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Posts tagged economics

Nate:
from "Secret Society for Creative Philanthropy," by Steve Rubenstein, SFGate.com, 26 February 2010 :: via The Morning News

About the same time that Ibnale was handing out umbrellas, Brett Lockspeiser took $100 worth of dollar bills to the 16th Street Mission BART Station and held up a sign.

"I will give you $1 for you to give to someone else," the sign said. Throughout the evening rush, Lockspeiser stood in the station, trying to give away dollar bills.

"Everyone though I was trying to scam them," he said. "They wanted to know what I was up to. I told them they just had to promise to give the $1 to someone else."

After three hours, Lockspeiser had managed to give away only $52. One passer-by did not take the $1 but, suspecting that Lockspeiser was down and out, handed him a pair of socks.

Nate:
from "Rob Walker, Consumer, Thingamabob Connoisseur," by Ariel Ramchandani, More Intelligent Life, 8 Februrary 2010

MIL: Where did the original idea come from?

RW: Both Josh and I already spend too much time thinking about value and objects, I guess. There is one minor detail of interest in the back story of S.O.: I broke a coffee cup I'd bought as a souvenir on a trip with my now-wife, early in our relationship. I was very sad to have ruined it, but I realised it only had value to me—it was just a coffee cup from some diner—because of the story behind it. This got me thinking about whether stories for worthless-seeming objects could be invented, and whether that would increase their value. That led to conversations with Josh that culminated in Significant Objects: We would buy cheap thingamabobs from yard sales and thrift stores and the like, recruit creative writers to invent stories about them, then put the object up for auction on eBay with the invented provenance as its description. (It's important to note that we were explicit about the invented nature of the Significance; there was no hoaxing.)

MIL: Are you surprised by the results?

RW: We expected that the stories would increase the value of the objects—but we were very surprised by how much. The first round involved 100 objects/stories, and in the end we sold $128.74 worth of thrift-store junk for $3,612.51. (The money went to the writers in Volume 1, by the way.) That's a Significance Markup of more than 2,700%. While nothing we bought cost us more than $4 (and most were a buck), several objects sold for more than $100. We did not think the prices would go that high. I still have old e-mail exchanges between Josh and me from the first week, as we were very excited to see auctions reach, say, $15.

Nate:
from "reading vs writing," by Dan Visel, if:book, 16 January 2009 :: via more than 95 theses

There are ways around this: we can, for example, see it as a moral duty to buy books by authors who are still alive and who deserve money new, rather than used. We could buy books directly from authors whenever possible so that they're getting a more just cut. We need to re-conceptualize how we think about exchange and consumption. Lewis Hyde's The Gift presents one such way forward: thinking about artistic creation as something outside the economic. But that requires us to think different both as producers and consumers: maybe that's what the Internet is trying to tell us.

Andy:
from "Why Freakonomics Can't Beat Geekonomics," by Umair Haque, HarvardBusiness.org, 19 October 2009 :: via Dave Bruno

[O]ne of the fundamental problems with [economics] is this: "because it seeks to describe an ideal world, much of it has little relevance in terms of helping build a better one." Take, for example, the famous observation in the first Freakonomics book that legalizing abortion led to a decrease in crime a generation later. What policy recommendations should we infer from this "relationship"? Should we strive to (ahem) minimize birth rates among the poor? Or should we shift to a Philip K Dickian precrime model, because we now "know" that children of poor mothers are likelier to be criminals? It's a slippery slope, which leads ineluctably to criminalization or eugenics.

I enjoyed Freakonomics, as I enjoyed the fifty or so imitators that followed. Yet, they are to economics what Friends is to culture: pop. And ultimately, though Levitt's academic work is stellar, the Freakonomics genre represents the trivialization of a great system of thought. Instead of improving that system of thought, it applies already questionable assumptions to what are socially the lowest-value uses.

Those assumptions are what demand reinvention — not broader application. Economics needs fundamental reinvention — not trivialization. That's going to take a new era of geeking out, getting philosophical, and re-examining the basic assumptions on which econ is founded. Freaking out is fun, but getting constructive is where the future of economics lies.

