Month: February 2011

Is Amazon Going to Give Away Kindles?

The answer is yes.  The only question now is, to whom?

Okay, so that’s not the only question. Another question might be, why on earth would they do that?   Tyler Cowen suggests a durable goods monopoly (what’s a durable goods monopoly?),  while his commenters break into a fascinating discussion on platforms and other possible competitive dimensions.

The graph and some discussion are courtesy of the undoubtedly fine folks over at The Technium.  Though the story is more than a year old, the current superior Kindle is $137 and has been since December.

Okay, so maybe the answer isn’t yes, either.   In fact, in the short term the answer is a resounding no. But the idea that they would bundle them with Amazon Prime membership seems reasonable.

How the Luck of the Irish Ran Out (or Was Given Away?)

In a recent issue of Vanity Fair (of all places),  Michael Lewis (of Moneyball, the Blind Side, and The Big Short fame) describes the rise and fall of the economy of Ireland.  He highlights several major policy mistakes made by those in power for which they were soundly thrashed in the Irish election yesterday.  Lewis’s article details the long list of major errors and thus the deep hole that these policies have made for the Irish people.  You should not be surprised to learn that the main problematic actions were:

1.  Huge lending by Irish banks for the vast expansion of housing and commercial activity

2. Massive foreign borrowing by these banks from other European investors

3. Government guarantee of payment on all the loans made by the Irish banks and thus for the ultimate European bondholders.

This toxic mix will require an incredible commitment of annual revenue (read taxes on the Irish.)  It was inevitable for this house of cards to fall.  How many other “houses of cards” will follow suit?  Put differently, why wasn’t Lewis’s article published in a more widely read and pertinent journal.

A Superior Discussion

Another in a series of notes from the very busy ENSTers — Mike Link and Kate Crowley from Full Circle Superior are speaking on Tuesday, March 1 at 7:30 p.m. in Steitz Hall 102. Here’s a brief description:

Full Circle Superior’s mission is to bring attention, education and research to the Great Lakes and to promote healthy water quality and fresh water conservation now and for future generations. Through the summer of 2010, two retired naturalists and educators, Mike Link and Kate Crowley, successfully circumnavigated Lake Superior along its shoreline on foot! This 1500+ mile journey has taken them through 4 states and provinces, dozens of state, provincial and national parks, and countless communities and special places over the past 5 months. The hikers, assisted by a small support crew, conducted a scientific study of the vegetation, hydrology, ecology and sociology of the lake in collaboration with various research institutions and universities on both sides of the border to build a benchmark body of data on the lake for the study of future generations to come.

See you there.

Career Center Event this Sunday

It’s never too early to think about what you are going to do after you leave Lawrence. In fact, thinking about what you might do after graduation could well open up some exciting opportunities whilst you are still here in the friendly confines of Appleton.

This Sunday (February 27) alumni will be on campus for the Shine Light, More Light on Your Future conference. I recommend that you seize the opportunity to meet our alumni and discuss their career paths and experiences. They are here because they love Lawrence and want to help folks just like you.

Here’s the scoop (see below) from the Career Center blog.

Date: Sunday, February 27, 2011
Time: 10:30 a.m.-3:30 p.m.
Location: Warch Campus Center

Whether or not you know what direction you are headed, take advantage of this unique opportunity to learn from those who have gone before you.

Registration is required.
Cost: One meal swipe.
Contact Sherri at 832-6854 or to register by February 23, 2011.

Continue reading Career Center Event this Sunday

The Levee Appears to be Drying Up

Today I give to you a couple of visual snapshots of the recorded music industry, along with a lesson on the importance of adjusting for inflation &/or population growth.

Here are the raw numbers that caused something of a hubbub.  Ask yourself — where is the industry at its peak?

So, there are several technology transitions going on here, culminating in a sorry state of affairs for the supply side of the music industry.  One implication is that the introduction of cassette tapes had no real discernible impact on industry revenues, even though people rampantly started taping one anothers vinyl at that point.  (I actually have several boxes of tapes that I recorded from record rentals from That’s Rentertainment.)   Interesting that the Record Labels only began shaking them down when the compact disk market took off).  A second implication is that CDs marked the real heyday for the record labels.

