find this statement naive. People who study this industry have known for the past seven or so years that increasingly the refining capacity in the US is a bottleneck. If you are analyzing price effects along a vertical supply chain, and you have a capacity bottleneck in the middle of that chain, how can you expect historic relationships between the price of the initial input and the price of the final product to persist? That is incredibly naive and reflects a lack of understanding of how vertical supply chains work.

Of course the price of crude oil and the price of gasoline are going to become more disconnected as your refining capacity becomes the binding constraint. furthermore, when a natural disaster exacerbates that bottleneck, you should expect a further deviation from that historic relationship.

More work for the FTC, which routinely investigates claims of "price gouging" when one politician or another raises the populist hue and cry. The FTC has studies stretching back for almost two decades that show no evidence of anti-competitive outcomes in gasoline markets.

Is there sufficient political will to just deal with the fact that energy scarcity is going to be more binding? Is there political will to let prices do their jobs?

I'm pretty sure he is a moron. I mean in my intermediate macro class he used to brag about being part of Carter's Council of Economic Advisors. Why would you brag about that?

Keywords: Gas, Gouging

I Love Her

I love this woman. Here is Ariana Huffington laying the smack down on Bush's new Porn Squad.

So Justin exposing Janet's boob is a sin, but White House staffers exposing Valerie Plame is a win. Profiting from porn is a sin, but Halliburton's wartime profiteering is a win. Two men getting hitched is a sin, but Tom DeLay and Jack Abramoff playing with each other's clubs is a win. And telling students condoms can prevent STDs is a sin, but lying about WMDs is a win.

Google Rules the World

I recently finished the book Wisdom of Crowds, and its great to see the geniuses at google putting the ideas to good use.

And then I read this post. I think it is a great note on the future of medicine. We should all be so instrumental in our own health care. Don't rely on the medical profession, they can't even find google.

Keywords: ECO301, Markets, Wisdom of Crowds

Porn Squad

Apparently if you are in the Bush adminitration and you are having trouble winning a war, say in Iraq, or the "War on Drugs" or the "War on Terror", then the only solution is to divert attention by starting another war. So how about the "War on Porn"?

According to this WaPo article the AG Gonzalez has directed the FBI to develop a Porn Squad to pursue obscenity charges. My favorite quotes are from some unnamed FBI agents clearly deminstrating the lack if interest in working in this new squad.

"I guess this means we've won the war on terror," said one exasperated FBI agent, speaking on the condition of anonymity because poking fun at headquarters is not regarded as career-enhancing. "We must not need any more resources for espionage."

Among friends and trusted colleagues, an experienced national security analyst said, "it's a running joke for us."

A few of the printable samples:

"Things I Don't Want On My Resume, Volume Four."

"I already gave at home."

"Honestly, most of the guys would have to recuse themselves."

Keywords: Porn, Obscenity

Tax Reform

Mark Thoma points to a this useful document from the Feds on Tax Reform. Some quick excerpts from it:

Personal consumption taxes: A personal consumption tax would look much like the current individual income tax. Individuals would report their income from wages, interest, dividends, and so on. It would differ in that borrowed funds
would be included in the tax base, and funds that are saved or invested would be
deducted. The base is equivalent to that of other consumption taxes. Rates could
vary based on individual characteristics.

And this one concerning the effects of taxes on the labor/leisure trade-off. Note, marginal rates might not effect the primary earner but they have a big impact on the secondary wage earner.

Work versus leisure: TaxesÂ?both income and consumption taxesÂ?can affect the decisions that people make about how much time to devote to work or leisure in two ways. First, taxes may increase the incentive to work because workers must work more to maintain their after tax income. Second, taxes may reduce the incentive to work because workers earn less from an additional hour of work. The net effect may be no change to the overall supply of labor. However, even in this case, there is still an efficiency cost, which is determined by the second effect. By reducing hourly after tax earnings, income and consumption taxes distort decisions about how many hours to devote to work or leisure. Empirical research generally shows that at least for primary wage earners, decisions about labor force participation are not very responsive to taxes. However, decisions about labor force participation by secondary wage earners have been shown to be more responsive to changes in the tax system.

