Archive for April, 2012

Deidre McCloskey on Keynesian Pessimism

Monday, April 30th, 2012

Quotation of the Day…  from Cafe Hayek

Posted: 29 Apr 2012 05:01 AM PDT

… is from page 134 of Deirdre McCloskey’s 2010 Bourgeois Dignity:

During the 1930s and early 1940s the prospect of diminishing returns deeply alarmed economists such as the British economist John Maynard Keynes and the American follower of Keynes at Minnesota and Harvard, Alvin Hansen.  They believed that the technology of electricity and the automobile were exhausted, and that sharply diminishing returns to capital were at hand, especially in view of declining birthrates.  People would save more than could be profitably invested, the “stagnationists” believed, and the advanced economies would fall into chronic unemployment.  In line with the usual if doubtful claim that spending on the war had temporarily saved the nonbombed part of the world’s economy, they believed that 1946 would see a renewal of the Great Depression.

But it didn’t.  Stagnationism proved false.

I&E courses in 2012-13

Sunday, April 29th, 2012

If you are looking for I&E courses in 2012-13, you might know that you can already enroll in the Pursuit of Innovation (Fall), Entrepreneurship and Finance (Spring), and Financial Accounting and Entrepreneurial Ventures (Winter, Spring)  courses. In addition, two more courses might soon be available: Dean Pertl in the Conservatory is planning The Entrepreneurial Musician, and the Economics Department is probably going to offer Economics of Innovation and Entrepreneurship again next year. Stay tuned for updates!

Huebner Pre-Law Fellowship

Wednesday, April 25th, 2012

If you are a junior and interested in going to law school, you should consider applying for the Dennis Huebner Pre-Law Fellowship.  The Fellowship provides a stipend of up to $2000 for Lawrence students who are interested in enrolling in law school. Applicants must have junior standing and a minimum 3.0 grade point average.

What might a Huebner Fellow do?

The answer is that it is fairly flexible.  You can use the stipend to study for the LSAT, supplement your living expenses for a summer legal internship, cover your law school application fees, and that sort of thing.

See Professor Gerard for further details.

The BP Spill Revisited

Tuesday, April 24th, 2012

You may recall the Deepwater Horizon spill, that sent some five million barrels of oil into the Gulf of Mexico between April and July of 2010.  At the time, we posted about it extensively, and linked up an  Econbrowser post that estimated that within two weeks the stock market had already dinged BP to the tune of $20 billion:

The adjusted closing price of BP on May 4, 2010 was $51.20 whereas had the oil spill not happened I’ve estimated the price would have been $58.11. This amounts to a net loss of $6.91 per share. BP has 3.13 billion shares outstanding amounting to a net loss in $21.62 billion.

That estimate turned out to be almost exactly what BP seems to have committed to its oil spill trust fund:

BP, in agreement with the US government, set up a $20-billion trust to provide confidence that funds would be available. The trust fund was established to satisfy claims adjudicated by the Gulf Coast Claims Facility (GCCF), final judgments in litigation and litigation settlements, state and local response costs and claims, and natural resource damages and related costs.

In 2011, BP contributed a total of $10.1 billion to the fund, including our second year commitment of $5 billion to the trust and the cash settlements received from MOEX USA Corporation (MOEX), Weatherford US., LP (Weatherford), and Anadarko Petroleum Company (Anadarko). This brings the total amount contributed to the trust to $15.1 billion. The remaining committed contributions totalling $4.9 billion are scheduled to be made in 2012 which includes the $250 million settlement with Cameron. The trust disbursed $3.7 billion in 2011 and the total paid out since its establishment amounted to $6.7 billion by the end of 2011.

However, the stock price did not stop at $50, but continued a free fall down to about $35, a price so low that there was speculation that BP stock was undervalued and ripe for takeover. (more…)

Another Solid ENST Talk

Tuesday, April 24th, 2012

Via Prof. Brozek for those of you interested in knitting &/or ice.


Science, Journalism and Knitting on Ice: My Six-week Adventure in the Bering Sea

Helen Fields

Steitz 202, Thursday

April 26, 4:30-5:30 p.m.

Helen Fields has written for Smithsonian, National Geographic, Science, and other publications. In 2009, she spent a month and a half aboard a U.S. Coast Guard icebreaker off Alaska, following scientists around while they did research on the ecosystem of the Bering Sea as part of a massive multi-year collaborative project. Her essay about the experience, along with Chris Linder’s photography, was recently published in Linder’s new book, Science on Ice: Four Polar Expeditions (University of Chicago Press, 2011).