With that in mind, let’s look at these same numbers adjusted for inflation and put in per capita terms:

Completely different picture, isn’t it?

This seems to suggest that (non-prerecorded) cassettes cannibalized vinyl revenues, and it was only the introduction of the superior CD format that resuscitated the industry.

In IO, we are talking about the big challenge of the “New Economy” is often not in creating value, but in capturing it.  Do you think the total value of recorded music is 35% of what it was 15 years ago?  Or, is it more likely that consumer surplus has gone through the roof?  I don’t have any way of answering that question, but I have my doubts about the former proposition.

As per usual, I nicked this from O&M.  And their comment section pointed me to a really excellent analysis of all of this at Business Insider, where I now subscribe to their Chart of the Day!

Nobody’s bailing, nobody’s sailing, but we’re watching it from shore

Schumpeter Roundtable’s Cecily McMillan is featured in today’s Appleton Post-Crescent.

A 22-year-old government major from Atlanta, Ga., McMillan is the granddaughter of Harlon Joye, an early member of Students for a Democratic Society (SDS), a 1960s organization that helped fuel the nation’s civil rights movement, fought for economic justice and participatory democracy and protested the Vietnam War.

Ms.  McMillan has been busy down in Mad-town, even organizing a Tuesday bus trip.  Yet, she still found time to come and talk about Capitalism, Socialism, and Democracy.

No mention of Schumpeter in the article, but she undoubtedly had a well dog-eared copy with her on the bus.

The Rise and Decline of Cities

Cities are central to economic growth.  The Commission on Growth and Development emphasized the strong relationship between urbanization and economic growth as central to understanding why some countries grow and others do not.

Of course, though urbanization tends to be related to economic growth at the national level,  urban areas rise and decline in prominence and economic vitality.  Some manage to maintain their status by adapting to the changing desires of their customers; others seem wedded to past glories.  In Triumph of the City, a just published book,  Edward Glaeser explains how cities make “us richer, smarter, greener, healthier, and happier.”  But some cities, such as Detroit and New Orleans, seem headed in a downward spiral.  Why?  Can they pull out of this seeming endless abyss?  Ever the optimist, Glaeser, in today’s Economix column, illustrates what went wrong in Detroit and what some community leaders are doing to turn Detroit around.   His answer, detailed in variety of a papers, is become a “skilled city”; that is, one that educates, attracts, and retains skilled people and offers them numerous opportunities to interact, to be innovative, and to start new enterprises.

Born in the Corn

Our Econ 280 class just got through a spirited debate on ethanol policy (tough luck to the guy that drew “pro-ethanol”), that featured this piece from Hahn and Cecot.  Certainly, the class seemed sympathetic to this change of heart from super-environmentalist, Al Gore:

“It is not a good policy to have these massive subsidies for first-generation ethanol,” Gore said at a green energy conference in Athens, Greece, according to Reuters. First generation refers to the most basic, energy-intensive process of converting corn to ethanol for use as a motor vehicle fuel additive.

On reflection, Gore said the energy conversion ratios — how much energy is produced in the process — “are at best very small.” “One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee,” he said, “and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president.”


If Hahn and Cecot’s benefit-cost analysis didn’t convince you, perhaps this bit of visual evidence will be persuasive (c/o Knowledge Problem).  The first map is the votes on an amendment to an appropriations bill proposal to prevent EPA from encouraging sale of gasoline with higher ethanol content.  The red represents votes opposing the amendment (pro-ethanol) and the blue represents the votes for the amendment.

The Knowledge Problem piece also points us to where the ethanol production comes from.   My “ocular” regression seems to indicate a rather robust relationship between the production and the votes.


For more political geography, check out this post on climate legislation.

And if you think the politics is predictable, try out the economics.  What happens when the demand for corn ethanol increases?  One would suspect the price of corn increases, leading to more corn and a reduction in the supply of, say, soybeans.


