More Outsourcing Opportunities: Rent-a-womb!

Check out this article from MSNBC: "Giving birth the latest job outsourced to India: As commercial surrogacy takes off, rent-a-womb trend fuels debate" I'll post a few select quotations and let you make up your mind on the efficiency/morality debate in question. We all know how economists lean in matters such as these.

ANAND, India - Every night in this quiet western Indian city, 15 pregnant women prepare for sleep in the spacious house they share, ascending the stairs in a procession of ballooned bellies, to bedrooms that become a landscape of soft hills.

A team of maids, cooks and doctors looks after the women, whose pregnancies would be unusual anywhere else but are common here. The young mothers of Anand, a place famous for its milk, are pregnant with the children of infertile couples from around the world.

The small clinic at Kaival Hospital matches infertile couples with local women, cares for the women during pregnancy and delivery, and counsels them afterward. Anand's surrogate mothers, pioneers in the growing field of outsourced pregnancies, have given birth to roughly 40 babies.
...

"There is this one woman who desperately needs a baby and cannot have her own child without the help of a surrogate. And at the other end there is this woman who badly wants to help her (own) family," Patel said. "If this female wants to help the other one ... why not allow that? ... It's not for any bad cause. They're helping one another to have a new life in this world."
...
Commercial surrogacy has been legal in India since 2002, as it is in many other countries, including the United States. But India is the leader in making it a viable industry rather than a rare fertility treatment. Experts say it could take off for the same reasons outsourcing in other industries has been successful: a wide labor pool working for relatively low rates.

Externalities

Ever walk through the grocery story, annoyed at the woman apparently talking to herself, only to realize she is actually talking on a cell phone? Its a good example of a negative externality, not unlike air pollution. Often externalities are mitigated by social norms. For instance a stern look at the offending woman in the grocery store will hopefully get her to lower her voice if not hang up. Other solutions are often imposed by store owners themselves who impose bans on cell phone use in their stores. In this article covering internet access on airlines we see that different airlines are responding differently.

We think decency and good sense and normal behavior" will prevail, said Jack Blumenstein, chief executive of Aircell LLC, which is launching service on some American and Virgin flights in 2008.

In many ways, airlines are facing issues similar to those encountered by Wi-Fi networks on the ground — at airports, coffee shops and other public places.

Glenn Fleishman, editor of the Wi-Fi Networking News site, said operators of public networks generally do not filter because users are conscious that others can see what they surf. A coffee shop employee might occasionally ask a customer to leave, Fleishman said, "but those stories tend to be pretty far between."

Airplanes, however, are different because customers are in closer quarters and are more likely to include kids.

Allowing porn could subject an airline to harassment complaints much like an employer that refuses to clamp down, said John Palfrey, a Harvard Law School professor.

"I think they have a right to (filter), but I come up short of saying they have the responsibility," Palfrey said. "I'd rather have the responsibility in the hands of passengers and require them to be accountable for what they do on laptops and airplanes."

The Fed's New Tool

As this blog discussed a few days ago, the Fed has established a new monetary policy tool called the Term Auction Facility. The reason for the TAF is that the link between the federal funds rate and the risk-free rate on short term debt has been much more tenuous since August of this year. This means that the macroeconomic effects we usually expect from a decrease in the federal funds target are not propagating though the economy.

The reason for the disconnect comes from the uncertainty generated by the mortgage mess. Wanting to overhaul their balance sheets, many commercial banks and investors alike have turned to the market for Treasury securities. Banks are looking to Treasury securities because overnight loans in the federal funds market or from the discount window are not a reasonable strategy for restructuring a balance sheet. This increased demand in the Treasury market has driven up the price and driven down yield on bonds. As a result, the impact of any Fed open market operation is reduced.

Even for the healthy banks in a position to lend, the uncertainty about the solvency of any given bank results in a higher risk premium. So not only do troubled banks face a higher price for Treasury securities, but they also face a higher rate for a 90 day loan from another bank. Combine this with the stigma and strict collateral requirements of a discount loan and some banks are really in a pinch.

One thing to note - the Fed is not changing the total value of liquidity available. So the amount auctioned off will be offset by a reduction in funds in the overnight market. Any idea on how this will work? Is the Fed going to sell Treasuries?

