Site Launched

I've finally launched my professional site. Visit it to find information about the classes I've taught, my CV (a minor update will be coming shortly), research (as it is), favorite links, and past teaching evaluations.

I'll tag this as "Teaching" since that's what most of the information on the website covers.

Market Madness

This year's American Economic Association (AEA) Annual Meeting website presents "Market Madness," a spin off March Madness where 16 suggested reasons for the recession are pitted against each other. The winner of each pair is determined by voting (I think it was among AEA members). The pairings were made by Allen Sanderson and requested by University of Chicago Magazine. Here are the results (a description of each entry is here).

Externalities and Locking Your Car

Inertia Wins! posted this about a new regulation on locking your car.

Most car thefts happen to unlocked cars. The government of Bucks County, Pennsylvania, thinks it can help. It plans to issue $25 fines to people who forget to lock their cars. First-time violators get off with a warning.

I'm not a fan of this law, largely because of the reasons Inertia Wins! outlines (invasion of privacy when police check for locked cars, ability to be abused by thieves dressed as cops, etc). I'm also against it because I lock my car all the time.

Suppose everyone locked their car. Some car thieves would steal other things but their skill set is not easily transferable. I'd imagine most would focus on getting better at getting into locked cars. That's a cost to me as it increases the likelihood that my car will be stolen. So the strange unintended consequence of this regulation is that it punishes the people who are most careful.

Hans Rosling on Child Mortality

Prof. Hans Rosling has a new video about child mortality rates in Africa. Interesting, as always.

Latest on the Minimum Wage Studies

The famous Card and Krueger study examined the effects of a minimum wage increase in New Jersey by comparing workers hired there with workers hired in the neighboring state of Pennsylvania. What makes this study noteworthy is that despite its good design, its conclusion defied economic theory: the minimum wage didn't increase unemployment.

There are lots of studies showing the opposite but Card and Krueger was noteworthy not just in its conclusion but in its approach: they looked at local effects. Economist Arindrajit Dube did a more systematic study, looking at several state borders. His confirms the Card and Krueger study. Dube recently spoke to the Real News:

Dube’s findings indicate that a higher minimum wage helps service retailers attract and retain employees, increasing their productivity. He said that a restaurateur, for example, is likely to reduce his employees when the wage goes up if only one restaurant raises their wage, but if most of them raise it, the added cost is passed on to the consumer who is likely to absorb it without decreasing their demand.

In other words, people are very sensitive to the increases in price of one store but less sensitive to the increase in price of all similar stores. That makes sense: there are fewer substitutes for all stores than for one store. I wouldn't say "without decreasing their demand" as I'm sure it's decreased somewhat, but that's probably a media translation, not Dube.

But it still doesn't make sense. The idea of offering a higher wage, even one above what we would typically call a market wage, to attract good workers isn't a new idea in economics or business. Economists call it an efficiency wage: higher wages attract better workers which increases the chance that you'll hire a good worker. (It's hard to tell good workers from bad ones.) Firms use efficiency wages all the time because a good worker is a huge advantage over a competitor. The higher productivity worker pays for the higher wage. There's no reason why in this scenario a firm increasing their wages would feel the need to cut employment. Each worker pays for himself. You don't need a sector-wide increase. In fact, you prefer it. If everyone's getting the benefit of the higher wage, then much of the competitive advantages drain away. (It's not all the competitive advantage, though, as you attract workers from other sectors.)

That Dube was able to replicate the Card and Krueger study makes me less suspicious of it (as the study, while well designed, wasn't perfect...though no interesting study is!) and I'm more open to the idea that minimum wage laws can increase employment than I was yesterday. But I have yet to hear solid economic reasoning as to why this would occur.

HT: Mark Thoma

The Madness of the Many

Daniel Indiviglio suggests taxpayers have discretion over where their funds go. I love this idea. In fact, I considered it a while ago (though I called it "taxpayer earmarks" and was less ambitious than Indiviglio, thinking only a fraction of the tax payment would be available for discretionary spending). I can't find a post about me talking about it, so you'll just have to take me at my word.

I am concerned that the payments are just another form of cheap talk, but more directly destructive. In Indiviglio's example, he increases his share to the DEA from $3.14 to over $160. I think many Americans would applaud that increase despite the efficiency (and ethical) problems of arresting people for enjoying drugs. I'd expect subsidies and make-work jobs to rise, as well, depressing the economy.

You might wonder why politicians don't have to worry about this trade off (pleasing the people at the expense of the economy). Well they do, but its weakened compared to the average taxpayer. If the politician's in charge when the economy sinks, he's (rightly or wrongly) punished for it by losing his job. Moreover, he has business interests (and their campaign contributions) which help keep him in line. But a single taxpayer's virtually unaffected by slightly increasing a subsidy for a feel-good industry. Even if they don't send money that way, most will and that's what makes the difference. It's the cheap talk of voting but without the (and I can't believe I'm wording it this way) rational filter of the politician.

Anger of the Majority

Brad DeLong catalogs some angry blog posts about the supposed suffering wealthy, largely brought on by law professor Todd Henderson (the link is a snapshot from Google's cache as the original post was deleted).

Yes, Henderson comes off as a complete jerk, insisting the President tax "the-richer-than-me-rich" but not the "rich-as-I-rich." But just as the wealthy lose perspective because they spend all their time around other wealthy, the less well-off lose perspective as well. This quote is one of the more reasonable ones and captures the heart of the criticism:

The sympathy list they always go through are the costs of private schools, elite private universities, large mortgages, and large loans for graduate schools (I note the lack of large loans for undergraduate). This just isn't even a concern for 97% of Americans. And to say life is difficult if you send your kids to a nice public school in a nice suburb, go to a non-Ivy school, live in 10-20% less of a house or live without a graduate degree, is quite simply crazy and just goes to prove all the stats about how happiness doesn't increase with income...

Presumably, Prof. Henderson engaged in the life he did in part so he could live in the bigger house and send his kids to a private school. Presumably, he was willing to take out those loans because he knew he could pay them back. I know times are tough for everyone but can people not at least empathize with someone's frustration that they went the extra mile for decades on end, built a life, achieving specific goals, only to have them taken away because politicians (no, voters) can't manage the government's pocket book? This is not to say that relief for the hardest hit shouldn't happen but when the story becomes about ignoring the wealthy's goals and work as if they're just wallets to take from, as if they aren't people, is a childish thought process.