Though the time to look for the best internships has passed, many may still be looking for something for this summer. A new website, Intern Match, says that

By focusing on attracting a high volume of smaller organizations, InternMatch will greatly increase the number of opportunities and diversity of choice available to students. The InternMatch Platform will also act as a one-stop-shop for finding/applying for opportunities, communicating with organizations, and building a professional profile that will showcase interests, talent and experience.

Students who want to volunteer will find that InternMatch allows them to combine community impact with career-building. Internships for nonprofits allow socially-conscious students to maximize social impact, build their resumes, and gain critical real world experience.

Worth a try, if you are in the market for an internship.

Econ Spring Preview

As we head into Spring term, let’s take a look at what is available on Briggs 2nd:


ECON 120 INTRODUCTION TO MACROECONOMICS 11:10-12:20 MWF 3:10-04:20 R Ms. Karagyozova



ECON 271 PUBLIC ECONOMICS 12:30-2:20 TR Mr. Gerard


ECON 391 DS-DISCOVERING KIRZNER Time TBA Mr. Gerard or Mr. Galambos (1 unit)

ECON 410 ADV GAME THEORY & APPLICATIONS 12:30-02:20  Mr. Galambos


Click on the classes for descriptions (or old syllabi for Professor Galambos’ courses).  As of this writing, there are still spots in each of these sections.  There is a bevy of 200-level classes for all you thinking about taking the Econ route or filling out a minor.  There are also a pair of 400-level classes, both seem to be extraordinarily topical.

Once again, Professor Galambos and I will be facilitating a group read, this as a  follow-up to the Schumpeter Roundtable — this time we will be Discovering Kirzner.  For those of you who have had 300 and love it, this should give you plenty to think about.

Later this week, I will post the tentative schedule for next year.  You can also find it here.

Whoa, Part II

MADISON, Wis., Feb 19 (Reuters) – Supporters of legislation to reduce public employee union bargaining power and benefits in Wisconsin were far outnumbered by opponents on Saturday, as the two sides shouted competing slogans but did not clash.

Tens of thousands have demonstrated throughout the week against Republican Governor Scott Walker’s proposed legislation, which supporters say is needed to bring spending under control and opponents contend would break the back of state worker unions.

Wisconsin is the flashpoint for a U.S. struggle over efforts to roll back pay, benefits and bargaining rights of government workers. If the majority Republicans prevail, other states could be emboldened to take on the powerful unions.

Megan McCardle at The Atlantic weighs in with a balanced, if not entirely fair piece (fairness, I suppose, depends on where you are in the debate).

For those of you who haven’t been following this, the Republican-led government is set to put in place a new budget that puts the brunt of a “tax increase” on public sector employees to balance the Wisconsin state budget.  Currently, Republicans control the governorship as well as both chambers — the House 57-38 and the Senate 19-14.  Because 20 Senators are necessary for that chamber to vote, the 14 Democrats have effectively “filibustered” by fleeing the state, prolonging the inevitable I suppose.

In the meantime, the delay has allowed for the mass demonstrations down in Madison this week and this weekend. 

UPDATE: Schumpeter Roundtable member, Cecily,  has reported back from the rallies, and informs us that UW business students have never heard of Schumpeter.  Huh?!?

Ms. Cecily has rallied the troops and is taking two buses to Mad town.  She is planning to convene at the Chapel Tuesday at 8 a.m.   If you are interested in heading to Madison, you should check in there tomorrow.

The Price of Life

In this, the 500th post on the Lawrence Economics Blog, we bring you a story from the NYT on the statistical value of life.  Indeed, as anyone in an environmental economics or policy course knows, the “value” placed on saving a statistical life (VSL) is associated with reductions in risk levels that decrease the probability of being killed (i.e., from reducing the number of purple balls in your urn).

This VSL is pivotal in determining the benefits of many non-economic regulations, and many federal agencies have increased the value used in benefit assessment in the past few years.

The Environmental Protection Agency set the value of a life at $9.1 million last year in proposing tighter restrictions on air pollution. The agency used numbers as low as $6.8 million during the George W. Bush administration.

The Food and Drug Administration declared that life was worth $7.9 million last year, up from $5 million in 2008, in proposing warning labels on cigarette packages featuring images of cancer victims.