Keywords: ECO120, ECO305, Taxes, Fiscal Policy

Your FEMA Dollars at Work

I had thought FEMA decided against giving out debit cards, but according to this news release they have given some out. I was turned on to this by the following story that appeared in my mailbox:

Storm-relief money spent at strip clubs
According to a report by KPRC, Channel 2, in Houston, a manager at Caligula XXI Gentlemen's Club said he has seen at least one debit card used at his club. A bartender at Baby Dolls, identified only as "Abby," said she has seen many of the cards used at her establishment.

"A lot of customers have been coming in from Louisiana and they've been real happy about the $1.75 beers and they're really nice," she said.

She couldn't say for sure whether the cards she has seen were from the Red Cross or from the Federal Emergency Management Agency, but she found no fault in using federal dollars to guzzle beer at a strip club.

"You lost your whole house, then, why not?" she said "You might want some beer in a strip club. There are a lot of guys out there that like to do that."

I guess the latter part of the article clears up the confusion:

On Sept. 7, after criticism about the federal government's slow response to helping the Katrina victims, the Bush administration announced that displaced families of the hurricane would receive the debit cards to spend on clothing and other immediate needs.

Two days later, FEMA scrapped the program after distributing the cards at shelters in Dallas, Houston and San Antonio, where many of the evacuees were moved. FEMA said then that no cards will be issued to victims in other states.

But my favorite quote is:

Meanwhile, in Memphis, Tenn., residents told News Channel 3 they saw Hurricane Katrina survivors purchase designer jeans, high heels and purses with their $2,000 emergency debit cards. According to the report, one Katrina victim was spotted at a Cordova clothier buying stacks of $65 designer jeans. Another viewer reported spotting a survivor buying "over $700 in high heel shoes and purses" at a Memphis department store "while (her) younger children, most of them looked under the age of 3, looked like they haven't showered in weeks."

"If they make an inappropriate decision as to what to purchase, the whole issue of victims' rights comes into play," said Bill Hildebrandt, chief executive officer of the Mid-South chapter of the Red Cross. "They have a right, I guess, to be inappropriate."

It would be funny if it wasn't so sad.

Keywords: Strippers, Katrina Relief

Rationality

Daniel Khaneman is a psychologist who won the nobel prize in Economics for his work on rationality. Hear his description of rationality and his critique of it as an assumption here.

Hat tip Mahalanobis.

Keywords: ECO120, ECO305, ECO301, Rationality

More Notes on Oil

Just a few more quick notes on the economics of oil and gas. This website provides quick access to historical prices by state.

Bryan Caplan talks about the increased variance in gas prices. I think this is an obvious result of the reaction to the hurrricane. News is spotty and people react very differently and markets take time to process new info and adjust their expectations. But Bryan lays out some additional reason, go read it.

Also Victor from the Dead Parrot Society has a nice recap of some of the debate on the price effects of suspending state tax on gas. He also provides some data on Georgia's suspension of the gas tax. Here is another study I found, suggesting some decrease in retail prices, but not nearly the full amount of the state tax.

Finally, my original plan in posting was to discuss why I think students have difficulty understanding supply and demand in the context of gas prices. Let me say briefly I think it is a function of their view of prices. They don't believe prices are the result of an interplay between supply and demand, but rather they believe price reflects some markup over cost. They do not understand the interplay of supply and demand. I think when I teach it I will spend more time on the supply side and emphasize that the determinants of supply include not only current costs, but expectations about costs and future prices.

Lawrence White of the Division of Labour asks this question:

I have a question for those who oppose gasoline price “gouging” …

…where “gouging” is defined as a larger-than-normal markup over the price a gas station paid to fill its tanks two or three weeks ago. Would you mind if I siphon the gas out of your car’s tank, and pay you for it the price you paid last week,
before the price of refilling went up?

Keywords: Oil, Gas, ECO120, ECO305

Oil Economics

Some of the students in my intermediate macro class have displayed a real interest in trying to understand the recent movements in the price of gas and oil, so I thought I'd gather some links from blogs that have explained it much better than I ever could.

First Wikpedia has a good definition of the price gouging here. While I think it is a vacant, abused, and utterly useless term, Kevin at Truck and Barter believes we still need to take it serious and he sets himself to the task of answering a few questions about it. Lynne agrees with me.