Price controls don’t work

Saturday, April 21st, 2012

Here is the latest confirmation, from Venezuela. From the NYT article:

Asked where a shopper could get milk on a day when that, too, was out of stock, a manager said with sarcasm, “At Chávez’s house.”

At the heart of the debate is PresidenHugo Chávez’s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.

Long lines of the kind described in the article  were common in socialist countries. The decision making process of a consumer in an economy with chronic shortages  is very different from that of our “standard Max U.” As a consumer, you might choose your desired consumption bundle from those you can afford, only to find that some of the items in that consumption bundle are not available. Or you might find that they are not available where you thought they were, and finding out where they are available is tricky. Economist János Kornai wrote a book on the Economics of Shortage, but his book on The Socialist System has a couple of chapters on the phenomenon of shortage as well. For more on this, take next year’s Comparative Economic Systems course (here is the course outline from last year).

A New Fracking Rule

Friday, April 20th, 2012

Just in time for Earth Day, the Environmental Protection Agency (EPA)  issued a final rule on hydraulic fracturing (a.k.a. “fracking”) this past week.  Remarkably, it looks like the rule passes a benefit-cost assessment without even quantifying any benefits.  Why is that?

On the one hand, it isn’t clear what the benefits are.

While we expect that these avoided emissions will result in improvements in air quality and reductions in health effects associated with HAP, ozone and particulate matter (PM), as well as climate effects associated with methane,we have determined that quantification of those benefits and co-benefits cannot be accomplished for this rule in a defensible way. This is not to imply that there are no benefits or co-benefits of the rules; rather, it is a reflection of the difficulties in modeling the direct and indirect impacts of the reductions in emissions for this industrial sector with the data currently available.

The more remarkable result is that the costs are negative.  That is, the agency projects the industry will save millions of dollars by complying with the regulations. And, why is that?

The engineering compliance costs are annualized using a 7-percent discount rate. The negative cost for the final NSPS reflects the inclusion of revenues from additional natural gas and hydrocarbon condensate recovery that are estimated as a result of the NSPS. Possible explanations for why there appear to be negative cost control technologies are discussed in the engineering costs analysis section in the Regulatory Impact Analysis (RIA).

Notice they are discounted at a (real) 7 percent rate.

Here’s the table: (more…)

1.4 Billion Reasons, Tuesday April 24 at 6:30

Wednesday, April 18th, 2012

A note from Patrick Pylvainen:


Students Engaged in Global Aid (SEGA), together with GlobeMed, is bringing a speaking event to campus called 1.4 Billion Reasons. This presentation is put on by the Global Poverty Project, and is a traveling speaking event that goes to universities, churches, and other meeting places to bring the issue of global poverty to the forefront. The goal is to engage and inspire audiences to understand and get involved in the movement to end extreme poverty.

The presentation is built around five sections:

  • What is extreme poverty?
  • Can we do anything about it?
  • What are the barriers to ending extreme poverty?
  • Why should we care?
  • What can I do?

The event is Tuesday at 6:30 in the Wriston Auditorium.

Economics Colloquium, April 23 at 4:30

Tuesday, April 17th, 2012

Dr. Kathleen Spees from The Brattle Group will be on campus Monday to deliver the third Economics Colloquium lecture this year, “Market Design from a Practitioner s Viewpoint:Wholesale Electric Market Design for Resource Adequacy.” 

The lecture is at 4:30 in Steitz 102.

Dr. Spees has broad expertise in technical and policy aspects of electricity markets, including reliability and pricing.  She earned  an MS in electrical and computer science and a Ph.D. in Engineering & Public Policy from Carnegie Mellon.  She completed a BS in mechanical engineering and physics from Iowa State University.

She will also give a talk to the ENST 151 class at 11:10, “Introduction to the Electric Power Industry.”   Please see Professor Gerard if you are interested in attending.

The abstract for the Economic Colloquium is below the fold:


Play with the Tax Code

Saturday, April 14th, 2012

Here’s a nice little interactive tool to play with the tax code.

Notice that you can change both the rates and the income cutoffs.

Pretty cool.

Don’t miss their other, sometimes salacious, calculators.

