This entry is dedicated to those who fell asleep in my class this semester.

You don't have to blog anymore this semester.  Use all that valuable time to study for finals. Hope this puts you in the holiday spirit.  (It is also a preview for those who sleep in class.)

Really Big!

I did not create this but I wish I had. Of all the things we've studied the basic principle illustrated in this video is the most important.

Freedom = economic progress.

Economics is everywhere!

A new way to worry about cost benefit analysis.
No response for this blog please. Just posted for your entertainment.

Can I have a kidney for $20,000 please?

U.S. federal law has long banned any compensation for human organs, but with the demand for kidney transplants far outstripping the number of donors, some economists are urging the adoption of market-based innovations to increase supply.

One of these is the University of Buffalo's Julio Elias, who argues that, distasteful or not, monetary incentives are the most efficient way to boost the number of organs available for transplant, and should be introduced. On the other side, Harvard University's Alvin Roth argues that cultural mores -- repugnance -- preclude buying and selling of organs. Instead, he says, alternative arrangements, such as so-called organ exchanges, might be a better solution.

Julio Elias writes: The only feasible way to eliminate the large queues in the market for kidney transplants is by significantly increasing the supply of kidneys. The introduction of monetary incentives could increase the supply of organs sufficiently to eliminate the large queues, and it would do so without increasing the total cost of kidney transplant surgery by a large percent, as Gary Becker and I show in a paper on the potential of markets for organs.
Even though the benefits of eliminating the organ shortage are significant, many people have opposed proposals to pay for organs, a practice prohibited under present law in almost every country.
Some critics argue that payment is "immoral" because it involves the "commodification" of body parts, or that the poor will be "coerced." Others are opposed because they simply do not like the idea of the existence of a market for organs. However, conclusions about the morality of using prices to encourage supply or ration demand have changed in the past when they were shown to be effective. One example is a carbon tax to cut pollution; another is the use of willingness to pay to reduce the risk of death to measure the (statistical) value of life. Attitudes about using prices to help eliminate the shortage of organs would also change, I am confident, when it is shown how efficiently prices would solve this problem.

Alvin Roth writes: Selling organs is illegal in most countries. Legalizing kidney sales faces substantial, perhaps insuperable obstacles. Just as you can't sell yourself into indentured servitude anymore, some transactions are illegal because enough people find them repugnant. But many people are in urgent need of kidney transplants, so it's helpful to think about steps to relieve the shortage now.

Kidneys for transplantation come from either deceased or living donors (a healthy person has two kidneys and can remain healthy with one). Some ways to increase the number of deceased donor kidneys include changing how donations are solicited (e.g. introducing opt-out rather than opt-in donor decisions), changing when kidneys are "harvested" (after heart-death, as well as brain-death), and changing which organs are selected (e.g. older patients might profit from organs from donors older than are now considered).
There would be more live-donor transplants if everyone who wanted to donate a kidney to someone could do so, but a healthy person's kidney is often incompatible with his or her intended donor. So, one way economists have helped is in helping organize kidney exchanges, which allow incompatible patient-donor pairs to exchange with other such pairs.


What do you think?

marijuanomics 101

Did you know that the exchange rate affects the drug trade? Kind of odd that this would be a benefit of a weaker dollar. (That is if you are not a pothead.)

Pot trade slows, by Michael Jamison, Missoulian: For years, backpacks crammed with cash have slipped north into Canada, followed closely by hockey bags packed with premium marijuana skating south into Montana. A favorable exchange rate (not long ago, one American dollar bought one and a half Canadian dollars) made the smuggling profitable, and thus popular.
But last month, for the first time in more than 30 years, the two currencies were at par, ... and Sunday a Canadian dollar bought $1.06 U.S. The financial tables have turned, and global economics have done what U.S. law enforcement could not: Capitalism has stopped the smugglers in their tracks.

Call it Marijuanomics 101.

America borrows itself deep into the hole, ratchets up its trade deficits, buries itself beneath subprime mortgage debt, devalues its dollar with interest-rate cuts, and the currency plunges. Meanwhile, Canada’s economy booms on oil, foreign investors turn north for stability, and the “Loonie” — Canada’s dollar, named for the bird on the coin — hits a 50-year high.

Suddenly, it’s far more expensive to buy Canadian exports, legal or otherwise, and smuggling profits disappear. “It’s very simple,” said Stephen Easton, professor of economics at Simon Fraser University in Vancouver, B.C. “Canadian marijuana production costs are met in Canadian dollars, and those are worth more now.”

Previously, he said, pot growers could produce a pound of potent “B.C. bud” for about $2,000 Canadian and, with the exchange rate, smugglers buying with U.S. currency could sell it for a hefty profit south of the border. In those days, an American dollar in Canada was like a 50 percent discount card, and there’s nothing like a wholesale discount to bolster retail profits.
Production costs remain in the range of $2,000 Canadian, Easton said. But with the currencies at par, the profit margin is completely gone, unless Montanans are willing to pay 50 percent more for the prime northern bud. A smuggler’s risks and transport costs are no longer offset by profit.

“The upshot is that the Canadian marijuana is now less competitive against marijuana grown elsewhere,” Easton said. “This is a cost-driven business. With exports no longer viable, the British Columbia marijuana industry has certainly taken a hit, so to speak.”

As has green-bud availability for Big Sky pot smokers. ... Canadian pot ... commands a strong presence in border states such as Montana. “Sure, I’ve known people who have brought it down and made a pretty good living,” said Bradford Moore, who owns the Heads Up pipe shop north of Kalispell. “I won’t deny it. They’d go up there, buy it on the Canadian dollar, bring it back and make a nice profit. ...” ...