There are a few really good blogs which regularly discuss energy issues that would be worth browsing. Lynne at The Knowledge Problem generally posts on energy and James Hamilton of Econbrowser does as well. His energy posts can be found here.

Hamilton discusses why suspending the state sales tax will have no effect on the price of gas. But then he corrects himself, because in fact there are certain circumstances under which it may reduce prices. Bryan Caplan points thouse out here. However the best part of Bryan's post comes from the discussion in the comments section. Let me summarize the discussion. Ultimately the degree to which price changes (if at all) depends on the short run elasticity of supply. The more inelastic, the less prices will drop. It appears that gasoline supply is fairly inelastic because, we import very little refined gas (<10%), refineries have little spare capacity (particularly after Katrina), and many states requie their own formulation of gas, further reducing the local supply elasticity by preventing inter-state transfers of gasoline. In the end we understand the theory, but we can't exactly quantify the outcome of the policy change becuase there are too many empirical unknowns. We'll have to watch the experiment unfold, but I'm betting prices only fall by a very small amount.

Keywords: ECO120, ECO305, oil, gas, price gouging.

Evolution of the Payments System

Via Mark Thoma at the Economist's View.

We have Antonio Sat present a brief history of the evolution of the payments system.

Keywords: ECO301

Where is my Keg?

Keg registration has come to La Crosse...now this will definitely curb binge drinking. The story is here. At least one person on the council understood the uselessness of the requirement when he said:

The committee's vote for keg registration was 14-2, with Bloedorn and Ranis voting against it and Andrea Richmond abstaining.

It would set a minimum $50 deposit per keg that would not be refunded if the identifying tag is removed. The measure originally called for a $100 deposit.

Member Andy Monfre, who represents the college area, argued that the deposit is too expensive, and Richmond said college students will find a way around it.

The ordinance would place a 48-hour, two-keg limit per person or address or contiguous address.

Calling keg registration a health and safety issue, former La Crosse resident Sheila Garrity supported the limit, recalling she once saw 17 kegs being carried into a house in her neighborhood.

People holding keg parties buy as many kegs as they think they can sell and then sell cups to people who drink as fast as they can, said Charles Weeth of Livable Neighborhoods. "What's the effect on the neighborhood when you find people passed out in their own vomit?"

Opposing the two-keg limit, Bloedorn said he believes in personal freedom and does not want to drive people outside La Crosse to buy kegs. When planning a party, he said a person needs to figure the number kegs of beer based on the number of guests expected, like they figure the amount of food to buy.

One thing is for sure about politicians, they have never found a problem they didn't think they can solve with a new law.

Looks like the kids will be driving to Onalaska for their kegs.
Keywords: Alcohol, Binge Drinking

Political Hacks

More evidence that the FDA should be eliminated can be found here.

The Washington Post reports Susan F. Wood, an assistant FDA commissioner for women's health since 2000, wrote in her resignation e-mail that FDA ommissioner Lester Crawford's decision Friday to put the approval of the over-the-counter morning after pill" on hold was not scientifically based.

We now have political hacks threatening our health.

Euro Trash

I recently participated in an editorial debate on the failed EU constitution vote. Keith Knudsen of Viterbo wrote the first piece here. And my peice follows here.

Had I read this piece before I wrote mine I would have included it.

Bavarians are hot under the collar over an EU directive that will force their barmaids to cover up, supposedly to protect them from the sun.

The new legislation, which is due to be voted on in the European parliament next month, was defended by Wolfgang Kreissl-Dörfer, a Bavarian MEP. He said: "Sun rays have become more aggressive and there has been a huge increase in the amount of skin cancer."

Hat tip to Mahalanabois.

Keywords: EU, Op-ed

More on Kelo

If I had an infinite amount of time I would spend more time researching this issue, but it seems to me the Supreme Courts decision is based on the "Public Use" being the 1,000 jobs that the project was likely to "create".

From the majority opinion:

We granted certiorari to determine whether a cityÂ?s decision to take
property for the purpose of economic development satisfies the Â?public useÂ?
requirement of the Fifth Amendment. 542 U.S. ___ (2004).

in which they quote:

In 2000, the city of New London approved a development plan that, in the words
of the Supreme Court of Connecticut, was Â?projected to create in excess of 1,000
jobs, to increase tax and other revenues, and to revitalize an economically
distressed city, including its downtown and waterfront areas.Â? 268 Conn. 1, 5,
843 A. 2d 500, 507 (2004).

