Don't Vote

You could be like Stan in the genius episode 808 of South Park, and refuse to vote. He was put in the unenviable position of having to pick between Douche and Turd, and our choices are not much better. Besides, it is completely rational not to vote.

The Equilibrium Real Interest Rate

Federal Reserve Governor Ferguson recently gave a nice speech concerning the concept of the equilibrium real interest rate. The interesting quote comes at the end, where he says:

This brief discussion highlights the uncertainties attending any attempt to measure the equilibrium real rate. I find these measures useful teaching tools to describe the complicated and iterative process of forecasting the path of the economy so as to arrive at the appropriate stance of policy. However, I believe it to be very important that the FOMC not go on a forced march to some point estimate of the equilibrium real federal funds rate. In my judgment, we should remove the current degree of accommodation at a pace that is importantly determined by incoming data and a changed outlook. Our knowledge of the workings of the economy is sufficiently imprecise that we could not attach much confidence to any single calculation that one might make of the equilibrium rate.

I wonder if he is really acknowledging the imprecision of our knowledge about the equilibrium real rate, or if he is merely training to anchor expectations, without actually committing to a number?

Keywords: ECO120, ECO301, ECO305, interest rates

Spring Forward, Fall Back: Its All About Economics

Spring Forward, Fall Back: Its All About Economics

A friend of mine and I were politely discussing the logic behind Daylight Savings Time this evening. She argued that it originated because farmers wanted more time to harvest their crops. I reasoned that this argument is ridiculous. Farmers don't "clock" in and out! (I'm imagining a guy in overalls climbing down from his combine singing "yabadabadoo!" when the whistle blows...).

Time is simply a construct that we've invented. And any law that requires a universal clock change must be more about uniformity and getting us all on the same page than about getting our work done before the sun goes down.

Of course, it turns out to be all about economics; specifically, saving energy. Energy use and the demand for electricity for lighting our homes and for small appliances is directly correlated with when we go to bed and get up.

From this site: http://www.energy.ca.gov/daylightsaving.html

"In the average home, 25 percent of all the electricity we use is for lighting and small appliances, such as TVs, VCRs and stereos. A good percentage of energy consumed by lighting and appliances occurs in the evening when families are home. By moving the clock ahead one hour, we can cut the amount of electricity we consume each day....Studies done in the 1970s by the U.S. Department of Transportation show that we trim the entire country's electricity usage by about one percent EACH DAY with Daylight Saving Time."

The American law which, by the way, does not require one to observe Daylight Saving Time, is the Uniform Time Act of 1966. It just says that if we are going to have such a thing, it must be observed uniformly.

So why is Arizona exempt?

Maybe its those farmers in the desert....

Keywords: ECO110 and ECO120

Heisenberg's Polling Principle

The problem with polls is...well they're polls. They are attempts to measure an individual's likely voting behavior and in so doing they offer a prediction as to the likely outcome of an election were it to have been run at that moment. The problem is, the very act of trying to measure the likelihood an individual will vote, and who they will vote for, can alter the outcome. Sound familiar? Well its close to the problem physicists face when trying to measure the position and velocity of a particle. Heisenberg described this in his Uncertainty Principle:

Light can be considered as being made up of packets of energy called photons. To measure the position and velocity of any particle, you would first shine a light on it, then detect the reflection. On a macroscopic scale, the effect of photons on an object is insignificant. Unfortunately, on subatomic scales, the photons that hit the subatomic particle will cause it to move significantly, so although the position has been measured accurately, the velocity of the particle will have been altered. By learning the position, you have rendered any information you previously had on the velocity useless. In other words, the observer affects the observed.

The problem faced by pollsters is when they measure and report the intentions of likely voters, they alter the population of likely voters, and sometimes they even alter the votes of the very people they polled. For example, if the election looks to be decisive for one candidate or the other, I'll vote my true leanings (libertarian), but if the election looks close, I may vote strategically (the lesser of two evils). Still other people who are not likely to vote, will become much more likely when the polls report that the vote looks to be close, since they will feel they can influence the outcome. Sometimes this happens in predictable ways, but as Ray Fair notes in response to a reporter suggesting his prediction of Bush winning would reduce participation by Kerry supporters:

It could work the other way. If Kerry supporters see that I have made this big prediction for Bush, more of them could turn out just to prove an economist wrong.

So you can think of polls as attempts to measure two things, one would be your probability of voting, and the other would be your preference in a candidate. It seems unlike the physicists we can't even measure one of those precisely. Unlike Ray Fair some social scientists aren't willing to let the polling chips fall where they may, which is why Krugman recently penned the following:

By the way, why does the Gallup poll, which is influential because of its illustrious history, report a large Bush lead when many other polls show a dead heat? It's mostly because of how Gallup determines "likely voters": the poll shows only a three-point Bush lead among registered voters. And as the Democratic poll expert Ruy Teixeira points out (using data obtained by Steve Soto, a liberal blogger), Gallup's sample of supposedly likely voters contains a much smaller proportion of both minority and young voters than the actual proportions of these voters in the 2000 election.

But the question of who is right is an empirical one. If Krugman were honest, instead of the political hack he has become, he would point out that maybe the proportions of minority and young voters in 2000 where not unusually high, but rather part of a rising trend of increased participation for those groups? Even so, one data point does not a trend make, so the fact that Gallup is using a longer period average to weight participation does not make a conspiracy. Although you wouldn't know it from this full page ad over at Moveon.org. I don't disagree with the assessment that the Gallup polls are over stating Bush's lead, because I do believe we will see a much larger turnout among the youth and minorities, not because I believe it is a right wing conspiracy. The fact is turn out among youth and minorities is very volatile, so only time will tell who is right.

Keywords: Polls, Surveys, BUS230

More Quick Hits

A few quick links to some interesting stuff.

Time management tips by John Q. Boy I need to follow this wonderful advice.

Economists lie less than sociologists, according to this study referenced by Mahalanobis via Rasmussen.

Larry Summer's thoughts on the CA deficit. Link via Full context.

Keywords:

I (Still) Love Competition

According to a recent article, Netflix has lowered its price to 17.99 a month, due to the threat of Amazon entering the market. And in response to pressure from recent entrants Blockbuster, entering at 17.49, and WalMart. Its worth noting that just a few months ago Netflix raised its price from 20.99 to 21.99, but now it looks as though they fear marauders. Economic theory tells us easy entry and exit should keep profit down, looks like it in this case.

Competition is Great

I just got back from Subway, where for the first time they offered to toast my ham and cheese sub. I asked when they started offering to toast the subs and the sandwich artist replied "a few months ago". To which I replied, "Oh you mean about the time Quiznos moved in?". He shook his head in affirmation. I love competition.

Keywords: Competition, ECO120