Andy:

By many objective measures the lives of women in the United States have improved over the past 35 years, yet we show that measures of subjective well-being indicate that women's happiness has declined both absolutely and relative to men. The paradox of women's declining relative well-being is found across various datasets, measures of subjective well-being, and is pervasive across demographic groups and industrialized countries. Relative declines in female happiness have eroded a gender gap in happiness in which women in the 1970s typically reported higher subjective well-being than did men. These declines have continued and a new gender gap is emerging -- one with higher subjective well-being for men.

When you’re in the expert business, after a while you realize there are no experts.

—New York University's Richard Sylla,
on predicting recoveries and recessions

Andy:

The consequences of technological change are always vast, often unpredictable and largely irreversible. That is also why we must be suspicious of capitalists. Capitalists are by definition not only personal risk takers but, more to the point, cultural risk takers. The most creative and daring of them hope to exploit new technologies to the fullest, and do not much care what traditions are overthrown in the process or whether or not a culture is prepared to function without such traditions. Capitalists are, in a word, radicals. In America, our most significant radicals have always been capitalists—men like Bell, Edison, Ford, Carnegie, Sarnoff, Goldwyn. These men obliterated the 19th century, and created the 20th, which is why it is a mystery to me that capitalists are thought to be conservative. Perhaps it is because they are inclined to wear dark suits and grey ties.

I trust you understand that in saying all this, I am making no argument for socialism. I say only that capitalists need to be carefully watched and disciplined. To be sure, they talk of family, marriage, piety, and honor but if allowed to exploit new technology to its fullest economic potential, they may undo the institutions that make such ideas possible. And here I might just give two examples of this point, taken from the American encounter with technology. The first concerns education. Who, we may ask, has had the greatest impact on American education in this century? If you are thinking of John Dewey or any other education philosopher, I must say you are quite wrong. The greatest impact has been made by quiet men in grey suits in a suburb of New York City called Princeton, New Jersey. There, they developed and promoted the technology known as the standardized test, such as IQ tests, the SATs and the GREs. Their tests redefined what we mean by learning, and have resulted in our reorganizing the curriculum to accommodate the tests.

A second example concerns our politics. It is clear by now that the people who have had the most radical effect on American politics in our time are not political ideologues or student protesters with long hair and copies of Karl Marx under their arms. The radicals who have changed the nature of politics in America are entrepreneurs in dark suits and grey ties who manage the large television industry in America. They did not mean to turn political discourse into a form of entertainment. They did not mean to make it impossible for an overweight person to run for high political office. They did not mean to reduce political campaigning to a 30-second TV commercial. All they were trying to do is to make television into a vast and unsleeping money machine. That they destroyed substantive political discourse in the process does not concern them.

Andy:

The holding period [for equity-based compensation] should be the longer of age 65 or two years after retirement. That will ensure that key executives make decisions that truly are in the long-term best interests of the company (as opposed to decisions aimed at a shorter period — after which an executive could depart, taking all his marbles with him). Note that holding-through-retirement also addresses the major concern about top executives’ unnecessary risk-taking.

Holding equity compensation through retirement is perhaps the single most important — and fundamental — fix to getting executive compensation back on track because it also addresses all the past outstanding excessive option and restricted stock grants. And, by requiring chief executives to keep their skin in the game for the long term, it will go a long way to restoring public trust in our companies and our market, which is so important to restoring stability to the markets.

Nate:
A NYTimes.com Freakonomics Blog post by Justin Wolfers, 29 January 2009

The latest recession indicator: more people are searching Google for “coupons” than for “Britney Spears.” And it’s not that Britney is getting less popular. By this measure, the recession began in March 2008. Check out the full time series, here.

