Thursday, December 22, 2011

Toil and Trouble

Robert Frank's submission for the Post's "2011 in charts" is number 12 and it's a bit strange. It's the toil index: Franks' term for "the effort required to rent a house served by a school of average quality." It shows a steady increase since the 1950s but it leaves out some key variables over the past 60 years. Homes have gotten larger, people per households have fallen, quality of standard household appliances have increased, etc. Some of these things are hard to measure, but median square feet is easy to find.

Below is the correction, with me eyeballing the original values from Frank's chart. My data only goes back to 1973 so I used those numbers for 1970 and excluded 1950 and 1960.

The original toil index is the green line (left axis) and the adjusted is the red line (right axis). You can think of the adjusted line as "the effort required to rent a square foot of space served by a school of average quality." All of a sudden, those numbers are not so severe. The 2000-2005 jump is still quite noteworthy, but general flattening of the curve cannot be denied (and this was just one correction).

Thursday, December 15, 2011

The Capitalist Philosophy of the Muppets

The Muppets is about a dilapidated LA Muppet theater, an business tycoon looking to tear it down to drill for oil, and a familiar cast of characters trying to raise the money to save it. Last week Eric Bolling at Fox News claimed the movie is "brainwashing kids against capitalism" because the villain was a business man.

But The Muppets is the most capitalist movies this year. When they found out that their theater was in danger of being torn down they didn't lobby the California Historical Society to outlaw demolition. They didn't threaten to contact the EPA about the (admittedly real) problem of putting an oil well in downtown LA. They didn't head to Washington to seek a subsidy or add to construction regulations. They didn't even engage in California's infamous referendum system. In fact, none of these ideas ever occurred to them.

No, they did what every good capitalist does when someone tries to buy something they want: they outbid him.

Wednesday, December 14, 2011

Of Causation

MJ Perry posts this graph on his blog yesterday.

Perry quotes Scott Grannis who argues this chart lends support that Keynesian ideas are wrong. Expansion of the government leads to more unemployment and this is because the government is inefficient. It mostly takes money from one group and gives it to others.

But precisely because that's true, we should be suspcious of that interpretation based on this graph. Causation could easily run the other way. When unemployment increases, that puts more pressure on unemployment insurance, Medicaid, and other programs. It also increases the demand for fiscal stimulus.

Causation could also be confounding as well: something that's causing both higher unemployment AND a rise in government spending as a percent of GDP. This seems very likely as the "as percent of GDP" means the value could rise even if all that happens is GDP falls. Which is exactly what you'd expect to see if people are losing their jobs.

As sympathetic as I am to this anti-Keynesian take, this graph doesn't actually tell us anything useful.

Monday, December 12, 2011

Things ARE Getting Better

I end each principles of microeconomics class talking about the future. Historically, innovation does well to solve problems associated with an increasing population and society ends up better off than when it was when fewer people were around.

One of my students was very skeptical, especially about our ability to cure cancer. I hope she finds this article uplifting. We may be closer than you think to a cure.

Thursday, December 01, 2011

How Food Stamps Can Send You To Hawaii

PolitiFact rated Gingrich's claim that food stamps can send people to Hawaii as "Pants on Fire," it was so wrong. Food stamps can only be used for food.

Yes, that's true, but that doesn't mean getting food stamps can't result in you being able to afford going to Hawaii. (I doubt that's what Gingrich meant, but it is true nonetheless). Food stamps are basically gift certificates. If I give you a $1,000 gift certificate to Wal-Mart, it will assuredly result in you buying more goods that don't come from Wal-Mart. You will substitute money you would spend at America's biggest retailer and instead spend it on other things. If you get food stamps, the effect is the same. So yes, food stamps can send you to Hawaii, though not directly.