This is Lawrence: Sierra Leone

Friday, April 13th, 2012

This week’s This is Lawrence video features the Sierra Leone class and trip that Professors Skran and Karagyozova co-orchestrated this past fall.


Economics Department Open House

Wednesday, April 11th, 2012

The Economics Department Open House is Thursday at 4:30 on Briggs 2nd, probably clustering near 217.

The Open House is a chance for economics majors to get together, and also for students potentially interested in the major to meet the professors (!), talk about the curriculum, chart a future course, learn more about the upcoming LSB trip, take an important step towards self-actualization, and meet some fellow economics students.

My understanding is that there will be some short talks by some of our Senior Experiencers.  Oh, and delicious refreshments.

See you there.

McDougal Lecture in Mathematics: “A Combinatorial Book of Colors”

Wednesday, April 11th, 2012

Professor Richard Brualdi from University of Wisconsin is on campus this coming Tuesday, April 17, to give the inaugural McDougal Lecture in Mathematics.  The talk is at 4:30 in Steitz Hall 102.

Professor Brualdi’s talk is “A Combinatorial Book of Colors,”  and I’ve been assured that this is accessible to a more general audience.  (Of course, I was assured by a mathematician).  Here’s more on Professor Brualdi.

The McDougal Lecture promises to be an exciting addition to the intellectual climate here, and here’s some background information from our friends in the math department:

Professor Kevin F. McDougal earned a Bachelor of Arts degree in  mathematics from Lawrence University in 1979.  He wrote his Ph.D.  dissertation, Some Combinatorial Properties of (0, 1) Matrices, under the direction of Prof. Richard Brualdi and received his Ph.D. from the University of Wisconsin, Madison in 1989.  Kevin was a Professor of Mathematics at the University of Wisconsin, Oshkosh and had nine publications in combinatorics and a nearly completed book in combinatorics when he unexpectedly died in 2004 from a rare heart condition while training in Green Bay.  The McDougal family sponsors this lecture series to celebrate Kevin’s intellectual curiosity and passion for mathematics.

See you there.

Don’t miss that famous Chicago trip

Wednesday, April 11th, 2012

The LSB program sponsors an educational trip to Chicago every year.  The purpose of the trip is to provide students an “immersion experience” in one of the country’s financial and entrepreneurial hubs.  The trip will take place during reading period, on May 3rd and 4th.  We will leave at 6:00 a.m. on Thursday, May 3, and return in the evening on Friday.

We will have a full schedule, visiting the following organizations: Chicago Mercantile Exchange, Madison Dearborn Partners, The Northern Trust Company, Deloitte, LBC Credit Partners, Industrial Council of Nearwest Chicago, Ennis Knupp + Associates, and the Chicagoland Entrepreneurial Center.

The costs of the trip are covered by the LSB program. The trip is open to all students. This trip is a great opportunity to learn about the business world up-close, in a way that you couldn’t do on your own. If you would like to join, register through LUworks.  Deadline to register and pay $20 refundable deposit is April 25.

Taking Care of Business OR Bad Company?

Monday, April 9th, 2012

I was just going through some work on the economics of higher education, and I came across this remarkable piece of scholarship* estimating the effect of studying on grades.  What a concept!

Of course, one would expect (or would hope to expect) that more studying results in higher grades, but how much studying and how much better? Can studying really make up for a lack of high school preparation or a deficit of intellect? Can smart kids really skate through?

Using data from Berea College, Ralph and Todd Stinebrickner provide a very, very nice framing reference for the relationship between incremental study time and the endowment of “book smarts” (measured by ACT scores):

[H]uman capital accumulation may be far from predetermined at the time of college entrance. For example, using results from our full sample, an increase in study-effort of one hour per day…is estimated to have the same effect on grades as a 5.21 point increase in ACT scores.

So while on the one hand hitting the books is certainly a plus, danger lurks around every video console:

In addition, the reduced form effect of being assigned a roommate with a video game is estimated to have the same effect on grades as a 3.88 point decrease in ACT scores.


For those looking for good examples of empirical work, this is a very high-quality example.  This seems to have “Senior Experience” written all over it.


* Ralph Stinebrickner & Todd Stinebrickner, 2008. “The Causal Effect of Studying on Academic Performance,” Frontiers in Economic Analysis & Policy, Berkeley Electronic Press, vol. 8(1)