What’s a “spiring” Economist?
By Chris | December 2, 2007
Is the first question I usually get when I show my blog to others. I tried to make an A out of a mountain by using clouds. Unfortunately, no one realized it was an A. I outlined the clouds and the mountain in black to make it more clear. But, it looks pretty ugly. I’ll try to find something more visually appealing. In the meantime, hopefully, the name of the website is more clear.
Topics: Updates | 2 Comments »
Republican Agricultural Subsidy Delusions
By Chris | December 2, 2007
I found the Republican CNN/YouTube debates very entertaining. If you missed them you can check out the transcript here. While I disagree with Huckabee on a number of issues, I found him to be very personable and humorous. Thompson had a great sense of humor, but didn’t seem the least bit presidential. The most interesting question of the debate was posed by Ted Faturos from Manhattan Beach, California:
Mmmmmm, nothing says delicious like cheap corn subsidized by the American taxpayer. For a lot of Americans, however, a bitter taste is left in their mouth when they learned about how the U.S. taxpayer bankrolls billions of dollars in farm subsidies that mostly go to large item business interests.
I’m curious which candidate could label themselves fiscally responsible, will endorse the elimination of farm subsidies if they are elected president in 2008.
Only Giuliani and Romney had the opportunity to answer. Romney responds first:
We send products around the world. We’re competing with European and Brazilian and other farmers, and we’re competing in a marketplace where they are heavily subsidized, at great disadvantage for our farmers. And so, if we’re going to change our support structure, we want to make sure that they change their support structure.
Brazilian farmers are heavily subsidized? Hardly.
U.S. farm groups say Brazilian farmers enjoy their own government largesse, as subsidized loans. In total, though, European and American farmers draw much more from the public purse. EU farm spending equals 34% of gross farm receipts, while U.S. programs total 22%, according to the Paris-based OECD. Brazilian farm support equals 3% of farm receipts.
U.S. subsidies are 7 times higher than Brazilian subsidies. Brazil has successfully won WTO disputes against the United States for illegal barriers to trade in cotton and sugar markets. Nonetheless, Brazil exporters faces an average tariff of 27% in developed countries.
Giuliani responds:
The governor’s right. It isn’t a level playing field…And also, we have to be very aware of the fact that we have to have our own supply of food. We can’t be dependent on foreign countries for our food.
Because if we are not careful Cuba might put a naval blockade around the United States and threaten us with starvation until we overturn our market-based economy? When it comes to food, the national defense argument is ridiculous. Food is available from a plethora of different countries, many of which are democratic and free. If Brazil decides to stop supplying us with sugar, we can purchase it from Europe or from one of many Caribbean nations. The withdrawal of a major trading partner might make prices spike temporarily, but in nation where obesity is considered a health epidemic, that might not be such a bad thing.
Topics: Economics, Political Science, Trade | 1 Comment »
From the Latest Economist
By Chris | December 2, 2007
Two things caught my attention. On oil subsidies in developing countries:
In India, as in many countries, the government dares not allow the rising price of crude to be felt in the common man’s pockets. Only a third of the 48 developing countries studied in an IMF review let the market set fuel prices. The governments of Yemen and Indonesia, for example, spent more holding down the price of fuel than they spent on health and education combined. Attempts to raise energy prices—as in Yemen in 2005, Nigeria in 2000 or Indonesia in 1998—have a sorry record of prompting riots and revolutions.
Topics: Economics, Trade | No Comments »
Playstation Price Elasticity
By Chris | November 27, 2007
Video game players apparently have a very high price elasticity of demand for the Playstation 3. According to Bloomberg.com:
PlayStation 3 sales have quadrupled since the company cut the price to $499 from $599 and introduced a $399 model, Otzman said. Wii has been the top-selling console since its introduction a year ago.
Close substitutes are one of those factors that increase price elasticity. The Wii, is an attractive substitute. Even seniors are buying them! Unfortunately, I have not played either yet.