If they maybe understood a little about economics, they might not fall for this public use argument. Let me remind everyone, in the long run the number of jobs and the amount of labor provided to the market is determined by the number of people willing to work. Supply creates demand. I don't see how taking some old ladies house from her will have an impact on that?

Eminent Domain?

Somehow I have trouble calling a Supreme Court that makes a decision like this, conservative. Of course what it means to be a conservative has changed a whole lot recently hasn't it? I can't believe they've ruled against private property rights and in favor of eminent domain even when the are serving private economic interests. This means you better be friendly to your local economic development bureaucrat or they just might find someone to build on the site of your home. Nice. The case I'm referring to is Kelo v. New London, (04-108), and the should be more today, for now there is a recap here.

Keywords: Supreme Court, Eminent Domain

Commencement Speeches

Someday I'd like to give a commencement speech, and I hope it will be as good as this one by Steve Jobs (Via Newmark's door). Or maybe I'll fall back on this one by some Chicago Tribune Columnist remade into a song by Baz Luhrmann.

Here is the money quote from Jobs:

You've got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep
looking. Don't settle. As with all matters of the heart, you'll know when you
find it. And, like any great relationship, it just gets better and better as the
years roll on. So keep looking until you find it. Don't settle.

Don't forget the sunscreen.

Keywords: Graduation

Fiscal Policy

Via Voxbaby we have some very wise words from Gene Stueuerle on fiscal policy.

The Money Quote:

The Social Security debate could and should be part of a larger one in
which we engage our fellow citizens in choosing the best direction for society
as a whole as better things happen to us in the way of longer lives and new
health care goods and services. How can we really take best advantage of these
new opportunities? How can we spread the gains from this increased level of
well-being and wealth to create a stronger nation with opportunity for all? And
how should we share the costs?

Instead, the debate is upside down. Due to the ways we have designed
our programs and our budgets, every year we spend greater shares of our national income in areas where needs have declined, and then claim we don’t have enough left over for areas—such as education, public safety, children, and
anti-terrorism—where real needs remain and have often grown. I sometimes imagine sitting in the Ways and Means Committee room when someone from the National Institutes of Health comes in claiming to have found a cure, though expensive, for cancer. The members of committee, trapped in the logic of our current budget, find that instead of celebrating this advance, they commiserate among themselves about the increased cost for Social Security.

And this highlights the problems I have with TABOR laws.

Keywords: ECO120, ECO305, Fiscal Policy, TABOR

Macro Reading List

Tyler Cowen's Macro reading list, maybe some of these will find their way on to my intermediate reading list.

Keywords: ECO305

Too Much Homework?

This blog was originally created in part to talk about teaching and learning, so I thought I'd throw in a post or two on that topic. Here (Via Slashdot) we have a report on the correlation between the quantity of homework and the performance on an international standardized test. It appears as though more homework is not the answer to better performance. Shocking, and I thought making a student add 2+2 a million times would make them better at turning a fraction such as 1/2 into a decimal.

The interesting quote:

During the early 1980s, many U.S. schools and teachers ramped up their homework assignments, at least to younger children, in reaction to intense media focus on studies comparing the mediocre performance of American students to the industriousness of their Japanese counterparts. At the same time, ironically, Japanese educators were attempting to reduce the amount of homework given to their students and allow them more leisure from the rigors of schooling. Neither the American nor the Japanese educational reform of the 1980s seems to have affected general achievement levels in either country, according to the book.

Keywords: learning, Teaching, Homework

Growth and Democracy

In grad school I was very interested in the relationship between economic growth and democracy. I think this post from Corner Solution, has an excellent quote from the WSJ article:

"In some countries, like China, it could be easier to make changes," Mr. Cover says. "But that's the cost of democracy."

But some of my views on growth need to apparently need to change. I often thought Islamic lending laws provided a major impediment to growth. But this Marginal Revolution post suggests that Islam itself is not associated with lower growth than other religions. Maybe the answer can be found in this post over on Mahalanobis.

