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.

Which Public Figure Is This Describing?

He is acutely conscious of his personal safety. He feels targeted. Security guards trail him on the street. He wears bulletproof vests at public events.

Answer here, quote from page three of the article. Interesting throughout.

Too Many Heads

It's hard to imagine an industry with a natural monopoly (when the costs of running a business decrease per unit sold to the point that you can sell to the good's whole market). Small businesses can out compete the big guys because the management costs increase so much as you expand. Mass coordination is very, very hard which is why large companies often seen incompetent and CEOs appear grossly overpaid.

Take a simple example of the coordination problem from hot water heaters. From Inertia Wins!:

“If you turn your water heater down to 120 degrees Fahrenheit; you will cut your water-heating costs by 6-10 percent,” says EPA. Doing so also uses less energy.

But 120 degrees is not hot enough to kill the Legionella pneumophila bacteria. Legionnaire’s disease causes both flu-like and pneumonia-like symptoms. The disease is most often caught by inhaling the spiral-shaped bacteria via water mist, such as in the shower or near a lake or stream. That’s why OSHA recommends setting your water heater hot enough to kill the bacterium – 140 degrees.

This is a small example of why I'm not convinced by the argument that taxes are payment "for what you use up."

Great Sentence on Development

Lant Pritchett at AidWatch:

The MDGs are correctly interpreted as what will be accomplished when there has been development–not vice versa.

Stranger in a Strange Hobby

Robin Hanson wonders why people don't try new things:

It seems we see far larger costs than the time for a trial. My guess: we value our current identity, integrated as it is into our job, hobbies, friends, etc. We fear that if we try new joys, we will like them, and jump to practicing them, which will change us. We fear that by jumping to juicy joys, we won’t be us anymore.

Relatedly, it's more of an issue of being a stranger. Trying a new thing means you're surrounded by a strange world, something that humans find very uncomfortable (which is why tourist traps are some of the most American parts of a foreign country). Having someone familiar with us, especially if they are close to us and share the strangeness, blurs that outsider feeling. For example, a couple of months ago I went to a baseball game with my girlfriend who shares my apprehension about sporting events. I would not have gone without her (and not just because we were attending an event hosted by her firm).

This runs counter to the common intuition, that going with an insider makes it easier because you have a "guide." But if the guide's more associated with the surroundings than with you, you're still just an outsider but now find it socially awkward to escape.

New Smoking Bans

If anyone you know dismisses the "slippery slope" argument as paranoia, point to smoking. First, it was no smoking in enclosed areas or places where people with poor health concentrate: e.g. airplanes and hospitals. Then came the public buildings. Then offices. Then the restaurants. Then the bars. Now John Stossel reports Mayor Bloomberg is taking on the outdoors. Yes, the outdoors.

To protect the public from the health effects of tobacco smoke, the new law will go a step further and not allow smoking in parks, beaches, marinas, boardwalks and pedestrian plazas.

That this measure has 65% approval underlines that smokers have become New York's second class citizens.

Cause and Effect

This graph from small business surveys (btyb the National Federation of Independent Businesses) has been going around the blogosphere. Matthew Yglesias and Paul Krugman comment.

Take a close look. See what I see?

The graph is nonsense.

First, the obvious: what exactly is the difference between "poor sales" and "competition from large business?" Isn't the latter just a subset of the former? I have a hard time believing there's a business owner out there saying "Well, I've encountered a lot of competition lately, which is a problem, but my sales haven't gone down." That's why competition's a problem for small businesses: they reduce their sales.

Second, really all problems are sales problems. Any expense that seems too large can be fixed with more sales. No one cares about a high cost of insurance if you're making money left and right nor more than I would care about the savings from generic brands if I made six figures a year.

What the survey really measures is what disappointing economic news is popular. In the late 1990s, during the boom, good labor was hard to come by so labor quality was a concern. During the 80s to the mid 90s, anti-government rhetoric was at its peak so the culprit was regulations. Health care costs dominated the discussions during the 2000s. Now, all the talk is about how people aren't buying things so they focus on sales.

If a business is struggling, the owner will focus first on what's being talked about. There's nothing wrong with that as long as they check it against their own business (reasonable assumption). But the "sales" option pollutes the data. If taxes were lower, wouldn't the sales problem go away? If there were fewer requirements or cheaper insurance, wouldn't that increase your bottom line just like sales would? Essentially this survey asks:

How do you increase X?