Topics: Economics | No Comments »
Another Reason Not to Go Greek
By Chris | November 26, 2007
My undergraduate university had a very large Greek system. There were 19 fraternities, 9 sororities, and 45 percent of students were in the Greek living system. I had some Greek friends, and was recruited by a couple friends to join there respective fraternities. The idea of buying into a group of “brothers” for life seemed bizarre to me. And, I wasn’t too keen on sleeping on a porch with 40 other guys. The impact Greek life might have on my grades didn’t even occur to me. Farley Grubb examines “Does Going Greek Impair Undergraduate Academic Performance?” (gated…sorry!):
After controlling for college major, state of residence, and SAT scores, fraternity males had 2.2 percent lower GPAs than nonfraternity males. This negative effect increased as fraternity size decreased.
The effect of sorority membership on GPA was weaker. The difference in coefficient magnitudes indicates that sorority females had a 1 percent lower GPA than nonsorority females. Nonsorority females achieved higher GPAs than both fraternity and nonfraternity males. Sorority membership, however, made female GPAs statistically indistinguishable from nonfraternity males and only clearly superior to males in small fraternities.
2.2 percent might not seem like a lot, but it is actually quite significant. It is the difference between a 4.0 and a 3.91. Grade inflation has decreased the variance in GPAs. Most entry-level job openings require a 3.0 GPA, many require a 3.5 GPA. In other words if you join a fraternity, the detriment to your GPA represents a loss of 10-20 percent (for men) of the total range of acceptable GPAs. Even though the authors correct for a range of variables (SAT’s, in-state, major) the correlation between going Greek and getting lower grades might not be all causation. I would have liked to see the authors correct for high school GPA. Nevertheless, it’s not surprising that Greek life might interfere with academics. This is yet another reason why I’m glad to have avoided the Greek system. I managed to sabotage my grades enough without the expectation of attending endless parties and social events.
To be fair, my sister joined a sorority and is very happy with her decision. If Greek life is your cup of tea, forgoing it to focus on academics certainly comes at an opportunity cost.
The magnitude of this GPA cost may be considered small by many students compared with the social benefits, both immediate and long term, that they expect from Greek membership.
Topics: College, Economics | 1 Comment »
Wal-Mart Controversy
By Chris | November 26, 2007
I’ve been working on an essay about corporate social responsibility recently. It reminded me of a local debate a couple years back about whether Wal-Mart should be allowed to open a supercenter in my college town. Proponents of “smart growth” fervently argued that Wal-Mart lowers wages for workers and hurts small towns. Below is my response to this view I submitted as an editorial to the school newspaper:
“I would like to respond to Peggy Jenkins (“Wal-Mart editorial was misguided”) and the small group of vocal residents who share her anti-Wal-Mart sentiment. Jenkins contends that supercenters have a depressing effect on small-town economies. She references a group of studies compiled by “The Institute for Local Self-Reliance” and sponsored by groups such as the AFL-CIO, local business councils and municipal committees. These studies were prepared by individuals with no economics background. It’s not surprising that few economists are willing to associate themselves with a movement that embraces isolationism.
Jenkins’ fear that Wal-Mart will suck money out of the local economy isn’t unique. Mercantilists made similar arguments for protectionism, and Adam Smith proved them wrong more than two centuries ago. The hoarding of gold, or dollars, doesn’t make an economy prosper. Innovation, spurred by competition, does.
A Wal-Mart Supercenter would put competitive pressure on local grocers, such as WinCo, Rosauers and Safeway. Obviously, labor unions and existing businesses are going to be opposed to new market entrants. Why should the local government comply by granting existing businesses an oligopoly at the public’s expense?
Crusaders against Wal-Mart like to portray themselves as advocates for the poor. Nothing could be further from the truth. Low-income workers and zero-income college students would benefit most from the downward price pressure that would follow a new supercenter.