Islam's Sharia law severely limits the practice of charging or paying interest. But a new generation of Islamic banks have found ways to make products mimic the Western originals, from floating-rate infrastructure loans to Islam-compliant credit cards issued by Visa. The paperwork, however, is Islamic. "Risk," Mr. Mishari (* CEO of Bank Aljazira *) says with a smile, "has no religion."

Keywords: Growth, Interest Rates, ECO301, ECO305

The Economics of Movies

Slate has a few good articles by Edward Jay Epstein on the economics of movies entitled The Hollywood Economist. (Via Newmark's Door).

Keywords: Hollywood, Movies, Entertainment.

Immigration policy

Open borders is the best anti-poverty program we could have. David Card (via Marginal Revolution) finds that the immigrants that have entered our country haven't depressed the wages of the native population. So what other reason would their be for limiting immigration?

Part of the abstract from the paper by Card is below:

This paper reviews the recent evidence on U.S. immigration, focusing on two key questions: (1)Does immigration reduce the labor market opportunities of less-skilled natives? (2) Have immigrants who arrived after the 1965 Immigration Reform Act successfully assimilated? Looking across major cities, differential immigrant inflows are strongly correlated with the relative supply of high school dropouts. Nevertheless, data from the 2000 Census shows that relative wages of native dropouts are uncorrelated with the relative supply of less-educated workers, as they were in earlier years. At the aggregate level,the wage gap between dropouts and high school graduates has remained nearly constant since 1980, despite supply pressure from immigration and the rise of other education-related wage gaps.

Overall, evidence that immigrants have harmed the opportunities of less educated natives is scant. On the question of assimilation, the success of the U.S.-born children of immigrants is a key yardstick. By this metric, post-1965 immigrants are doing reasonably well: second generation sons and daughters have higher education and wages than the children of natives. Even children of the least educated immigrant origin groups have closed most of the education gap with the children of natives.

Talk of The Nation on NPR just had a segment on this very issue, they spent most of the time discussing the economics of immigration on labor suppy. It would have been nice if they would have had a real economist like Card on, instead of the "think tank" hacks they had.

Keywords: ECO120, ECO305, immigration

Sticky Prices

How sticky are they? Via Mahalanobis:

Bils and Klenow got special permission to review the micro-data on prices and concluded that these prices actually change quite frequently, on average about every four months. That doesn't seem so sticky, Kehoe argues.

Here is the rest of the article from the Richmond Fed.

Keywords: ECO120, ECO301, ECO305, Sticky Prices

The Amazing Internet

This thing we call the internet continues to astound me. At this very moment I am proctoring my ECO120 final while watching a live feed of the Giro d'Italia courtesy of OLN. While I would have prefered to have watched it at home, without having to have paid extra, and with the commentary of Phil, Paul, and Bob Roll, this is still much better than nothing. Or even a little better than just reading it on cyclingnews.

Keywords: Technology, Cycling

An Interview with Mankiw

Russell Roberts conducts an interview with Mankiw laregly covering his time at the CEA, but they also touch on a few other topics.

Here is the money quote about our President:

Roberts: What is your perception of the President as a consumer of economic
analysis?

Mankiw: I think he's got a great intuition for economics—he doesn't think like an economist in the sense of thinking in terms of equations and graphs. He was an undergraduate history major and that's a pretty good description of how he thinks about things.

They also have an interesting exchange about the academic market for ideas.

Keywords: CEA, Mankiw

Bates Medal

As others have pointed out here (and here), Daron Acemoglu has won the John Bates Clark Medal, at least in part for his work on economic growth and the role of institutions.

Acemoglu has several papers that argue that institutions play a more
prominent role in development than was generally accepted. His 2002 QJE paper
with Johnson and Robinson argues that countries that were relatively rich in
1500 are now relatively poor, a point that is inconsistent with the view that
geography is destiny. The argument, supported by empirical evidence, is that
this is due to colonizing countries treating rich and densely populated
countries differently from poor and sparsely populated countries. In the former,
they followed policies of extracting wealth and in the latter they followed
policies that encouraged investment. Acemoglu’s 2001 AER paper, also with
Johnson and Robinson, uses differences in mortality rates faced by Europeans in
different countries to study further the degree to which different policies lead
to different institutions, which in turn lead to different development paths.
Some of the methods and the conclusions of this paper are still being debated,
but this line of Acemoglu’s work has already stimulated substantial research
that rethinks the development process. In related work on political economy, for
example with Robinson in APSR 2001, he has examined the dynamics of political
processes and the persistence of inefficient policies. This work has been
influential in political science.