These days, though, hardly any Canadian-grown marijuana crosses the border, because it just doesn’t pay. And Easton predicts things will get worse before they get better for those on both sides of the illegal industry, because without exports, Canada’s pot crop will swamp the domestic market and prices there will plummet. (One British Columbia grower predicts “a great glut of pot” due to the loss of export markets.)

That’s a very big deal for a province that, unofficially at least, counts marijuana exports as a major economic contributor. Back in 2000, Easton and his university colleagues published a study he says estimated the annual market value of British Columbia’s pot at around $5 billion, with perhaps 90 percent of the crop shipped south into the U.S.

“It’s huge,” he said. “It’s a very large player, right up there with our traditional industries.” ... But whether Canada has enough smokers to puff up this season’s entire crop, it’s harvest time in Nelson. Right now all agree on one thing: exports have ceased, Montana is dry, and with California growers located so far away, the stage is set for a homegrown bonanza under the Big Sky. ...

An economist goes to a bar.

Believe it or not this is about economics. Part of economics is studying rational choice. What better way to study this than looking at date selection. I think you will find the results of this study interesting although you probably won't be suprised by the results. Tell me what you think is the most important factor attracting you to another person (honestly and tastefully please).

'Sunk costs' and the war.

Bush falls victim to a bad new argument for the Iraq war.


By Barry Schwartz
Slate

In recent speeches, President Bush has offered several reasons for staying the course in Iraq. One of them is the almost 2,000 Americans who have already died in the war. "We owe them something," the president said on Aug. 22. "We will finish the task that they gave their lives for."

Psychologists, decision scientists, and economists have a name for this type of argument: the "sunk-cost fallacy." It has gotten the United States into trouble once before. As casualties mounted in Vietnam in the 1960s, it became more and more difficult to withdraw, because war supporters insisted that withdrawal would cheapen the lives of those who had already sacrificed. We "owed" it to the dead and wounded to "stay the course." We could not let them "die in vain." What staying the course produced was perhaps 250,000 more dead and wounded.

Here are a few more trivial examples of the sunk-cost fallacy:

You have good tickets to a basketball game an hour drive away. There's a blizzard raging outside, and the game is being televised. You can sit warm and safe at home by a roaring fire and watch it on TV, or you can bundle up, dig out your car, and go to the game. What do you do?

You've ordered too much food at the restaurant and there you are, completely stuffed, with a pile of pasta sitting on your plate. Do you clean your plate or not?

In each of these cases, the money is gone. Do you "waste" it, or do you go to the game, and finish your pasta? It is claimed by economists and psychologists that the right way to approach questions like these is only by looking to the future. Since the money is spent no matter what you do, the only real question you should be asking is what will give you more satisfaction—watching the game by a roaring fire or sliding to it in a blizzard; leaving the restaurant feeling content or leaving it feeling stuffed. The "sunk costs" are sunk whatever your decision; only the future matters. The fallacy in thinking about sunk costs is precisely that people feel compelled to get their "money's worth," even if it makes them suffer.

The sunk-cost fallacy appears in contexts less mundane than wasted food or basketball tickets. You've invested several million dollars to develop a new product only to be scooped by your competitor, whose version is cheaper and better than yours will be. Do you go on with the development nonetheless? You are two-thirds through a research project when a report of an almost identical project appears in the relevant journal. Do you finish your study or abandon it?

And the sunk-cost fallacy appears in the most consequential of contexts, where injury and death, and not just money or effort, are at stake. Which brings us back to Iraq. How do we honor the sacrifices of those who have died or suffered serious injury in an American conflict? The best way to show how much we respect and value their lives is by refraining from sacrificing other lives in their name unless future prospects fully justify putting more people in harm's way. The lives of those who died are a sunk cost—one that is much higher than any of our treasure. But their lives can not be reclaimed. Their injuries can not be undone. If our assessment of a military situation is that we are unlikely to be successful, or that the likely price of success in lost lives is too high, then we must change course. What we owe those who have already suffered is enough reverence for life that we won't send others to suffer after them in order to justify their own suffering.

To acknowledge sunk costs and change course need not be an admission of foolishness or even failure. One can think through a problem in the right way, and formulate a wise course of action, only to discover that it doesn't work out. The world is an uncertain place, and good decisions do not guarantee good results (just as bad decisions don't guarantee bad results). But a reason people are seduced by the sunk-cost fallacy is that investments of time, money, or lives on ventures that do not work out feel like failures. They feel like a waste. And people seem willing to waste even more (time, money, or lives) to justify what has already been spent and avoid that sick feeling of failure.

I am not suggesting here that we should "declare victory and leave" Iraq. I am not suggesting that the only justification currently being offered for continued involvement in Iraq is the "sunk cost" in American lives. I am not suggesting that obligations from the past should never enter into one's consideration about the future.

My suggestion here is modest: You may justify the Iraq occupation in many ways—perhaps you think it will prevent further terror, democratize the Middle East, or restrain Iran—but it is unacceptable to justify it on the grounds that we "owe" it to those who have already fallen. That is a justification that no one should be allowed to get away with. But it is a justification that is coming increasingly to the fore, usually implicitly but sometimes explicitly, as other arguments about staying the course in Iraq become less and less compelling. Whatever the differences may be between Iraq in 2005 and Vietnam in 1968, if we allow policy makers to use our "sunk costs"—our dead soldiers—to justify further conflict, we will have turned Iraq into another Vietnam. And if we do, we will be shamed by Iraq just as we were shamed by Vietnam.

Correlation vs. Causation

Where have all the oil shocks gone?

(The following is borrowed from Gregory Mankiw, former economic adviser to President Bush)

Oil prices are near record highs, which raises a fascinating question. In recent years, the U.S. and world economies have typically shrugged off oil price increases. By contrast, oil price increases are a major part of the conventional story of the economic turmoil of the 1970s. Why the difference?