Jenkins paints the Wal-Mart controversy as a struggle over the quality of life in Moscow. In one respect she is correct. Fighting a supercenter maintains the quality of life for the few while restricting the freedom of the many. There is nothing virtuous about using the government to prevent people from purchasing groceries from whom they please. Although, when the masses stick around for less than five years, it’s a very politically attainable goal. “
Topics: Economics | No Comments »
Resilient Markets
By Chris | November 24, 2007
I haven’t blogged for the last few days because I was out of state visiting relatives for Thanksgiving. While there, I read this Newsweek story by Rod Nordland on the improving situation in Iraq:
The capital’s neighborhoods have calmed in large measure because each is now dominated by one sect or another, with tens of thousands of U.S. troops temporarily holding them together (or keeping them apart, as the case may be). “We cannot sustain the surge,” says Miska—and once we go, the two sides could well turn on each other with renewed fury.
Meanwhile, though, I can contemplate activities that were once unthinkable: like going out to dinner. Baghdad’s famous mazghouf restaurants, selling barbecued river carp on the banks of the Tigris, have come back to life. At one of them, called the Karrada Sports Club, owner Mundar al Haidar recently checked the big circular pools of live carp, and watched as his workers splayed the fish on staves to grill them over a bonfire made of lemontree wood. They were preparing for the evening rush, when these days the restaurant fills to capacity. “You go out now and you feel safe,” he says. “The only explosions are far away. I myself left here at midnight last night.” Haidar even invited me to lunch at his home, something both of us would have considered foolhardy, even suicidal, only last summer. If insurgents didn’t kill me before I left, they would have killed him after.
I am amazed at the ability of local entrepreneurs to thrive in the calm amidst the storm of instability. While I don’t pretend to understand the complexities of the situation in Iraq, Ron Paul’s proposal to leave Iraq immediately has a higher opportunity cost now that thing have improved in Iraq.
Topics: Economics, Political Science | No Comments »
Rediscovering My Inner Economist
By Chris | November 20, 2007
The anticipation was too much. Discover Your Inner Economist, by Tyler Cowen, wasn’t available through interlibrary loan and I couldn’t wait. I went ahead and bought a used copy off Amazon. My expectations were really high going in. I had read and listened to a number of favorable book reviews and am a big fan of MarginalRevolution.com.
I wasn’t disappointed. The book has the same conversational tone that makes the blog so readable, yet explores issues more deeply and systemically than is possible in a blog. It was a great way to follow-up Steven Landsburg’s latest book, More Sex is Safer Sex, that I reviewed here. Landsburg uses economic logic to illustrate the irrationality of human behavior. In contrast, Cowen recognizes human nature’s quirks and offers economic incentives to overcome them. The difference between the two authors’ approaches might be best illustrated by their advice on giving to charity. Landsburg argues that you should only give money to one charity: the one that offers humanity the greatest marginal benefit. Cowen approaches giving differently:
When should we give to such pleas [for charity]? The first rule is to give to causes that we will become attached to. If our goal is truly help pepole, bad charities are not the foremost problem. We—that’s right, you and I—usually are enemy number one. Over time most people lose interest in charitable causes. Not for any good reason, but we simply stop caring.
Tyler shows that whether you’re giving money, experiencing culture, or trying to get in shape, motivating and occasionally deceiving yourself is essential. When relating with others, monetary compensation doesn’t always offer the right incentives. Paying your child to get good grades or to do the dishes may destroy their own intrinsic motivations. And, sometimes there is no substitute for making it to your son’s little league baseball game.
Certainly, the book contains some traditional economic wit. You’ll learn where to find the best restaurants, what Tyler thinks about fair trade coffee, and what to order at a fancy restaurant. But, the book focuses largely on economic psychology. Clever economic models don’t always account for people’s humanity, but that hardly means economics is irrelevant in this realm. Tyler Cowen delves into the human psyche and illustrates that incentives are just as powerful there.