Levitt points out that Acemoglu's work challenges conventional wisdom which believes that democracies produces the highest possible growth rates. From the little research I did in this area I recall that is was long believed that totalitarian regimes could produce higher growth rates. Well, it was believed up until the Soviet Union Collapsed. Even after that happened the view that democracy was the key to growth often came with caveats. Freedoms are important for growth, but some freedoms impose costs that can constrain grwoth as well. Its probably less about democracy per se so and more about free and stable institutions, which seldom occur in non-democracies, or democracies for that matter.

Keywords: Growth, ECO120, ECO305

Coulee Region Blogs

While reading the La Crosse Tribune online, I noticed in a story by Reid Magney that he has a blog called River Valley Blogs. He has a few interesting entries, I found this one on op-ed pieces pretty entertaining. More importantly I found a list of local bloggers. Seems to be missing this blog, I'll have to drop him a note.

Update: He even cites some of the data I've gathered here.

Keywords: La Crosse, Blogs

Libertarian Views

Via Newmark's Door we have access to Jeffery Miron's lecture notes on the libertarian perspective on everything from abortion to civil marriage. This is another great example of the positive externalities reaped through the internet.

I also recently recieved a letter from Milton Friedman encouraging me to endorse Miron's research sponsored by MPP's on the budgetary implications of the prohibition of weed (pot, reefer, mary jane, etc.).

Keywords: Libertarian, Drug Leagalization, ECO120

Minimum Wage

Minimum Wage laws are classic examples of price floors. We teach (well most of us) that if price floor is set above the equilibrium price it cause a surplus. A surplus of labor is also called unemployment. So one might argue that minimum wage laws have employment effects, well if you still believe that supply curves slope upward. One might argue about the size of those employment effects, but I think most of us still believe they exist.

For a great discussion of the real world consequences of minimum wage laws for one particular employer click here.

Despite this our two mayoral candidates both favor raising the wage locally.

Keywords: Price Floor, Minimum Wage, ECO120

The War on Drugs

There have been a couple of great blog entries on the War on Drugs recently. First here are some interesting data via Mahalanobis. And Becker and Posner have weighed in with some thoughtful writing on the topic and they both follow up on reader comments here and here respectively.

Keywords: Drugs, Legalization, ECO120

China and Trade

I wish I had seen this post 1 week sooner. I recently gave a presentation on Globalization, Trade and Jobs at Viterbo University and I got a good question from a woman in the audience. She asked if trade was so good, why do some people in foreign countries work under such terrible conditions. The article points out that we ought not jump to that conclusion. While I might think a 60 hour work week is pushing the upper limits, clearly there are some people in China who would like to work more.

Taiwanese factories in Dongguan [a city between Hong Kong and Guangzhou and a major centre of manufacturing] are facing a problem. According to a news report in the United Daily in Taiwan, over a thousand workers at a factory, which produces goods for big brand names such as Nike, demonstrated for two days and damaged equipment and factory cars. 500 armed police arrived and quashed the riot. Several leaders were arrested.

The main cause for the riot was the limitation [sic] on working hours at the factory. The shorter hours have been requested by US companies so as to avoid criticism from various groups on long working hours. However, the mainly migrant workforce want to work longer hours so they can earn more. Consensus had been reached by the US companies, the Taiwanese-invested factory and local government that the maximum working hours per week should be set at 60 hours [which is still a breach of Chinese Labour Law, but less than other manufacturing plants]. However, this reduction in hours was unsatisfactory for the workers and the resulting riot was serious.

Keywords: Trade, Employment, China

Poor People and Porn

Via Marginal Revolution:

Drew Carey makes the excellent point:

The government is really into 'protecting people'. The Federal
Communications Commission (FCC) says you can't broadcast certain words and certain pictures. It says it's protecting citizens. But I'm sitting in my home with DirecTC and can watch whatever I want. I can afford the best pornography - laser-disc porn! The government's not protecting me from anything.