We economists do not have a complete answer, but we have some clues. One important clue is on graph above.

The economy is far more energy-efficient today than it was in the past, in part because economic activity is based more on services and less on manufacturing. As a result, energy prices matter less today.

In their research on the topic, Blanchard and Gali also give credit to more flexible labor markets, better monetary policy, and a bit of luck.

Another hypothesis: The macroeconomic effect of high energy prices may depend on whether the high prices are the result of reduced supply or increased demand. Perhaps in the 1970s high oil prices were largely the result of supply restrictions, whereas in recent years high oil prices are driven more by increased demand from a booming world economy.
One final conjecture: Maybe the recent increase in oil prices has been less sudden, making it easier for other prices and thus the economy to adjust. In particular, it may not have affected the skewness in the distribution of relative-price changes in the same way as previous oil shocks did.

We have no shortage of theories. The definitive study on the macroeconomic effect of oil prices is still waiting to be written.

Are you right brained or left brained?

Don't think this relates directly to any economic topic but it is a fun test. If you remember the 70s (like me, and probably your parents) you may be able to hear Elton John's "Tiny Dancer" as you watch her spin. Very annoying.

How to get into an Ivy League School.

Here is an article that might help you get into the school of your choice. And I won't charge you a penny for the recommendation.

Which candidate best fits your views?

This little test claims to rank candidates based on your preferences. I can't vouch for its accuracy but it is fun to see the results.

The blue eyes have it.

Did you know that every president since Nixon has had blue eyes? That's every president since the invention of color television. Read this article and tell me what you think.

The photo above is NOT implying anything about any presidents past, present, or future (don't want to lose my job). Just wanted you to consider that Hitler did have blue eyes. Maybe it's relevant, maybe not.

Who Should Pay for the War?

This is my favorite columnist. He has also written several great books. He points out stupidity wherever it might lurk (whether Democrat or Republican). Check out his latest column.

Charge It to My Kids, by Thomas Friedman, Commentary, NY Times

Clinton: $5,000 for Every U.S. Baby!

Democratic presidential candidate Hillary Rodham Clinton said Friday (Sept. 28) that every child born in the United States should get a $5,000 "baby bond" from the government to help pay for future costs of college or buying a home.
Clinton, her party's front-runner in the 2008 race, made the suggestion during a forum hosted by the Congressional Black Caucus.
"I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home," she said.
The New York senator did not offer any estimate of the total cost of such a program or how she would pay for it. Approximately 4 million babies are born each year in the United States.

So how would we pay for this? Are Americans this gullible?

You guys think I'm weird but I'm just trying to stamp out cognitive dissonance.

Scott Adams, creator of the great comic strip Dilbert, explains how economics changes your brain.

If you could name your price what would you pay?

The band Radiohead is trying a new business model. Download their new album and pay whatever you think it's worth.

[S]inger Thom Yorke told TIME, “I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘F___ you’ to this decaying business model.”

Will this be profitable? How much would you pay for a song or album if you got to name the price? Would you pay the going rate, be generous or a free rider?

How would you fix Social Security?

The U.S. Treasury released a report yesterday called Social Security Reform: The Nature of the Problem. Here is the summary:

Social Security faces a shortfall over the indefinite future of $13.6 trillion in present value terms, an amount equal to 3.5 percent of future taxable payrolls. Looking at the gap over a shorter horizon provides only limited information on the financial status of the program.

Social Security can be made permanently solvent only by reducing the present value of scheduled benefits and/or increasing the present value of scheduled tax revenues. Other changes to the program might be desirable, but only these changes can restore solvency permanently.

Delaying changes to Social Security reduces the number of cohorts over which the burden of reform can be spread. Not taking action is thus unfair to future generations. This is a significant cost of delay.

By itself, faster economic growth will not solve Social Security’s financial imbalance—realistically, there is no way to “grow out of the problem.”

So my question is "What would you do?"

What would you do if approached by a beggar?

You are walking down the street in New York City with $10 of disposable income in your pocket. You come to a corner with a hot dog vendor on one side and a beggar on the other. The beggar looks like he’s been drinking; the hot dog vendor looks like an upstanding citizen. How, if at all, do you distribute the $10 in your pocket, and why?

The answers of these famous folks is a perfect example of the motto on my door. Post what you'd do and why.

Arthur Brooks:

We face this situation all the time — both literally and figuratively. If you live in a city, you are frequently confronted by needy winos. Do you give to them, or not? In your heart, you fear that they will just ruin their lives further with your pocket change. But it feels hard-hearted not to give.

This dilemma goes beyond just how we treat the homeless. In our public policies, we see parts of the population which, we fear, might become dependent on the government “dole” if we provide that kind of help to people in need. Some even argue that whole nations can lose their self-sufficiency through foreign aid. This is why we have metaphors about giving fish versus teaching people to fish, and so forth.

Furthermore, some people worry a lot about the dignity of folks in need. For some, that means we should give them whatever they ask for. For others, it means charity is degrading and no good, and should be replaced totally by government programs. As the Inuits say, “Gifts make slaves, as whips make dogs.”

So how does all this help me figure out what to do as I approach the tipsy beggar and the upstanding hot dog vendor? I have to figure out whether I care about a) the desires and sovereignty of the beggar; and b) the impact and effectiveness of my gift to do good in the world. There are four possibilities, with four different associated actions:

1. I care about the beggar’s sovereignty, but not the impact of my gift. I give him some cash, which he will probably spend on booze. But hey, we all have free will, right? I didn’t force him to buy booze instead of food.

2. I care about the impact of my gift but not the beggar’s sovereignty. I buy him a hot dog — or better yet, I donate the money to a cause to help the homeless.