The Transportation Department has used values of around $6 million to justify recent decisions to impose regulations that the Bush administration had rejected as too expensive, like requiring stronger roofs on cars.

That is the salient point of the article; the rest mostly gets down to talking about the prospects and problems of using VSLs in the first place.  If you are reading this, you probably know already.

A Question of Consumption? An Analysis of the Relative Effectiveness of Multilateral and Bilateral Aid Receipts

Our recent graduate, Oliver Zornow, has just published his paper entitled “A Question of Consumption? An Analysis of the Relative Effectiveness of Multilateral and Bilateral Aid Receipts” in the Undergraduate Economic Review. Here is the abstract of his paper:

“The literature focusing on the effects of foreign aid on economic growth contains a wide range of conclusions. Despite this lack of consensus, policy makers have been strongly influenced by the work of Burnside and Dollar (2000) (B&D). In addition to their primary conclusion that total aid is linked with growth in a good policy environment, B&D make a claim which is not directly supported by their results. My research is motivated by their claim that multilateral aid is the most effective form of aid. This paper demonstrates that B&D’s data does not support this claim.”

If you’re interested, you can download and read the paper from the journal website:

Congratulations, Oliver!

Porter, Reich on the Future of Capitalism

One thing about capitalism that’s pretty certain is that it’s changing. Capitalism a hundred years ago looked very different from capitalism today, and capitalism looks different in different countries. The field of comparative economic systems was born out of the socialism vs. capitalism debate, and, for that reason, those of us interested in that field should be thankful for that debate. At the same time, the socialism vs. capitalism debate has done and is doing much harm to intelligent discussion of economic systems. Those of us reading Capitalism, Socialism and Democracy this term know that Schumpeter thought socialism could follow capitalism naturally, in Marxian fashion, but it really wouldn’t look very different from the super-big-business capitalism that would exist at that time.

Michael Porter

Today’s OnPoint on NPR featured two distinguished guests who were discussing the future of capitalism. Business guru and Harvard professor Michael Porter (remember the 5-forces analysis?) talked about his recent article in the Harvard Business Review on the new capitalism, based on Shared Value, in which firms recognize that the way to be truly profitable is to align their goals with societies and to do good while doing well. But not in that outdated Corporate Social Responsibility (CSR) way, relegating to a CSR department the task of undoing the harm done by the core business, but by integrating the doing good part into the core business mission. Porter argued that the best companies are doing this already, and that capitalism will be made better not through more regulation and more government, but, au contraire, by businesses moving to the “shared value” model.

Reich on the future of capitalism

Robert Reich, author of Supercapitalism, was the other guest, and he was not buying any of that feel-good talk. He couldn’t help but remember the many examples he personally saw of companies investing a lot into what was clearly bad for society but good for profit. His book on the future of capitalism, Supercapitalism, agrees with Porter in finding the CSR model wanting, but thinks that the future lies in separating capitalism from democracy as much as possible. These were questions Schumpeter struggled with in his book. It is easy (apparently, for some) to dismiss those musings from 1942 as idle speculation, but these contemporary contributions and debates remind us that we still know little about how economic and political systems work, that knowing more would still be extremely important, and that capitalism is changing in perhaps fundamental ways even as we continue to talk about a model of a market economy that never really existed. Porter’s view seems to be going in the direction of moving government and business closer to each other. Reich thinks the way to progress is through separating those two as much as possible.

Here Comes the Sun — Thursday at 4:30

A message from our resident fluvial geomorphologist, Jeff Clark:

I know a number of you are interested in renewable energy and solar power in particular. Heck we even have our own array. Why not come and learn more about large scale solar power from an industry insider?

Why not, indeed?

Mark Culpepper, Chief Technology Officer, SunEdison will be on campus Thursday to give us “An Insider’s View of the Solar Power Industry.”  You can find us at 4:30 over in Thomas Steitz Science Hall 202.

Mr. Culpepper has a background is telecommunications and IT security, and is working on distributed generation issues for SunEdison.

This is certainly a hot topic.