Let me know what you think.


The Economist had a nice article about this new policy.
A Christmas package for banks

Dec 13th 2007
From The Economist print edition

This attempt to sort out the money-market mess has its uses; but don't expect too much

IF AT first you don't succeed, try co-ordinated intervention. Leading central banks have each laboured on their own to clear the log jam in the money markets—and all have failed. The spread between the cost of borrowing for governments and that for banks has widened sharply in recent weeks. That suggests investors are warier than ever of lending to the banking system. The longer this goes on, the greater the fear that banks will drag the economy down by starving it of capital.

Christmas, when markets are closed and banks are tidying their year-end balance sheets, is always a time of sparse liquidity. This year confidence is especially fragile. The last thing the world needs is for some big bank to be scrabbling for cash on New Year's Eve. Hence this week's decision by five central banks to redirect some $100 billion of funding to the banking system—and to ensure that it can be had in dollars. Markets were torn between hope that money will at last get to those that need it and fear that the plan reveals how worried the central banks really are. They are right to be anxious: this is the authorities' best shot—and it is far from certain to work.

The plan helps explain why the Federal Reserve decided to cut interest rates by a quarter of a percentage point rather than a half (as many had hoped) on December 11th. Cuts in the official rate have proved a blunt instrument in solving the money-market crisis. Despite three reductions in the Fed funds rate, banks were still paying more on December 11th to borrow money for three months than they had been in March. Worse still, in their anxiety to rescue the financial system, central banks were endangering their anti-inflationary credentials. Headline inflation rates have stayed stubbornly elevated. The Fed reasoned—rightly—that money-market intervention was a more targeted remedy than a big rate cut would have been.

Nobody should doubt how urgently needed that remedy is. Banks have no problem borrowing money overnight, but they would be mad to rely exclusively on that as a source of funding. They need access to funding over longer periods, particularly three months. Yet those markets have been jammed as the normal providers of finance, the money-market funds, have been made skittish by losses on mortgage-related products. Central banks are trying to step into the breach.

Sick stigma

The plan is designed to deal with the things that have stymied such efforts so far. For instance, applying for help from a central bank has been seen as a sign of weakness—the financial equivalent of casting yourself as the little boy with “kick me” pinned to his shirt tail. By presenting the new package in the form of an auction, central banks hope to remove that stigma. Another disincentive for borrowers has been the penalty rates of interest charged by central banks (in particular, by the Bank of England) and the demand for very high-quality bonds as collateral. The new plan modestly relaxes such conditions.

Will that be enough? The Fed and the Bank of England have made it clear they are not adding overall liquidity to the markets (to the extent that they add money, they will take it away elsewhere). So far, the plan focuses on how to get money into the system, not how much. Yet the European Central Bank, which has been the most flexible in handling the money-market crisis, has had little more success than anyone else at reducing banks' borrowing costs. Above all, the package does not solve the fundamental reason why both investors and bankers are so reluctant to lend freely: the crippling lack of information about potential losses on subprime mortgages and related structured-debt products. Even the banks themselves will remain reluctant to lend until they know how much capital they will need to sort out the mortgage mess.

Yet the package is surely worth a try. It is worth paying a high price to stave off a liquidity crisis over new year: better that weak banks are able to borrow at the same rates as strong ones than that they are not able to borrow at all. The package will give everyone breathing space to reassess the banks' balance sheets. The hope is that a peaceful Christmas will help sentiment improve in January. But don't be fooled: it is only a hope. If it is disappointed, the clamour for central banks to start cutting interest rates will start to mount once again.

Economics and Art, Quite Literally

I ran into a piece of art the other day by economics graduate Tino Sehgal without, really knowing that I had run into art at all.

I was walking through the Walker Art Center when, out of nowhere one of the guards started singing. Loudly.

My immediate response was that she was either bored or crazy.

Turns out that it was work created by Sehgal and that other people have reacted similarly to his work. Yasmil Rayomond, the curator of the Walker show described a visit to the Biennial in Lyon, France where she also did not realize that a piece by Mr. Sehgal was on display. I quote from an article from the New York Times:

"He had a Dan Flavin, a Larry Bell and a Dan Graham in the corner," she said. "The minute I entered the space, the guard came in and started stripping. I slowly crawled behind the Dan Graham. I was so embarrassed I didn't know what to do with myself. I wanted to know the title of the piece, and I had to wait. At the end when he takes of all this clothing, he says the title and then puts his clothes back on. It was called 'Selling Out'."