All the government's doing is discriminating against poor people. It
thinks poor people are like cows, that poor people can't think straight: If we let them hear dirty words or see dirty pictures, there's going to be madness! If you're poor and all you can afford is a 12-inch black-and-white TV and can't pay for cable - you're so protected. You'd probably be happier if you could see some pornography, a pair of titties, once in a while on free TV. But a pair of titties on free TV? The government figures if you saw that, you'd just explode!

Keywords: Porn, Privacy, Censorship

Inflation Targeting

It doesn't look like the fed wil be targeting inflation any time soon. The money quote from the minutes of the Febuary meeting:

At this meeting the Committee engaged in a broad-ranging discussion of the pros and cons of formulating a numerical definition of the price-stability objective of monetary policy. A staff presentation on the topic included a review of the potential costs and benefits of introducing such a definition as well as of other countries’ experiences. In the subsequent discussion, meeting participants uniformly agreed that price stability provided the best environment for maximizing sustainable economic growth in the long run, but expressed a range of views on whether it would be helpful for the Committee to articulate a specific numerical definition for the Federal Reserve's price-stability objective--either a single figure or a range. Those who believed such a move would be on balance beneficial cited, for example, its usefulness as an anchor for long-term inflation expectations, as a vehicle for enhanced clarity of Committee deliberations, and as an additional tool for communications. Several of those who saw greater potential drawbacks were concerned that such a shift might appear to be inconsistent with the Committee’s dual mandate of fostering maximum employment as well as price stability or that it might inappropriately bias or constrain policy at times; in any case, with inflation expectations well-contained over recent years, the benefits of announcing a specific inflation objective were not likely to be large. The Committee decided to defer further discussion.

Keywords: ECO301, Monetary Policy, Inflation Targeting

Sparta and Alcohol

Stories like this make you wonder if there was ever any piece of legislation enacted for the public interest, or is it always only serving some narrow personal interest? Well, this story from the tribune makes me laugh, because the idiot hasn't learned his lesson. When supporting legislation to keep competitors out of your market, you better make sure the ban doesn't include you.

But Eddie Habhegger isn't a referendum supporter. The owner of Fast Eddie's
Beverage, on Hwy. 21 in the town of Sparta, said his business was in city until
1963, when a referendum forced him and another liquor store to leave
Sparta.

A grocery store had sought to sell beer and liquor, so the issue went
to referendum. Habhegger pushed for its defeat, only to learn when he sought to renew his retail sales license that the new referendum excluded his store as well.

"We lost our business and everything," he said. "We had to start all
over again."

Habhegger was able to buy some land on Hwy. 21, and the town of
Sparta granted him a license. The family-run business has been there ever
since.

The city has plenty of bars and taverns that sell beer and liquor for
off-premises consumption, Habhegger said.

"We will continue to maintain very low prices here, and hope the people will vote the same way we will ? no. We're hopin' and prayin' that we win," he said.

Turning Japanese

Hopefully the US economy is not turning Japanese. According to the FT, it appears as though things have once again slowed down.

Japan's economy slipped back into recession on Wednesday when newly released data showed its gross domestic product had contracted for three consecutive quarters, bringing an official end to the country's three-year recovery.

Times they have a changed...I don't wish ill on any country, but I did have to suffer through the 80's prognostications of Japanese economic dominance, so forgive me if I don't act like this is the most upsetting turn of events.

Keywords: Japan, ECO120, ECO301, Recession

Thank God This Ain't Oklahoma

By way of the Volokh Conspiracy: We have this newly proposed law in Oklahoma. The important parts, for purposes of this post are:

Section 1111. A. Rape is an act of sexual intercourse involving vaginal or
anal penetration accomplished with a male or female who is not the spouse of the
perpetrator . . . under any of the following circumstances:

9. Where the victim is an undergraduate student under twenty-one (21) years
of age attending any college or university in this state or the victim is
attending any public or private secondary school in this state, regardless of
the person's age, and engages in sexual intercourse with a person who is an
employee of the same college, university or school system unless the two persons
were legally married prior to enrollment or employment in such college,
university or school. . . . .

Patently absurd.