Economists in Love

Looking for a last-minute gift for that special someone (or would-be someone) in your life? Well, Pilgrim, it’s your lucky day. Spousonomics — “using economics to master love, marriage, and the dirty dishes” —  has hit the shelves, and with it a barrage of Valentine’s-related articles accompanying its release. Wow, check out this saucy Bloomberg headline.  Or this WSJ graphic.

Yes, it’s true, economists often find themselves partnered up, and not just at consulting firms (Who can forget this classic quote?).  And, what better way to get past the “animal spirits” stage of the relationship than this handy guide?  Check it out if you need to get that special someone up to speed on benefit-cost analysis, why sunk costs are sunk, and the wonders of marginal analysis.

You might also pick up a box of chocolates just in case.


CAIRO – Egypt’s Hosni Mubarak resigned as president and handed control to the military on Friday after 29 years in power, bowing to a historic 18-day wave of pro-democracy demonstrations by hundreds of thousands. “The people ousted the president,” chanted a crowd of tens of thousands outside his presidential palace in Cairo.

On that note, here’s a couple of interesting things that economists have to say about this situation.  First, Barry Eichengreen tells us “Why Egypt Should Worry China,” and next Dani Rodrick tells us about “The Poverty of Dictatorship.”

Is this a Fukuyama moment?

Well, it’s not clear that Fukuyama thinks so.

AER Top 20

The American Economic Association developed a list of the top 20 “most admirable and important articles” published in the American Economic Review in its 100 years in existence.   I use several of these in class (*) and have read a handful of others.  It would be interesting to know how many of these cross your desk as an undergrad here at LU.

Alchian, Armen A., and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.”American Economic Review, 62(5): 777–95.(*Theory of the Firm)

Arrow, Kenneth J. 1963. “Uncertainty and the Welfare Economics of Medical Care.” American Economic Review, 53(5): 941–73.

Cobb, Charles W., and Paul H. Douglas. 1928. “A Theory of Production.” American Economic Review,18(1): 139–65.

Deaton, Angus S., and John Muellbauer. 1980. “An Almost Ideal Demand System.” American Economic Review, 70(3): 312–26.

Diamond, Peter A. 1965. “National Debt in a Neoclassical Growth Model.” American Economic Review, 55(5): 1126–50.

Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production I: Production Efficiency.” American Economic Review, 61(1): 8–27.

Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production II: TaxRules.” American Economic Review, 61(3): 261–78.

Dixit, Avinash K., and Joseph E. Stiglitz. 1977. “Monopolistic Competition and Optimum Product Diversity.” American Economic Review, 67(3): 297–308.

Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review, 58(1): 1–17.

Grossman, Sanford J., and Joseph E. Stiglitz. 1980. “On the Impossibility of Informationally Efficient Markets.” American Economic Review, 70(3): 393–408.

Harris, John R., and Michael P. Todaro. 1970. “Migration, Unemployment and Development: A Two-Sector Analysis.” American Economic Review, 60(1): 126–42.

Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30. (*Micro Theory)

Jorgenson, Dale W. 1963. “Capital Theory and Investment Behavior.” American Economic Review, 53(2): 247–59.

Krueger, Anne O. 1974. “The Political Economy of the Rent-Seeking Society.” American Economic Review, 64(3): 291–303. (*Political Economy of Regulation)

Krugman, Paul. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” American Economic Review, 70(5): 950–59.

Kuznets, Simon. 1955. “Economic Growth and Income Inequality.” American Economic Review, 45(1): 1–28.

Lucas, Robert E., Jr. 1973. “Some International Evidence on Output-Inflation Tradeoffs.” American Economic Review, 63(3): 326–34.

Modigliani, Franco, and Merton H. Miller. 1958. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review, 48(3): 261–97.

Mundell, Robert A. 1961. “A Theory of Optimum Currency Areas.” American Economic Review,51(4): 657–65.

Ross, Stephen A. 1973. “The Economic Theory of Agency: The Principal’s Problem.” American Economic Review, 63(2): 134–39. (*I should use this in Economics of the Firm, but I don’t).

Shiller, Robert J. 1981. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” American Economic Review, 71(3): 421–36.