X=A-B

1. Increase A
2. Decrease B

It's both!

Update: Russ Roberts and Arnold Kling weigh in.

Quote of the Month

For the month not just because of the words, but because of the unexpected source.

The American experiment was based on mutual respect, acceptance of differing religious beliefs and common decency. Burning anyone's sacred scripture is an affront to all of these.

The world needs more voices not fewer. More faith not less. It is not God that tells man to hate, kill or stifle thought. It is a fringe understanding of religion. God beckons us to seek His face. I refuse to believe that a loving Father would punish honest and bold questions. But I do believe there must surely be eternal consequences for those who hate or kill in his name.

Let us not fail to recognize that this week we witnessed Christian extremists behaving in ways made infamous by a monster fascist. The reactions by Muslim radicals only mirrored the minds of those in Iran who currently stone people to death for what they call the "sin of homosexuality."

The world has once again come to a point where it cowers at best and, at worst, appeases crazy and dangerous men of all philosophies of God and man. We must again link arms and unite despite our differences against evils that only wish to destroy or enslave no matter the god they hide behind. "The truth shall set you free" is more than a phrase -- it is a universal principle that cannot be changed by a bonfire or suicide vest.

History teaches us what happens to those who not only burn books, but also to those who do not respect freedom of speech -- especially when most find it vile and offensive

HT: Megan McArdle

Kling on Experts

Arnold Kling explains when to trust and when to dismiss experts:

I have faith in experts. Every time I go to the store, I am showing faith in the experts who design, manufacture, and ship products.

...Expertise becomes problematic when it is linked to power. First, it creates a problem for democratic governance. The elected officials who are accountable to voters lack the competence to make well-informed decisions. And, the experts to whom legislators cede authority are unelected. The citizens who are affected by the decisions of these experts have no input into their selection, evaluation, or removal.

A second problem with linking expertise to power is that it diminishes the diversity and competitive pressure faced by the experts.

Read the whole thing.

A Tale of Two Frances

Measuring GDP per hour worked, adjusting for purchasing power, France ranks very high in terms of productivity:

Country	GDP/hr
USA	38.00
Norway	36.24
France	35.74
Belgium	34.88
Luxembourg	34.11

This is surprising given their laws making it difficult to fire existing workers. But there's another way to look at the data. Suppose a firm is pretty good at estimating worker productivity which occur at low (L), medium (M), and high (H). But the firm is not perfect and sometimes one level off: L can be mistaken for M, H can be mistaken for M, M can be mistaken for L or H, etc. If you know that getting an L will lock you into that person, and since the Ls can make the Ms and Hs worse, you refuse to hire anyone that's an L or an M just be sure. Therefore, French companies are chuck full of Ms and Hs while the unemployed are all Ls and Ms. There may not be two Americas, but there just might be two Frances.

Someone Should Have Gone to My Last Micro Lecture

When I taught micro this summer, I ended the class on an optimistic note: a growing world population is not an inherent problem. In fact, it is often a boon as more people translates into more active minds at work. We might consume more resources, but we also have more people solving the increasingly scarce resource problem. "People are more than mouths and stomachs," I say. "They are also hands and heads."

A man named James Jay Lee took hostages at the Discovery Channel HQ in Maryland today, demanding that, among other things, the Discovery Channel have prime time programming where

Focus must be given on how people can live WITHOUT giving birth to more filthy human children since those new additions continue pollution and are pollution. A game show format contest would be in order. Perhaps also forums of leading scientists who understand and agree with the Malthus-Darwin science and the problem of human overpopulation. Do both. Do all until something WORKS and the natural world starts improving and human civilization building STOPS and is reversed! MAKE IT INTERESTING SO PEOPLE WATCH AND APPLY SOLUTIONS!!!!

It gets stranger from there.

I'm not sure what's stranger about this man. That he believes people are pollution or that he believes Discovery Channel programming will encourage Africans to stop having children (fertility rates in most other areas are quite low). I wonder how many people in Niger get cable?

The Government Reflex

Another case of libertarianism run amuck. Gourmet cupcakes only exist because of... zoning laws and (local) government planning! It's always hilarious when 'pro-market' folks see a type of consumer good they don't like, so let's blame it on government!