3. I care about both the beggar’s sovereignty and the impact of my gift. This is the toughest case, and usually involves the futile exercise of trying to convince the beggar to “get some help.” Imagine trying to have an intervention on the street.

4. I don’t care about either the beggar’s sovereignty or the impact of a gift. This is the easiest case of all. I buy myself a hot dog and ignore the wino. Put some kraut on that and give me a Diet Pepsi, too.

Which is my choice? I usually take number two, unless I’m feeling really lazy or I’m with somebody who knows I write books about charity — in which case I sometimes choose number one.

Tyler Cowen:

I’m not keen on giving the money to the beggar. In the long run, this only encourages more begging. If you imagine a beggar earning, say, $5,000 a year, over time would-be beggars would invest about $5,000 worth of time and energy into being beggars. The net gain is small, if indeed there is one. It is rumored that in Calcutta people cut off body parts to be more effective beggars; that is a polar example of this phenomenon. I explain this logic in more detail in my new book, Discover Your Inner Economist.

Oddly, the case for giving to the beggar may be stronger if he is an alcoholic. Alcoholism increases the chance that he is asking for the money randomly, rather than pursuing some well-calculated strategy of wastefully investing resources into begging. But in that case, I expect the gift will be squandered on booze, so I still don’t want to give him the money.

If I liked hot dogs, I would buy a hot dog from the vendor rather than giving him the money for free. At the end of the day, he’ll probably throw out food. He’s going to get the money in any case, so why waste a hot dog?

A third option, only implied in the question, is to simply rip up the money. This will make the currency of others worth proportionately more and spread the gains very broadly. Since many dollar bills are held by poor foreigners (most of all in Latin America), the gains would go to those who are able to save in terms of dollars. This would include many hard-working poor people, a group I regard as worthy recipients.

I have two worries about this option, however. First, drug dealers and other criminals hold lots of cash — why should I help them out? Second, the Federal Reserve might (if only in the probabilistic sense) reverse the effect of my actions by printing more currency.

The bottom line: Buy a hot dog.

The second bottom line: Don’t exercise your charity in New York City.

Mark Cuban:

I keep the money in my pocket and keep walking because I have no reason to just hand over money on a street corner.

Barbara Ehrenreich:

Could we first dispense with the smarmy connect-the-dots answer this question seems to cry out for? That is, that I’d use the $10 to buy a hot dog for the beggar and perhaps give the change to the vendor as a tip, thus rewarding a hardworking citizen while assuring that the shiftless beggar does not get the wherewithal for another drink — while of course giving me a nice little hit of middle class self-righteousness.

Although I’m atheist, I defer to Jesus on beggar-related matters. He said, if a man asks for your coat, give him your cloak too. (Actually, he said if a man “sue thee at the law” for the coat, but most beggars skip the legal process.) Jesus did not say: First, administer a breathalyzer test to the supplicant, or, first, sit him down for a pep talk on “focus” and “goal-setting.” He said: Give him the coat.

As a matter of religious observance, if a beggar importunes me directly, I must fork over some money. How do I know whether he’s been drinking or suffers from a neurological disorder anyway? Unless I’m his parole officer, what do I care? And before anyone virtuously offers him a hot dog, they should reflect on the possibility that the beggar is a vegetarian or only eats kosher or Hallal meat.

So if the beggar approaches me and puts out his hand, and if I only have a $10 bill, I have to give it to him. It’s none of my business whether he plans to spend it on infant formula for his starving baby or a pint of Thunderbird.

High energy prices = new solutions (the market in action)

Power station harnesses Sun's rays
By David Shukman
Science correspondent, BBC News, Seville

There is a scene in one of the Austin Powers films where Dr Evil unleashes a giant "tractor beam" of energy at Earth in order to extract a massive payment.

Well, the memory of it kept me chuckling as I toured the extraordinary scene of the new solar thermal power plant outside Seville in southern Spain.

From a distance, as we rounded a bend and first caught sight of it, I couldn't believe the strange structure ahead of me was actually real.

A concrete tower - 40 storeys high - stood bathed in intense white light, a totally bizarre image in the depths of the Andalusian countryside.

The tower looked like it was being hosed with giant sprays of water or was somehow being squirted with jets of pale gas. I had trouble working it out.

In fact, as we found out when we got closer, the rays of sunlight reflected by a field of 600 huge mirrors are so intense they illuminate the water vapour and dust hanging in the air.

The effect is to give the whole place a glow - even an aura - and if you're concerned about climate change that may well be deserved.

It is Europe's first commercially operating power station using the Sun's energy this way and at the moment its operator, Solucar, proudly claims that it generates 11 Megawatts (MW) of electricity without emitting a single puff of greenhouse gas. This current figure is enough to power up to 6,000 homes.
But ultimately, the entire plant should generate as much power as is used by the 600,000 people of Seville.

It works by focusing the reflected rays on one location, turning water into steam and then blasting it into turbines to generate power.

As I climbed out of the car, I could hardly open my eyes - the scene was far too bright. Gradually, though, shielded by sunglasses, I made out the rows of mirrors (each 120 sq m in size) and the focus of their reflected beams - a collection of water pipes at the top of the tower.

It was probably the heat that did it, but I found myself making the long journey up to the very top - to the heart of the solar inferno.

A lift took me most of the way but cameraman Duncan Stone and I had to climb the last four storeys by ladder. We could soon feel the heat, despite thick insulation around the boiler.

It was like being in a sauna and for the last stages the metal rungs of the ladders were scalding.

But our reward was the cool breeze at the top of the tower - and the staggering sight of a blaze of light heading our way from down below.

So far, only one field of mirrors is working. But to one side I could see the bulldozers at work clearing a second, larger field - thousands more mirrors will be installed.