The artist is 31 years old and lives in Berlin. He creates what he calls "staged situations" that include the following:

"This Is New": where an attendant quotes a museum goer a headline from the day's papers and only a response from the visitor can trigger an interaction between the two, concluding in the work's title being spoken.

"This Success/This Failure": kids play in an empty room and attempt to draw visitors into their game. Only the kids can decide whether it is a success or a failure.

"This Is So Contemporary": where a uniformed museum guard dances around the room singing "This is so contemporary contemporary, contemporary."

"Kiss" where a couple in an unbroken embrace recreate kisses from familiar works of art.

His work does have some interesting economics to it, both literally and figuratively.

His pieces can be sold (and in fact, have received five-figure sums!). But he stipulates that the exchange cannot involve the transformation of any material in any way. No written instructions, no bill of sale, no catalogs and no pictures.

The artist claims political influences from John Kenneth Galbraith, Walter Benjamin, Bruce Nauman and Felix Gonzalez-Torres.

He studied dance and economics and says that a touchstone belief is that his generation must 'come up with alternatives of producing in different ways'.

The Deadweight Loss of Santa: A Reprint

In honor of the end of the semester and the upcoming holiday break, I reprint below an old Economist article that is based on an AER article titled "The Deadweight Loss of Christmas" for your perusal and distraction.

Is Santa a deadweight loss?

Dec 20th 2001
From The Economist print edition

Are all those Christmas gifts just a waste of resources?
ECONOMICS has long been known as the dismal science. But is any economist so dreary as to criticize Christmas? At first glance, the holiday season in western economies seems a treat for those concerned with such vagaries as GDP growth. After all, everyone is spending; in America, retailers make 25% of their yearly sales and 60% of their profits between Thanksgiving and Christmas. Even so, economists find something to worry about in the nature of the purchases being made.

Much of the holiday spending is on gifts for others. At the simplest level, giving gifts involves the giver thinking of something that the recipient would like—he tries to guess her preferences, as economists say—and then buying the gift and delivering it. Yet this guessing of preferences is no mean feat; indeed, it is often done badly. Every year, ties go unworn and books unread. And even if a gift is enjoyed, it may not be what the recipient would have bought had they spent the money themselves.

Intrigued by this mismatch between wants and gifts, in 1993 Joel Waldfogel, then an economist at Yale University, sought to estimate the disparity in dollar terms. In a paper that has proved seminal in the literature on the issue, he asked students two questions at the end of a holiday season: first, estimate the total amount paid (by the givers) for all the holiday gifts you received; second, apart from the sentimental value of the items, if you did not have them, how much would you be willing to pay to get them? His results were gloomy: on average, a gift was valued by the recipient well below the price paid by the giver.

The most conservative estimate put the average receiver's valuation at 90% of the buying price. The missing 10% is what economists call a deadweight loss: a waste of resources that could be averted without making anyone worse off. In other words, if the giver gave the cash value of the purchase instead of the gift itself, the recipient could then buy what she really wants, and be better off for no extra cost.

Non-cash gifts from extended family were found to be least efficient

Perhaps not surprisingly, the most efficient gifts (those with the smallest deadweight loss) were those from close friends and relations, while non-cash gifts from extended family were the least efficient. As the age difference between giver and recipient grew, so did the inefficiency. All of which suggests what many grandparents know: when buying gifts for someone with largely unknown preferences, the best present is one that is totally flexible (cash) or very flexible (gift vouchers).

If the results are generalized, a waste of one dollar in ten represents a huge aggregate loss to society. It suggests that in America, where givers spend $40 billion on Christmas gifts, $4 billion is being lost annually in the process of gift-giving. Add in birthdays, weddings and non-Christian occasions, and the figure would balloon. So should economists advocate an end to gift-giving, or at least press for money to become the gift of choice?