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"Poverty Is Not Economics," by John Kofi Aryee, 2006 :: via Koranteng's art collection
Nate:
Andy:
from "An Economy of Faith and Trust," by David Brooks, NYTimes.com, 16 January 2009

For years, Republicans have been trying to create a large investor class with policies like private Social Security accounts, medical savings accounts and education vouchers. These policies were based on the belief that investors are careful, rational actors who make optimal decisions. There was little allowance made for the frailty of the decision-making process, let alone the mass delusions that led to the current crack-up.

Democrats also have an unfaced crisis. Democratic discussions of the stimulus package also rest on a mechanical, dehumanized view of the economy. You pump in a certain amount of money and “the economy” spits out a certain number of jobs. Democratic economists issue highly specific accounts of multiplier effects — whether a dollar of spending creates $1.20 or $1.40 of economic activity. . . .

Mechanistic thinkers on the right and left pose as rigorous empiricists. But empiricism built on an inaccurate view of human nature is just a prison.

Nate:
from "Why the Death of S.U.V.’s?," by Steven D. Levitt, NYTimes.com Freakonomics Blog, 24 December 2008

Here is the puzzling thing. The apparent cause of death for S.U.V.’s was high gas prices. Doesn’t that mean that with low gas prices S.U.V. sales should come back to life? I can think of a few reasons why that might not be the case:

1) Consumers think that the low current gas prices are temporary, and in general gas prices will be high in the future. Thus, they don’t want to get stuck with a vehicle that gets poor gas mileage. The question this raises is why consumers were so sure six months ago that gas prices were going to be high forever (which turned out to be wrong), but don’t believe now that gas prices will stay low.

2) The uncertainty of fluctuating gas prices takes the fun out of owning an S.U.V. Even if gas prices won’t be that high on average, it is so unpleasant to have an S.U.V. when gas prices are high that people don’t want to have them if gas prices are volatile. This explanation seems kind of dumb to me, but maybe it is possible.

3) When gas prices got high, it became uncool to own an S.U.V. Perhaps the process for going from cool to uncool is not easily reversible. Once something is uncool, it remains uncool for a long time, even when the forces that caused it to be uncool recede. This might explain why the demand for pickup trucks remains strong, even as S.U.V.’s fade. Somehow the spike in gas prices didn’t make pickup trucks uncool in the same way as S.U.V.’s. Similarly, minivans have never been cool (or at least not for a long time); so if this explanation is right, minivan sales should stay strong.

Andy:
from "Let’s Have Another Cup of Coffee," by Michael Kinsley, NYTimes.com, 14 November 2008

Without consumers to lead the charge, an economic recovery will be hard to achieve. And yet everyone agrees that we need to start saving more. So should I buy that coffee maker to stimulate the economy? Or should I save the money in order to “grow” the economy and provide for my own old age? I can’t do both. . . .

So what do we do? The nearest thing to an actual plan seems to be something like this: stimulate first, to avert various short-term disasters, and then — at some signal from the Treasury Department — turn around and start saving like mad, to avert various long-term disasters. In other words, we need to get back our consumer confidence, and then lose it again.

Andy:
from "A Lot of Lattés," by Ron Sider, Books & Culture, November/December 2008

[According to the new book Passing the Plate,] twenty percent of American Christians (19 percent of Protestants; 28 percent of Catholics) give nothing to the church. Among Protestants, 10 percent of evangelicals, 28 percent of mainline folk, 33 percent of fundamentalists, and 40 percent of liberal Protestants give nothing. The vast majority of American Christians give very little—the mean average is 2.9 percent. Only 12 percent of Protestants and 4 percent of Catholics tithe.

A small minority of American Christians give most of the total donated. Twenty percent of all Christians give 86.4 percent of the total. The most generous five percent give well over half (59.6 percent) of all contributions. But higher-income American Christians give less as a percentage of household income than poorer American Christians. In the course of the 20th century, as our personal disposable income quadrupled, the percentage donated by American Christians actually declined.