Letting off steam

I met one of the gurus of solar thermal power, Michael Geyer, an international director of the energy giant Abengoa, which owns the plant. He is ready with answers to all the tricky questions.

What happens when the Sun goes down? Enough heat can be stored in the form of steam to allow generation after dark - only for an hour now but maybe longer in future.

Anyway, the solar power is most needed in the heat of summer when air conditioners are working flat out.

Is it true that this power is three times more expensive than power from conventional sources? Yes, but prices will fall, as they have with wind power, as the technologies develop.

Also, a more realistic comparison is with the cost of generating power from coal or gas only at times of peak demand - then this solar system seems more attractive.

The vision is of the sun-blessed lands of the Mediterranean - even the Sahara desert - being carpeted with systems like this with the power cabled to the drizzlier lands of northern Europe. A dazzling idea in a dazzling location.

HOW THE SOLAR TOWER WORKS

1. The solar tower is 115m (377ft) tall and surrounded by 600 steel reflectors (heliostats). They track the sun and direct its rays to a heat exchanger (receiver) at the top of the tower
2. The receiver converts concentrated solar energy from the heliostats into steam
3. Steam is stored in tanks and used to drive turbines that will produce enough electricity for up to 6,000 homes

Global Warming is Jane Fonda's Fault.

In the linked Freakonomics column Dubner and Levitt explain how a movie may have negatively impacted the nuclear energy industry. It is interesting how much affect popular culture (even when misinformed) can have on important issues.

So should we reconsider nuclear energy?

Is the Surge Working? Ask the Data, Not the Politicians

By Steven D. Levitt

One of the most important political questions of the day is whether the troop surge in Baghdad is working. If you ask politicians, the answer you get to that question is very predictable. Republicans say yes, Democrats say no.

What do the data have to say about this question?
Michael Greenstone, an M.I.T. professor, good friend, and one of the best young economists in the world, has just released an incredibly thorough and thoughtful analysis of the impact of the surge.

He finds the answer is mixed.

On at least one dimension, there is strong evidence of progress. The data clearly suggest that deaths of civilians in Baghdad have fallen, and there is no evidence that the crackdown in Baghdad has shifted violence to the rest of the country.
Coalition troop fatalities have been stable since the surge, which in some ways signifies progress since they were on a steady upward trend prior to the surge.
The surge does not seem to have helped in other dimensions such as the amount of oil produced or hours of electricity in Baghdad.

The most interesting part of Greenstone’s paper is his analysis of the pricing of Iraqi government debt. The Iraq government has issued bonds in the past. These entitle the owner of the bond to a stream of payments over a set period of time, but only if the government does not default on the loan. If Iraq completely implodes, it is highly unlikely that these bonds will be paid off. How much someone would pay for the rights to that stream of payments depends on their estimate of the probability that Iraq will implode.

The bond data, unlike the other sources he examines, tell a clear story: the financial markets say the surge is not working. Since the surge started, the market’s estimate of the likelihood of default by the Iraqi government has increased by 40 percent.

I have a few thoughts after reading Greenstone’s work:

1. This paper shows how good economic analysis can contribute in a fundamental way to public policy. Anyone who reads Greenstone’s article will recognize that it is careful and thorough. It is even-handed and apolitical. It combines state-of-the-art data analysis techniques with economic logic (e.g., using market prices to draw conclusions about how things are going).

2. Top economists like Greenstone virtually never write papers like this. The simple reason is that this sort of work is not rewarded in our profession. Academic economists are judged by the papers they publish in peer-reviewed journals. The lag time between submission to these journals and publication is often two or more years. By that time, no one will be interested in the surge, so editors won’t want to publish the paper. Consequently, good economists don’t think it is worth their while to do topical work like this.

3. Instead, this sort of analysis tends to be done by bad economists, or economists on the payroll of special interests. These reports might appear informative, but instead are often pure propaganda. To outsiders, it is difficult to determine what is careful analysis like Greenstone has produced versus the usual junk.

4. The internet can potentially solve both problems (2) and (3) above, leading to an increased supply of good, timely analysis. If people like Greenstone can immediately get their findings into the public debate through the internet, it gives a real purpose (not just an academic one) to doing the work. In addition, there are now online peer-reviewed academic journals that have greatly sped the time from submission to publication, potentially increasing the academic payoff to someone like Greenstone. With many respected economists now blogging, there is also a vehicle for these folks to weigh in on the quality of policy-related economic writings — like I am doing in this blog post.

Can advertising reduce smoking?

Do you think that anti-smoking ads work? Check out this one. What would you do to make an effective ad?


You might also want to check out this "Ghetto Science"

So you think you want to be a rock star?

In case you didn't already know,rock stars die young.

LONDON (AP) — Living fast and dying young has long been part of rock 'n' roll lore.

And now there are statistics that affirm the image, according to a study released Tuesday.

Researchers at Liverpool John Moores University, whose report appeared in the Journal of Epidemiology and Community Health, studied a sample of North American and British rock and pop stars and concluded they are more than twice as likely to die a premature death as ordinary citizens of the same age.

The team studied 1,064 stars from the rock, punk, rap, R&B, electronic and new age genres in the "All Time Top 1,000" albums published in 2000. They compared each artist's age at death with that of European and U.S. citizens of similar backgrounds, sex and ethnicity.

Mark Bellis, leader of the study, said his research showed the stereotype of rock stars was true — recreational drugs and alcohol-fueled parties take a toll.

The report found that, between two and 25 years after the onset of fame, the risk of death was two to three times higher for music stars than for members of the general population matched for age, sex, nationality and ethnic background.

In all, 100 of the stars studied had died — 7.3 percent of women and 9.6 percent of men. They included Elvis Presley, Jim Morrison, Kurt Cobain, Janis Joplin and Jimi Hendrix.