Sentimental value

There are a number of reasons to think not. First, recipients may not know their own preferences very well. Some of the best gifts, after all, are the unexpected items that you would never have thought of buying, but which turn out to be especially well picked. And preferences can change. So by giving a jazz CD, for example, the giver may be encouraging the recipient to enjoy something that was shunned before. This, and a desire to build skills, is presumably the hope held by the many parents who ignore their children's pleas for video games and buy them books instead.

Second, the giver may have access to items—because of travel or an employee discount, for example—that the recipient does not know existed, cannot buy, or can only buy at a higher price. Finally, there are items that a recipient would like to receive but not purchase. If someone else buys them, however, they can be enjoyed guilt-free. This might explain the high volume of chocolate that changes hands over the holidays.





The thought actually does count

But there is a more powerful argument for gift-giving, deliberately ignored by most surveys. Gift-giving, some economists think, is a process that adds value to an item over and above what it would otherwise be worth to the recipient. Intuition backs this up, of course. A gift's worth is not only a function of its price, but also of the giver and the circumstances in which it is given.

Hence a wedding ring is more valuable to its owner than to a jeweler, and the imprint of a child's hand on dried clay is priceless to a loving grandparent. Moreover, not only can gift-giving add value for the recipient, but it can be fun for the giver too. It is good, in other words, to give as well as to receive.

The lesson, then, for gift-givers? Try hard to guess the preferences of each person on your list and then choose a gift that will have a high sentimental value. As economists have studied hard to tell you, it's the thought that counts.

* “The Deadweight Loss of Christmas”. American Economic Review, December 1993, vol 83, no 5.

Left and Right

Mankiw recently posted a conclusion of one of his Econ101 lectures with a discussion on reasons that right-leaning and left-leaning economists differ on their policy views, even though they share an intellectual framework for analysis. Here are the points he makes:

* The right sees large deadweight losses associated with taxation and, therefore, is worried about the growth of government as a share in the economy. The left sees smaller elasticities of supply and demand and, therefore, is less worried about the distortionary effect of taxes.
* The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive.
* The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy.
* The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes.
* The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.
* There is one last issue that divides the right and the left—perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it.

Fed Policy Change

Wow, monetary policy is getting exciting. Yesterday the Fed announced a new policy known as the Term Auction Facility program (TAF). Actually the announcement was coordinated with several other central banks. For a good overview, read this WSJ piece. Basically the Fed - in an attempt to alleviate liquidity constraints in the market - is going to manage the discount window, via quantity rather than price.

Some other commentary Marginal Revolution, Fortune Magazine, and Economistsview. Expect there to be substantially more discussion of this in the intervening days.

Cable TV Is Good For Women

According to Jensen and Oster:

Cable and satellite television have grown rapidly throughout the developing world. The availability of cable and satellite television exposes viewers to new information about the outside world, which may affect individual attitudes and behaviors. This paper explores the effect of the introduction of cable television on gender attitudes in rural India. Using a three-year individual-level panel dataset, we find that the introduction of cable television is associated with improvements in women's status. We find significant increases in reported autonomy, decreases in the reported acceptability of beating and decreases in reported son preference. We also find increases in female school enrollment and decreases in fertility (primarily via increased birth spacing). The effects are large, equivalent in some cases to about five years of education in the cross section, and move gender attitudes of individuals in rural areas much closer to those in urban areas. We argue that the results are not driven by pre-existing differential trends. These results have important policy implications, as India and other countries attempt to decrease bias against women.

Minimum Wage Threatens Postal Market Liberalization

January 1, 2008 will be an important date in Germany's postal service history. On that date the last monopoly held by the former government-owned but now private Deutsche Post will disappear. Currently, Deutsch Post is the only company permitted to deliver letters under 50 grams in Germany. Several companies have been formed to participate in this €23 billion ($31.4 billion) a year market.

In an effort to improve its standing among blue-collar workers the Social Democratic Party (SPD) pushed through a minimum wage for postal workers to protect them from exploitation and to provide a level playing field for the existing and new mail deliverers.

The article Minimum Wage Threatens Postal Market Liberalization in the English edition of the German news magazine Spiegel Online informs about the reactions of the new companies, the SPD and the European Union to the introduction of the minimum wage.