In Chapter 3, the authors evaluate nine frequently offered hypotheses to explain this modest giving. They conclude that five have substantial validity: 1) many Christians have not seriously wrestled with their own tradition’s theological teaching on giving; 2) many churches simply accept low expectations for giving and therefore provide little communal support for generosity; 3) some Christians question the reliability of the churches and organizations requesting funds; 4) because of near total privatization and lack of accountability in the area of charitable giving, there are no real consequences for stinginess; 5) most Christians give on an occasional basis when they feel like it, rather than in a disciplined, planned, structured way.

Andy:
from "Frodo in a World of Boromirs," by Kurt Luchs, FIRST THINGS: On the Square, 27 October 2008

It is no longer shameful to lust after power so long as one lusts for the good of the people. In the words of Boromir, speaking of the One Ring, “For you seem to think of its power only in the hands of the enemy: of its evil uses not of its good.” The only rejoinder, in Frodo’s words to Boromir, is that “we cannot use it, and what is done with it turns to evil.” Yes, it’s that simple. And as you ascend the levels of authority, from city to state to nation, it only becomes more true.

There are several reasons. One, already alluded to, is the corruption of power. No matter for what noble ends power may be sought, at some point it always becomes an end in itself, and then the jig is up . . . but the power and its abuses live on. This is why even the most flagrantly failed government programs are nearly impossible to kill.

Another reason that centralized government social engineering simply doesn’t work is what F.A. Hayek called “the knowledge problem.” Hayek was the only Austrian economist ever to win a Nobel Prize. He won it partly for a brief essay called “The Use of Knowledge in Society,” in which he explained that government is intrinsically helpless before most social and economic problems because the knowledge needed to solve them is too widely dispersed among the members of society. It cannot ever be made known in a timely fashion to a central authority, and even if it could, that authority would lack the godlike coordinating ability needed to use that knowledge effectively. Adding to the difficulty, much of this knowledge is tacit knowledge, not consciously known or articulated by the individuals who have it.

What can make effective use of the knowledge distributed locally among the members of society? Only the free market system and its accompanying structure of voluntary trades and changing prices. Freely determined market prices are what send signals to individuals telling them how to best use their unique knowledge to their own, and ultimately society’s, advantage. Without a free market, the only way to allocate resources is by government fiat–a few, far-removed individuals making choices for us all, perhaps with the best of intentions but in near-total ignorance.

Andy:
from "The pendulum swings towards regulation," by Lawrence Summers, FT.com, 26 October 2008 :: via Gregory Mankiw

Economists do not understand what drives productivity growth very well. However, we know these facts: productivity grew rapidly after the second world war and then sometime between the late 1960s and mid-1970s it slowed dramatically only to re-accelerate to record levels in the mid-1990s. Unfortunately, even before the downturn, underlying productivity growth appeared to be slowing.

The most plausible explanation is that an array of transforming investments and technologies – the interstate highway system, widespread air travel and the expansion of electronics – were spurs to growth during the postwar period. Eventually their impact dissipated and, as energy costs rose, growth slowed until the information technology revolution kicked in during the 1990s. Unfortunately, the IT supply shock that powered the economy in the 1990s and early part of this decade appears to be diminishing.

So there is a need to ensure that the pressure to increase spending is directed at areas where it will have the most transformational impact. We need to identify those investments that stimulate demand in the short run and have a positive impact on productivity. These include renewable energy technologies and the infrastructure to support them, the broader application of biotechnologies and expanding broadband connectivity, an area where the US has fallen behind.

The crisis has also reminded us of the lessons of the technology bubble, Japan’s experience in the 1990s and of the US Great Depression – that finance-led growth is problematic. The wealth and income gains from the easy availability of credit were highly concentrated in the hands of a fortunate few. The benefits also proved temporary. In retrospect, the fact that 40 per cent of American corporate profits in 2006 went to the financial sector, and the closely related outcome – a doubling of the share of income going to the top 1 per cent of the population – should have been signs something was amiss.