The average age of death was 42 for North American stars and 35 for European stars.

Long-term drug or alcohol problems accounted for more than one in four of the deaths, the study found. The first years of success are the most dangerous, with both British and American musicians three times more likely to die than the average person during that time.

While the music world is not only filled but also fueled these days by aging music stars — Paul McCartney, Willie Nelson, the Rolling Stones and Bob Dylan among them — industry observers were not surprised by the findings.

"Being a pop star is a crash-and-burn sort of lifestyle," said rock journalist and broadcaster John Aizlewood. "If you go into it, you want adulation. You want to respond to the crowd. You can't be a pop star in isolation. If you need that adulation, you obviously have other needs.

"It was ever thus. If you look back to Victorian times — Byron, Shelley those kind of people — being creative requires living on the edge in a way that being in insurance doesn't."

Dr. Tim Williams, a psychiatrist specializing in addiction at the University of Bristol, also said the increased mortality might be a byproduct of the artistic personality.

"You could argue that rock stars and pop stars have a sensation-seeking personality, that they have this desire to put themselves in these terrifying situations — performing in front of a large group of people — that also makes them vulnerable to dependence on substances, which markedly increases mortality," he said.

In good news for aging rockers, the study found that after 25 years of fame, stars' death rates began to return to normal — at least in Europe. A European star still living 25 years after achieving fame faces a similar mortality rate to the European public. U.S. artists, however, continue to die in greater numbers.

The study said this difference "might be explained by differences in longer-term experience of fame, with more performing in later years ... continued media interest and associated stress and substance use in North American pop stars."

Additionally, said Bellis, "Many (U.S. musicians) die in poverty and there is not the same type of public-health provision there" as in Europe.

"The music business would do well to take the health risks of substance abuse and risk-taking behaviors more seriously," wrote Bellis, the lead author of the study.

"This is not only because of the long-term effects on the stars themselves, but also because of the influence these stars exert on others."

Dr. Francis Keaney, an expert in addiction treatment at the Institute of Psychiatry at King's College London, said the death rates are likely to fall in the future.

"People are better educated about drug and alcohol abuse than they were in the past," Keaney said. "Thirty years ago, you could name dozens of people living hedonistic lifestyles in the music industry. Today there are far fewer."



What profession do think would lead to a longer life? Have you considered this as you decide what to be "when you grow up?"

I often steal good blog articles from Freakonomics. Such as the following.

In Case You Think Police Officers Are Overpaid…
By Steven D. Levitt
I just finished Edward Conlon’s memoir Blue Blood, about a Harvard-educated writer who joins the NYPD. I found it highly enjoyable — and I’m not the only one who thought so.
Whenever Conlon addressed a topic that I know something about (like the economics of the war on drugs — see p. 170 of the book’s paperback version), his analysis was always right on the money — which gave me confidence in his accuracy when discussing issues I know nothing about.
Among his many interesting insights is the following, which takes place on p. 239: Conlon has been getting information from a homeless heroin addict named Charlie, regularly paying Charlie small sums of his own money in exchange for tips. Charlie has a homeless friend named Tommy. One day on the street, Conlon runs into Tommy, who tells him a location where crack sales occur. Conlon writes:
I handed Tommy some money, he held up his hands and said, “C’mon, Eddie, you don’t have to, it’s okay.” I said, “It’s all right, you guys work, you take risks for us, you should get paid.” He took the money, but he shook his head.
“Don’t take this the wrong way, but I feel a little funny, since you guys pay out of your own pockets. Do you know how much we make out here, panhandling, during rush hour?’
“No, how much?”
“About a dollar a minute.”
“Oh.”
I didn’t take my money back, but I saw his point. Charlie and Tommy made more money than us. I should have realized that earlier, as the math was not complicated — we took home less than a hundred dollars a day, while their habits were at least that. I tried not to dwell on the fact that, economically, a New York City police officer was a notch down from a bum.

Whenever I feel bad about teacher pay I think of my friend who is a cop and remind myself that at least people don't shoot at me (usually).

Crime and Punishment

Economics is about incentives. There are all kinds of incentives in your life. Supposedly one of those is the fear of imprisonment. Except maybe not. Read this study on 18 year-olds and incarceration and tell me what you think will deter crime.

Here you are. Now what?

When you comment on the blog use your first name and last initial along with the period you have economics. This will enable me to give you your participation grade. When you comment it will not show up until I have approved it. I am not looking at your comment to see if I agree with it, or even like it. I am only making sure it is appropriate content for young minds :)

The blogs you see below and in the archives are from last semester. Do not reply to those. I will be putting current material on the blog soon.

You do not have to write a full blown treatise. Just share your thoughts. Have fun with it.

Maybe we can get our EEOC friend on this issue.

Apparently sports are not immune to racism. I have two things to say on this. 1) Please pay me millions and discriminate against me - I am willing to foul out. 2) I am impressed that NBA officials can show ANY consistency, albeit racially biased. NBA officials are the worst.

Seriously, this study has real world implications.

Apparently pennies are not a medium of exhange.

Food service refuses pennies and New Yorkers go bonkers.

What's in a name?

Any of you guys have the middle name Wayne? Why do I ask? Check out this observation by Freakonomics authors.

Is there an equivalent name for females?

Should states set environmental standards?

California can't seem to get enough federal regulation. They are beggingfor more. Maybe we'd feel that way if we had to breath their air and had their water problems.

Should states be allowed to set their own standards?

My dog Annie.

This is not posted for official response just thought I'd share a photo of my insanely smart dog. She doesn't like to stay in the yard. When I put up electrified fence as a last resort I caught her on top of my kids swingset. She is either contemplating suicide or jumping into the alley (which I think would have the same result as a suicide attempt).