Seminar: Jon Lanning

Jon Lanning (Albion College) will be the final presenter in the Department of Economics seminar series this semester. He will present "Testing Standard Theories of Economic Discrimination: Productivity, Prejudice, and Lost Profits During Baseball's Integration," on Friday, December 7th at 3:30 pm in room 230 Wimberly Hall. I hope you can join us for what promises to be a stimulating discussion. The presentation will be appropriate for upper level econ majors, so feel free to invite them.

Bonding

I was just interviewed for a piece on WSLU/WPR concering this article in the Journal Sentinal.

According to the Legislative Fiscal Bureau, the state had $8.28 billion in general-obligation, transportation and environmental debt in mid-2006; the same debts totaled $4.41 billion in 1996.

The 87% increase was three times the U.S. inflation rate over that period.

Figures show that debt rose the most - by $1.8 billion- under Thompson between 1996 and 2001, when he resigned to become a cabinet secretary for President Bush. Debt increased by more than $1.5 billion in Doyle's first three years.

Todd Berry, president of the Wisconsin Taxpayers Alliance, said the growing debt is another risky budget decision governors and legislators have made to benefit themselves politically.

Also rising is annual debt-service payments on those bonds: Principal and interest payments on general-obligation bonds will exceed $700 million for the first time this year; and payments on transportation bonds will cost an additional $174 million.

That $874 million is cash that can't be used for other important programs. By comparison, that amount is close to what it cost to run the state's prison system last year.

There are two real issues. The first is that the increase in bonding burdens future generations, which is alright if they are the ones who benefit. The second issue concerns the state's bond rating. As it falls debt service costs rise, crowding out other budget items.

The article could have been improved by publishing the debt as a percentage of the state economy, as it has grown by 50% over the last 9 years. That makes the outstanding debt about 2.9% of Gross State Product in 1997 and about 3.6% in 2006. Not exactly an enormous increase.

Death by Powerpoint

Everyone is guilty of misusing powerpoint. Don't put your classmates to sleep during your next presentation, learn how to use it effectively.

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Prof. Brooks to Speak at Macalester College: Come up and dinner's on me!

Professor Taggert Brooks, University of Wisconsin La Crosse will present
his paper “In Da Club: An Econometric Analysis of Strip Club Patrons” on Friday, November 16th at noon in Carnegie Hall, room C-304 at Macalester College in lovely St. Paul, MN.

This talk is also scheduled for presentation at the Allied Social Sciences
meetings (January 2008 in New Orleans) in a panel on the Economics of Paid Sex Markets, presided over by Alan Krueger (Princeton University), and along with other presenters including Steve Levitt (University of Chicago) and discussants including the up-and-coming hotshot, Emily Oster (University of Chicago).

ABSTRACT
Conservative estimates from the National Health and Social Life Survey
(NHSLS) suggest 17 million Americans went to a club that featured nude
or semi-nude dancers in 1991. Their attendance comprises nearly 67
million visits, 10 million more than the attendance at major league
baseball games that year. A recent report by the Free Speech Coalition
(2005), and recent testimony in front of the Ohio Legislature by an
industry advocate, Angelina Spencer, put the total revenues earned by
strip clubs at 15 billion dollars a year (Smyth, 2005; Thompson, et al.,
2003). The industry arrived at this point following a doubling of the
number of strip clubs between 1987 and 1992 according to Hanna (2005).
Yet there has been no academic work covering this industry by economists.

In this paper I estimate a hurdle model using the NHSLS which is the
first and only national probability based sample which asks people about
their sexual behavior including if they have attended a strip club and
the frequency of attendance. Using the hurdle model I test two popular
theories which purport to explain the rapid increase in the number of
clubs. I find that for those who reported changing their
behavior in response to AIDS/HIV they were much more likely to go to a
strip club and more frequent visitors than those who did not change
their behavior.

On the second explanation I fail to find support for the belief that
attendance at strip clubs was motivated by the desire to escape the
uncertain rules of a gender integrated work place. The rise
of societal sensitivities to sexual harassment in the workplace does not
appear to explain patron attendance at a strip club.

Gender

Dr. Giddings has recently posted on her bailiwick, gender issues (here and here) . Though its not exactly my area of study, I'm always interested in research on gender differences. I'm incredibly lucky to have a colleague like Lisa who will thoughtfully discuss these issues and not react the way Harvard's faculty did to Larry Summer's musings on gender. So with that preface I'll share some controversial recent research. The first piece, by Cawley and Liu , use time use data to identify the source of maternal employment's impact on increasing childhood obesity.