Andy:
from "Don't Watch the Dow," by Brandon Fuller, The Big Money, 9 October 2008

Generations of Americans have been trained to follow the Dow Jones Industrial Average for a quick snapshot of how the economy is performing or is expected to perform. There’s a lot that’s ill-advised about that habit, but, most importantly, attending to the ups and downs in the Dow won’t tell you much about the current financial crisis. Ours is a crisis of credit: Financial firms are unwilling to lend to each other (at all-but-exorbitant rates) for fear that borrowing firms may fail or that they themselves may need the cash to fend off their own crisis.

Whereas the hourly fortunes of the Dow or any stock index are, at best, indirect reflections of this reluctance to lend, the TED Spread measures credit conditions directly. Bloomberg tracks the TED Spread here. What sounds like second-rate Nutella is actually the difference between the interest rate banks charge each other on three-month loans and the interest rate on three-month U.S. Treasury bills.

Nate:
from "Lotteries," by Jonah Lehrer (interviewing George Loewenstein), The Frontal Cortex, 15 September 2008 :: via Ben

The finding from our first study, that when you make people feel poor they play more, is especially sad since playing the lottery is on average a massively losing proposition. The propensity of low income individuals to play the lottery has the perverse effect of exacerbating their poverty. Although there are no easy solutions to the problem, one obvious one would be to cease marketing and advertising that targets the poor. It probably makes sense for the state to sell lottery tickets, because otherwise they will be sold by organized crime. However, does it really make sense for the state to be inducing, through advertising, poor people to play who wouldn’t play in the absence of such inducement?

Similarly, states could promote and offer more games that appeal to wealthier players, such as Powerball, and not those popular with poorer players, such as instant scratch-off tickets. Another obvious solution, though one that is even less likely to be implemented, would be for the state to increase the payout on the tickets, and perhaps to increase the number of moderate size prizes.

Finally, a third option would be for financial institutions to issue investment instruments that have lottery-like qualities (for example, offered in small amounts, available at many convenient points of purchase, provide a small chance of a large upside) but offer a positive rate of return, providing the pleasure of playing the lottery without the steep cost. In many other countries “prize bonds” or other savings instruments are available that pay lottery winnings in place of, or in addition to, regular interest. Regulations in the United States have stymied the development of such offerings.

Nate:
from "Tricking People into Doing the Right Thing," by Richard Thaler and Cass Sunstein, GOOD Magazine, 28 August 2008

Quit smoking without a patch. Committed Action to Reduce and End Smoking is a savings program offered by the Green Bank of Caraga in Mindanao, Philippines. A would-be nonsmoker opens an account with a minimum balance of one dollar. For six months, the client deposits the amount of money she would otherwise spend on cigarettes into the account. After six months, the client takes a urine test to confirm that she has not smoked recently. If she passes the test, she gets her money back. If she fails the test, the account is closed and the money is donated to a charity. MIT’s Poverty Action Lab found that opening up an account makes those who want to quit 53 percent more likely to achieve their goal. No other antismoking tactic, not even the nicotine patch, appears to be so successful.

Stop compulsive gambling. Over the past decade, several states, including Illinois, Indiana, and Missouri, have enacted laws enabling gambling addicts to put themselves on a list that bans them from entering casinos or collecting gambling winnings. The underlying thought is that many people who have self-control problems are aware of their shortcomings and want to overcome them. Sometimes recreational gamblers can do this on their own or with their friends; sometimes private institutions can help them. But addicted gamblers might do best if they have a way to enlist the support of the state.

Dollar a day. Teenage pregnancy is a serious problem, and girls who have one child, at, say, 18, often become pregnant again within a year or two. Several cities, including Greensboro, North Carolina, have experimented with a “dollar-a-day” program, by which teenage girls with a baby receive a dollar for each day that they are not pregnant. Thus far the results have been extremely promising. A dollar a day is a trivial amount to the city, even for a year or two, so the plan’s total cost is extremely low, but the small recurring payment is just enough to encourage some teenage mothers to take steps to avoid getting pregnant again. And because taxpayers end up paying a significant amount for many children born to teenagers, the costs appear to be far less than the benefits. Many people are touting “dollar a day” as a model program.