Hillary vs. Milton Pt. III

Free Trade vs. Fair Trade

"Too many people have made too much money."

-- First Lady Hillary Clinton condemns the insurance industry, feeling it’s not fair that certain businesses are making ‘too much money’

"'Fair' is in the eye of the beholder; free is the verdict of the market. (The word 'free' is used three times in the Declaration of Independence and once in the First Amendment to the Constitution, along with 'freedom.' The word 'fair' is not used in either of our founding documents.)"
-- Milton Friedman, WSJ, Mar. 7, 1996

More Hillary vs. Milton

Social Security

"We can’t afford to have that money go to the private sector. The money has to go to the federal government because the federal government will spend that money better than the private sector will spend it."

-- First Lady Hillary Clinton in a disagreement with a Republican congressman

"I have long been a critic of Social Security, basically because I believe that it is not the business of government to tell people what fraction of their incomes they should devote to providing for their own or someone else’s old age."

-- Milton Friedman, WSJ, March 15, 1988

Housing rollercoaster.

They say some markets are like a roller coaster. The housing market certainly has been over the long term.

This is one of the most unique ways. I have ever seen to graph data. It takes 3 or 4 minutes to watch but well worth it (if you are an econofreak).

Guess what the Russians think about the Imus affair.

They may no longer be communists but they are still nuts. If you are a fan of conspiracy theories you will love this one.

P.S. When researching never use Pravda as a source..

Unintended consequences?

Do you think there would have been fewer casualties at VT if this bill had passed? Prepare to hear all those on the left and the right debate this issue.

People have seriously pushed to arm public school teachers. How would you feel if I were armed?

Hillary vs. Milton (& my own 2 cents)

"The unfettered free market has been the most radically destructive force in American life in the last generation."
-- First Lady Hillary Clinton on C-Span in 1996



"What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself."
-- Milton Friedman, Wall Street Journal, May 18, 1961


"Fear the man (or woman) who wants to replace the market with their own judgment. Past proponents of this folly - Marx, Lenin, Stalin, Mao, et al."
--McKay, Here, April 16, 2007.

This doesn't sound good.

This may be a bit deep, but it shouldn't be. You have studied everything you need to fully understand this speech by the Dallas Fed president. Read it and you'll understand why I chose this photo to illustrate the point.

Will we crash and burn, or will we finally elect candidates that will hold Americans accountable (and do what has to be done, however painful that may be)?

N.F.L. cleans house. Sort of.

The National Football League’s commissioner, Roger Goodell, has just made it a lot more expensive to be a thug. Goodell suspended the Titans’ Pacman Jones without pay for the upcoming season (a loss of $1.29 million in base salary) and the Bengals’ Chris Henry for the first half of the season (surrendering as much as $230,000 in base pay). Jones has been arrested five times since he was drafted two years ago; Henry was arrested four times between Dec. 2005 and June 2006.

So here is the question: in the upcoming N.F.L. draft, how much has the value of crime-prone players fallen? Individual teams and the league itself put together fat dossiers on every legitimate draft pick, including psychological profiles and criminal tendencies. Has Goodell’s new anti-crime stance just made good citizenship more valuable?

Have money, will eat.

Here is a new working paper called“Why Is the Developed World Obese?” by Sara Bleich, David Cutler, Christopher Murray, and Alyce Adams. They conclude that “rising obesity is primarily the result of consuming more calories” (as against declining physical activity), and that “the increase in caloric intake is associated with technological innovations such as reduced food prices as well as changing sociodemographic factors such as increased urbanization and increased female labor force participation.”

In other words: when there is a lot of tasty food around and it is relatively cheap, people tend to eat a lot of it.

O.K. future economists what is your solution to curb obesity? Think incentives.

Bush Announces Iraq Exit Strategy: 'We'll Go Through Iran'

This is not real news. If you are not a reader of The Onion you really should check it out some time.

Careful what you do on your computer.

This woman was dumb enough to use her computer to research how to murder her husband. And then she murdered him.

This is not really economics, but I love dumb criminal stories.

You Find Economics in the Strangest Places.

This is an honest to goodness graduate paper on the efficiency of leaving the toilet seat up, or lowering it. Check out the equations.

Lottery Players are Rational.

From The New York Times.

AT least poker tables have some atmosphere, a jingle of highball glasses, a hint of 1990s menthol smoke in the armchairs, the sweet musk of nearby cash. The same goes for playing the horses: there are characters, scandals, competition, not to mention real payoffs.

But who, exactly, wants to stamp their frozen feet waiting in line outside a corner store for an infinitesimal shot at winning the lotto?

The answer, of course, is millions of Americans, who last week pushed the 12-state Mega Millions total to $390 million, half of which was claimed on Wednesday by Ed Nabors, a Georgia truck driver.

A 2002 nationwide survey found that lotteries are by far the most popular form of gambling, with some 66 percent of United States adults having played in the previous year, and 13 percent on a weekly basis.

The question is why. Mega officials put the odds of winning the next big score, $12 million, at 1 in 175,711,536, and anyone with a semester of high school math can see what a fool’s bet that is. Generally, experts say, state lotteries return players about 50 cents on the dollar. And there are many people who seem to compound their folly by buying hundreds of tickets at a time.

Addiction researchers and some economists struggle to explain this behavior, describing it at best as an irrational fever, and at worst a pathological addiction to a regressive, government-run numbers game.

But researchers spend little time in corner-store lines.

“The people who denigrate lottery players are like 10-year-olds who are disgusted by the idea of sex: they are numb to its pleasures, so they say it’s not rational,” said Lloyd Cohen, a professor of law at George Mason University and author of an economic analysis, “Lotteries, Liberty and Legislatures,” who is himself a gambler and a card counter.