Recent research has found that maternal employment is associated with an increased risk of childhood obesity. This paper explores mechanisms for that correlation. We estimate models of instrumental variables using a unique dataset, the American Time Use Survey, that measure the effect of maternal employment on the mother’s allocation of time to activities related to child diet and physical activity. We find that employed women spend significantly less time cooking, eating with their children, and playing with their children, and are more likely to purchase prepared foods. We find suggestive evidence that these decreases in time are only partly offset by husbands and partners. These findings offer plausible mechanisms for the association of maternal employment with childhood obesity.

The second, by Noam Kirson, concerns how female labor force participation shortens the life of their male spouses.

This paper finds a strong positive correlation between female labor force participation and negative health outcomes for middle-aged men and women, and suggests that this correlation is mediated by household-level stress. At the cross-country aggregate level, I show that labor force participation of women is associated with increased mortality rates among both men and women. At the individual level, I find that married men whose spouses work are more likely to die within 10 years, to have high blood pressure and to self-report worse health outcomes. The findings do not appear to be the result of reverse causality. The mortality effects, both aggregate and individual, are especially large for deaths from ischemic heart disease, while weak to moderate for cancer. These findings match well with the medical evidence on the link between stress and health.

Of course this isn't the only mechanism by which women can shorten men's lives. They also "make" us do stupid, crazy things. Don't forget male life expectancy is much shorter than women's due largely to the increased likelihood of death from accident. We are the risk takers, and I mean that in the physical sense. From The Economist:

Chasing females can take years off life

IN THE cause of equal rights, feminists have had much to complain about. But one striking piece of inequality has been conveniently overlooked: lifespan. In this area, women have the upper hand. All round the world, they live longer than men. Why they should do so is not immediately obvious. But the same is true in many other species. From lions to antelope and from sea lions to deer, males, for some reason, simply can't go the distance.

One theory is that males must compete for female attention. That means evolution is busy selecting for antlers, aggression and alloy wheels in males, at the expense of longevity. Females are not subject to such pressures. If this theory is correct, the effect will be especially noticeable in those species where males compete for the attention of lots of females. Conversely, it will be reduced or absent where they do not.

The best thing I have read on the evolutionary psychology/biology of gender differences is this speech by Roy F. Baumeister (here). Read and discuss, preferably with the opposite sex and preferably in a room without sharp objects.

Consumed

National Public Radio has been providing different views about our consumer society under the title" Consumed Is our consumer society sustainable?" On its web site npr states the objectives of the series as: "...Is our consumer society sustainable? Marketplace and American Public Media take on that question in this special series. We follow consumerism from its origins to its dominance in the world's economy and, arguably, its culture. And we examine how, and if, it might be adapted to reduce its destructive consequences while keeping store shelves stocked."

Audio reports, web stories and blogs are dealing with the effects consumption is having on individuals, families, regions, nations, environments. It tells stories like how a Chinese woman gained a net worth of $10 billion with our garbage or how a country, Bhutan, which was closed off from the rest of the world changed since they opened their doors seven years ago.

A Pearl Harbor without War

The following article "A Pearl Harbor without War" presents journalist Gabor Steingart's view of the implications for the USA of China's prediction "the dollar is likely to lose its status as the world's leading currency." Gabor Steingart is the Washington correspondent of the German news magazine Der Spiegel. Summarizing his article he suggests it is high time for the USA and her government to improve the international trading position especially via China. The latter is approaching the end of her patience to accept further declines in the value of her US treasury bond holdings.

The Gap Minder

Check out this great Google application, The Gap Minder.

The lecture posted on that Website (about 20 minutes) is well worth the watch.

The application itself is quite interesting and fun to explore. It is highly interactive and allows you to look at data over time and across countries. For eample, you can explore "Income per capita in international dollars", "Carbon dioxide emissions", "Contraceptive use among adult women", "Economic growth", "Internet users" and the "Military budget" just for example.

Have fun!

Economic Lessons from Music and Movies

Many economic principles and ideas appear in modern music and movies. Here you can find a list of movies and their principles and here you can find a weblog dedicated to discussing the economics in music lyrics.