Topics: Book Reviews, Economics, Education | 3 Comments »
The Voucher Paradox
By Chris | November 16, 2007
Economists don’t agree on many things. When they do, they almost invariable face strict opposition from the public. From free trade to Pigou taxes, good economics collides with good politics. So, I was very surprised to find that educational vouchers are widely supported by economists and the general public, yet have had very little political success.
“Economists favor expanding competition and market forces in education. Over two-thirds (67.1%) agree that parents should be given educational vouchers that can be used at government-run or privately-run schools—while 30.5% oppose the idea.”
~”Do Economists Agree on Anything?” (gated unfortunately)
And from The Economist:
In principle, vouchers are popular: a YouGov poll for The Economist (see chart) finds 53% of people favouring them, with only 32% opposed.
What about the other 15 percent of the public? It seems that a lot of people simply don’t know enough about them to have much of an opinion. One survey found that 40 percent of Americans aren’t familiar with them. For an overview of public opinion, look here.
Nevertheless, given the general support of the public and economists, why don’t we see more voucher programs? My guess is teachers’ unions are very effective at combating voucher legislation. Also, while in theory people support school choice, in the short-run vouchers mean public education cuts or more taxes: both hard sells. Even Tyler Cowen, who considers himself a libertarian, is wary of vouchers:
“Vouchers would create a new middle class entitlement, ostensibly aimed at education but often simply capitalized in the form of cash. In the meantime public schools would require additional subsidies to stay open. How pretty a picture is this?…I would be happier with vouchers if we were starting from scratch in designing educational institutions.”
What got me thinking about vouchers was this excellent report by John Stossel. I was particularly struck by one study cited in the video noting that 4th grade Americans compare favorably to other students globally and only fall significantly behind their foreign counterparts in middle school and high school. Two other clips caught my attention. One showed militaristic teacher union rallies and the other captured desperate parents at lotteries clinging to tickets in hopes that their child would win a spot in a good school. While Stossel may gloss over some of the complexities of an issue, he certainly is persuasive. The world would be a better place if more economists had his talent.
I’m in favor of vouchers, but agree that the system needs to constructed carefully. Currently, we’re imposing a huge opportunity cost on parents who would otherwise prefer to send their children to better schools. In other words, we’re giving parents a financial incentive to give their kids less education.
When it comes to funding, I disagree with Tyler that vouchers would create a massive entitlement. In good school districts, vouchers would have a small impact on attendance. Ceteris paribus, kids and parents prefer larger schools that are familiar, close and offer lots of extra curriculars. Additional subsidies, would not be needed to prop up the local public school. Conversely, the worst school districts would see attendance and funding plummet. Either they would fail, or the government would be forced to improve the school. We’ve been blindly throwing money at education for years with little impact. The right voucher system would force bureaucrats to direct attention and money where it is most needed.
Topics: Economics, Education | No Comments »
Where have all the free-traders gone?
By Chris | November 15, 2007
According to an early October WSJ poll, 59% of Republican voters think that foreign trade is bad for the economy. These voters agreed with the statement:
“Foreign trade has been bad for the U.S. economy, because imports from abroad have reduced demand for American-made goods, cost jobs here at home, and produced potentially unsafe products.”
It seems that recent recalls from China have contributed to anti-trade sentiment. But, traditional misconceptions about trade seem to be at the root of protectionism. One excerpt from the WSJ article:
Julie Kowal, 40 years old, who works in a medical lab and is raising five children in Omaha, Neb., said she worries that Midwestern producers face obstacles selling beef and autos abroad. “We give a lot more than we get,” she said. “There’s got to be a point where we say, ‘Wait a minute.'”
This does not bode well for the likelihood that the next president, whether Republican or Democrat, will make progress towards reducing barriers to trade.
Topics: Political Science, Trade | 1 Comment »
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