Dr. Cohen argues that lottery tickets are not an investment but a disposable consumer purchase, which changes the equation radically. Like a throwaway lifestyle magazine, lottery tickets engage transforming fantasies: a wine cellar, a pool, a vision of tropical blues and white sand. The difference is that the ticket can deliver.

And as long as the fantasy is possible, even a negligible probability of winning becomes paradoxically reinforcing, Dr. Cohen said. “One is willing to pay hard cash that it be so real, so objective, that it is actually calculable — by someone, even if not oneself,” he said.

The mundane simplicity of the lottery only reinforces the attraction. Casino card tables can be intimidating, an opaque world of rules and hard-to-master strategies; ditto for the track.

Because it is pure luck, the lottery is easy to grasp and allows for plenty of perfectly loopy — and very enjoyable — number superstitions. Your birthday digits never won you a dime? Try your marriage date; your favorite psalm verse; the day your bullying father-in-law died. Or, perhaps, reverse the order. In studies, psychologists have found that ticket holders are very reluctant to trade their tickets for others, precisely because they have an illusion of control from having picked magical numbers.

This sense of power infuses the waiting period with purpose. And the hope of a huge payoff, however remote, is itself a source of pleasure. In brain-imaging studies of drug users, as well as healthy adults placing bets, neuroscientists have found that the prospect of a reward activates the same circuits in the brain that the payoffs themselves do.

“It’s not just winning the money but anticipating winning the money that is exciting, and the two experiences are similar neurobiologically,” said Christine Reilly, executive director of the Institute for Research on Pathological Gambling and Related Disorders, in Medford, Mass.

People who gorge on lotto tickets, buying 100 at a time even after years of luckless playing, are no less rational than anyone else making big bets. And lottery odds are neutral and fair, after all, not biased toward any social elite. Seeing a Georgia truck driver win proves that in players’ minds.

Large rewards make most people reckless, whether they’re on the winning or losing end. A 2003 University of Vermont study found that lottery players who said they preferred to receive potential winnings in annuity payments — generally thought to be safer than receiving the money all at once, in a lump sum — often changed their minds when they actually won. And the higher the jackpot, the more likely people were to prefer a lump-sum payout, the researchers found. (Mr. Nabors chose a lump sum.)

Likewise, studies of stock traders have found that, when behind late in the day, they are more likely than usual to make risky bets, and take heavier losses, in an attempt to get out of the red.

“The point is that, psychologically, we think of a loss as a loss, big or small,” said Dr. Dan Ariely, a behavioral economist at the Massachusetts Institute of Technology. “And once you’re into it, you think: Well, why not take a bigger loss, if there’s some chance I can turn it into a gain?” Similarly, people who feel that the opportunities to succeed in life are narrowing, are more likely to play the lottery, or play more often.

Households with regular players spend an average of about 2 percent of their income on the game, studies find. The proportion is higher among very low-income households.

But in most cases all the odds and numbers seem to pale next to the simple pleasure of possible transformation.

“I don’t know what I’ll do if I win,” one man standing in line told a reporter last week. “It’s too much money to think about.”

Exactly.

Now I know why you guys don't do the homework.

Researchers see harm in narcissist collegians

By DAVID CRARY
Associated Press

NEW YORK - Today's college students are more narcissistic and self-centered than their predecessors, according to a study by five psychologists who worry that the trend could be harmful to American society.

"We need to stop endlessly repeating 'You're special' and having children repeat that back," said the study's lead author, professor Jean Twenge, of San Diego State University. "Kids are self-centered enough already."

Twenge and her colleagues, in findings to be presented at a workshop today in San Diego on the generation gap, examined the responses of 16,475 college students nationwide who completed an evaluation called the Narcissistic Personality Inventory between 1982 and 2006.

The standardized inventory, known as the NPI, asks for responses to such statements as "If I ruled the world, it would be a better place," "I think I am a special person" and "I can live my life any way I want to."

The researchers describe their study as the largest ever of its type and say students' NPI scores have risen steadily since the test was introduced in 1982. By 2006, they said, two-thirds of the students had above-average scores, 30 percent more than in 1982.

Narcissism can have benefits, said study co-author W. Keith Campbell of the University of Georgia, suggesting it could be useful in meeting new people "or auditioning on 'American Idol.'"

"Unfortunately, narcissism can also have very negative consequences for society, including the breakdown of close relationships with others," he said.

The study asserts that narcissists "are more likely to have romantic relationships that are short-lived, at risk for infidelity, lack emotional warmth, and to exhibit game-playing, dishonesty, and over-controlling and violent behaviors."

Twenge, the author of "Generation Me: Why Today's Young Americans Are More Confident, Assertive, Entitled - and More Miserable Than Ever Before," said narcissists tend to lack empathy, react aggressively to criticism and favor self-promotion over helping others.

The researchers traced the phenomenon back to what they called the "self-esteem movement" that emerged in the 1980s, asserting that the effort to build self-confidence had gone too far.

As an example, Twenge cited a song commonly sung to the tune of "Frere Jacques" in preschool: "I am special, I am special. Look at me."

"Current technology fuels the increase in narcissism," Twenge said. "By its very name, My-Space encourages attention-seeking, as does YouTube."

Some analysts have commended today's young people for increased commitment to volunteer work.

But Twenge viewed even this phenomenon skeptically, noting that many high schools require community service and that many youths feel pressure to list such endeavors on college applications.

Campbell said the narcissism upsurge seemed so pronounced that he was unsure if there were obvious remedies.

"Permissiveness seems to be a component," he said.

"A potential antidote would be more authoritative parenting. Less indulgence might be called for."

Outlaws with cigarettes.

Well remember what we learned about supply and demand and black markets. Here is a prime example. What I find ironic is that anyone would expect criminals to do anything other than create a black market.