The website for educators discussing the use of these methods is here.

Competitive Frims

There is a nice java applet demonstrating the supply of competitive firms here.

Taxes

Its important to be able to discern truth from fiction or at least filter out the ideology. David Leonhardt helps in his column on taxes.

The top earners pay a bigger share of the government tab than in the past because their incomes have risen so sharply — even more sharply than their tax bills. (Mr. Fleischer was able to claim the opposite by looking only at income taxes.)

The affluent, in short, are paying less in taxes on every dollar they earn but earning many more dollars.

And despite what some politicians say, not even conservative economists believe tax cuts are self financing. There is no such thing as a free lunch. As James Surowiecki points out:

How much of an impact tax rates have—and how high taxes have to get before they have an impact—is a subject of much debate in economics, but it’s inarguable that they do matter. What supply-siders have done is start with that reasonable idea and extrapolate it to unreasonable lengths.

It’s the comparison between actual tax revenue in 2007 and what tax revenue would have been in 2007 had there been no tax cuts in 2001. And studies that make these types of comparisons—including one by Bush’s own Treasury Department that looked at the tax cuts’ impact on economic growth—find that government revenues would be greater had taxes not been cut.

I use to call myself a supply sider, but stopped years ago when the tax cut nuts laid claim to the name.

Women: Darned if They Do, Darned if They Don't

Lisa Belkin added another article in what seems to be a never-ending series about women in the workforce yesterday in her article The Feminine Critique published in the New York Times.

The article explores the existing academic literature on why more women aren't in leadership positions despite moving into the labor force in large numbers over the last three decades. Studies show that "the view of an ideal leader varied from place to place — in some regions the ideal leader was a team builder, in others the most valued skill was problem-solving. But whatever was most valued, women were seen as lacking it."

"Respondents in the United States and England, for instance, listed 'inspiring others' as a most important leadership quality, and then rated women as less adept at this than men. In Nordic countries, women were seen as perfectly inspirational, but it was 'delegating' that was of higher value there, and women were not seen as good delegators."

Hum. . .

Here's some more:

"Joan Williams runs the Center for WorkLife Law, part of the University of California Hastings College of the Law in San Francisco. She wrote the book 'Unbending Gender' and she, too, has found that women are held to a different standard at work.

They are expected to be nurturing, but seen as ineffective if they are too feminine, she said in a speech last week at Cornell. They are expected to be strong, but tend to be labeled as strident or abrasive when acting as leaders. 'Women have to choose between being liked but not respected, or respected but not liked,' she said."

Double hum. . .

Lastly she reports on studies that show that women simply don't ask for as much money, or are as skilled at wage bargaining as men, as explanations for wage or salary differences.

I wonder, if women acted more like men, and asked for more money, would they actually get it? Or would they be perceived as too masculine?

The Efficacy of the Genuine Progress Indicator

I'm teaching macro principles right now for the first time in about six years and it is really interesting to get back into. Right now we're talking about GDP, the way it is measured and its use, etc. Along with Prof. Anderson, I also introduce other measures of a country's well-being, including the Genuine Progress Indicator. A group called "Redefining Progress" critiques the GDP "as a shorthand indicator of progress; but the GDP is merely a sum of national spending with no distinctions between transactions that add to well-being and those that diminish it."

The group has gone to great lengths to create this new indicator (the GPI) that measures other factors that go into a country's well-being. "The GPI starts with the same personal consumption data that the GDP is based on, but then makes some crucial distinctions. It adjusts for factors such as income distribution, adds factors such as the value of household and volunteer work, and subtracts factors such as the costs of crime and pollution."

All of this is well and good, however, I have a little homework assignment that makes one wonder if it is all worth it. Number 3 on the assignment asks students to use data that I gathered from the World Development Report and find correlation coefficients between the GDP, the GPI, the HDI and the Gender Development Index.

You'll have to do the homework to see the point I'm trying to make!

Seminar: Ray Cohn

Ray Cohn, Illinois State University, will be on campus on Friday to deliver the next seminar in our department series. Ray will talk about the effects of immigration on the antebellum US. His seminar will be in room 230 on Friday, Nov 2 at 3:30 pm. Please invite your upper division econ majors. I hope to see you there.