That's Jeremy Horpendahl's comment via Google Reader on this article. It's about those tiny stores--specifically cupcakes--which sell expensive gourmet treats and how they are really the engineering of government action.

Consider the cupcakes. Sure, there is clearly a market for gourmet cupcakes with high-end ingredients. But it’s probably not a viable storefront business in most locales. Except due to zoning and government planning, there are commercial districts with “excess” capacity. Simultaneously, governments strongly discourage home-based and informal businesses that promote trade outside designated “commercial” areas. Planners also want commerce concentrated in areas where customers are more likely to pay upscale prices — and thus higher sales taxes — which contributes to the appearance of economic growth.

Gourmet cupcakes are a city planner’s dream business. It’s an impulse purchase that fits into high-foot-traffic areas (no cars!) and provides the customer with the illusion of luxury. It also tends to bring attention from fad-conscious media outlets — there’s a cable television series devoted to a Washington, DC cupcake store — which also feed the illusion.

Its tortured logic. Planners want cut gourmet shops. They have the ability to make easy for some shops to open and hard for others. We have many gourmet shops. Ergo, they are they because of government.

I don't know if we have "many" of these shops or "too many" of them. I have not idea what that means. I know that once Tanya and I ducked into a gourmet cupcake one in Georgetown (not the one on the show). It's off the main street, a bit hard to find actually, and it was so crowded we could barely walk around. Yeah it was a weekend, but it was about as stuffed as a Starbucks on a Monday morning.

Is it so hard to believe that if people are willing to pay a premium for coffee (which is one of the easiest things you can make in your kitchen), they won't also pay a premium for hot dogs, ice cream, and cupcakes? That these aren't daily purchases only translates into fewer stores. A struggling Cold Stone Creamery is more likely the result of the recession, not the beginning of some sort of gourmet bubble.

I assume that, like restaurants, these stores have a high failure rate. That is hardly grounds to weave an elaborate story involving sugar, bureaucrats, and dreams of a centrally planned future. It's haphazard and sloppy. It's embarrassingly knee-jerk. It's intellectually lazy. It speaks to everything people hate about libertarians.

Sometimes a short comment says a lot more than a long article.

The Fake Helium Crisis

From MR:

Is it possible that the relative price of helium will rise in nearly unprecedented fashion? Robert Richardson voices his opinion:

[The US government should] Get out of the business and let the free market prevail. The consequence will be a rise in prices. Unfortunately party balloons will be $100 each rather than $3 but we'll have to live with that. We will have to live with those prices eventually anyway.

He notes:

There is no chemical means to make helium. The supplies we have on Earth come from radioactive alpha decay in rocks. Right now it's not commercially viable to recover helium from the air, so we have to rely on extracting it from rocks. But if we do run out altogether, we will have to recover helium from the air and it will cost 10,000 times what it does today.

Apparently the government has a giant store of helium which it built up in the 1920s for dirigible-related emergency reserves and now it's selling it off, flooding the market and depressing the price--that's the intervention Richardson is talking about. This is a problem, but not a long term problem: the goal it so sell it all off by 2015. When the reserves are gone, the price will rise. In fact I bet that people are buying helium now and storing it to sell later, when those reserves are gone. So I'm not terribly concerned about a helium crisis mostly because of a link I followed in the MR article:

On Earth, Helium is found mixed with natural gas, but few producers capture it.

In other words when the price rises, companies will start extracting it. I think we all (squeakily) breathe easy.

Obama Is a Secret...Oh Who Cares?

Matthew Yglesias suggests that an increasing share of Americans (18%, up from 11% in March 2009) believing Pres. Obama's a Muslim derives from poor economic conditions.

My best guess is that we can just chalk this up to the general dynamic of recession-induced suspicion and incumbent unpopularity.

Possibly. I have another, complementary, theory: no one cares.

When there's a lot going on in your life and you're stressed about losing your job or finding another one and the bills are piling up, you don't care what religion the President is. Spending time caring/screaming about irrelevant facts is a normal good for some: it rises as income rises. In the early days of the recession, when some thought it might be a small blip, people cared about this. They were willing to listen beyond the occasional yelp that he's a secret Muslim, sometimes onto more reasonable people that correctly point out he's Christian. But now they hear those screams, brought up again surely because of the midterms and because commentators know people aren't going to look into it as hard, and accept it. Because double-checking is a pain, thinking hurts, and they have better things to do.