Mike

Globalization to the Rescue?

I like to read the opinion page of Robert J. Samuelson in Newsweek. He often has interesting thoughts about current issues. In the October 29, edition of Newsweek he tackles the issue of globalization. This link, http://www.newsweek.com/id/57367 , connects to the article.

Ten Principles of Feminist Economics

The recently published Pluralist Economics Review (subtitled: the best of free-access economics) include a list of the "Ten Principles of Feminist Economics."

I am posting a link to it here because it contrasts itself directly with Mankiw's "Ten Principles of Economics" (as presented in his principles texts). About this and other similar lists, the authors, Geoff Schneider and Jean Shackelford write:

In mainstream economics today there is a particularly egregious recent trend toward producing lists of "key economic ideas" which tend to promote a narrowing of economic thinking, and in turn produce a more "scientific" and less inclusive approach to course contents.

A few years back, the economics faculty at UWL partook in a lengthy discussion about the "most important" "big ideas" in macro and microeconomics. I suppose we were following this new trend in economics pedagogy more generally. Results from a national economics literacy test showed that students of economics remembered squat only a few years later. The idea of focusing on the "big ideas" was to boil things down into sound bites that people would theoretically retain.

I'm not sure if the critique of this line of thought is necessary, but in line with a general assumption in microeconomics (more is better) more perspectives are welcome (especially if they are costless to discard)!

Health Economics

I'm on sabbatical for the 2007-2008 academic year, retooling so that I can teach ECO 471 - Health Economics when I return. Here are some things I've learned so far:

1. More medical care spending doesn't lead to better health outcomes. This is found in the famous RAND experiments, cross state studies, and cross national studies.

2. The differences across income groups are larger than differences across racial/ethnic groups, but even after controlling for education, and income there are still important racial differences. Quite possibly we have at work

3. Sometimes increasing poverty can improve some heath outcomes.

4. Sometimes medical care is bad for you. After all To Err is Human.

5. Drugs are good, though not universally so. Then there is the problem of me too drugs.

6. Most improvements in life expectancy have been due to improvements in diet and public health, such as clean water, sanitation, etc.

My take away from all this is that there is a lot to improving health outcomes that is unrelated to heath care. It turns out that there are a lot of other factors that are more important. Your friends, the neighborhood you live in, your taste for risky activities.

Radiohead: "How much are we worth to you?"

Check out this fun experiment in behavioral economics by the band Radiohead, as reported in the October 4, 2007 NY Times article "Radiohead Fans, Guided by Conscience (and Budget)".

Since Sunday, when this British rock band announced that it would independently release its first studio album since 2003 as a pay-what-you-wish download on Oct. 10, there has been a perfect storm of interest among fans and industry watchers. Online and in record stores, clubs, bars and label and public relations offices, the announcement was hotly debated, a de facto referendum on what to do about illegal file-sharing and the declining music business, spurred by one of rock's most respected and forward-looking bands.

. . .

In fact, Radiohead's move is as much an experiment in consumer behavior and the socially acceptable cost of art as it is a way to distribute records. Each donation is a sort of commentary: on the nature of fandom and band loyalty, on the indier-than-thou current rock scene, and on the worth of buying -- not sampling or stealing -- new music.

''It could change the feelings about free downloading,'' said George Loewenstein, a professor of economics and psychology at Carnegie Mellon University, in Pittsburgh. ''If the band is willing to trust you to pay what's fair, all of a sudden, for the people who have been saying it's not stealing to download the song for free, it's much more difficult to rationalize that. I think it may be a brilliant move in that dimension.''

Mr. Loewenstein, whose specialty is behavioral economics and who has studied the relationship between emotions and financial decision-making, added: ''It's almost like supporting a sports team or donating to a political candidate. You're selling to the world how much you like them by how much you pay.'' Most important, he said, ''how much you are willing to pay signals something to yourself about who you are: are you exploitative? Are you a tightwad?''

Free Trade on NPR

Perhaps you heard this story on NPR on views on free trade?

Seminar: Richard Sylla

Professor Richard Sylla will present “Comparing the UK and US Financial Systems, 1790-1830.” on Wednesday, Oct 3 at 4:00 pm in 322 Wimberly.