David Gerard

Author: David Gerard

The Extraordinary Influence of Freshman Studies

One of my more clever colleagues was telling me how impressed he was with the noticeable effects of our Freshman Studies curriculum, even extending well beyond affecting just Lawrence students and faculty.

How can he be so sure?

Just check out the similarities between this year’s Freshman Studies reading list and the frequently bought together books at Amazon.com.

So, how do you like that? Some guy camped out in the mountains looking to pick up a copy of The Republic is suddenly prompted to buy a copy of Martin Guerre?

We should have negotiated a lower price.

Second Annual Predict the Nobel Prize in Economics

As Professor Finkler points out, the Nobel Prize in economics will be awarded on October 11. That must mean that it’s time for the Second Annual LU Pick the Nobel contest.

So, who should you pick? Well, one strategy is to check out the Thomson Reuters picks from Science (Alesini, Kiyotaki, Moore, Murphy). If you don’t like any of those to win, you might peruse the “Vegas” odds and see who you like there. As of me typing this, these odds do not appear to be out yet, but keep an eye out here and check here are last year’s odds. The same favorites from last year are obviously in play for this year — Eugene Fama for his efficient markets and Paul Romer for endogenous growth theory, Aplia, and charter cities.

Another good choice might be Emmanuel Saez, who is fresh off winning a MacArthur “Genius” Grant. As a dark horse, you might pick the prolific blogging superstar, Tyler Cowen, for his work on the economics of culture.

Or, you can always defer to The Simpsons for your pick (Bhagwati).

A sentimental favorite, at least for me, is Armen Alchian. Don Boudreux points us to this essay and says that in a just world he would have already won the prize.

My pick, which I forgot to pick in the original post, is Richard Thaler. I just hope that pick doesn’t somehow curse me.

To enter the contest, submit a pick in the comments or via email to me. One entry per person, need not be present in Sweden to win. This year’s winner will take home an authentic piece of Schumptoberfest merchandise. Ties will be decided by Random.org at the Economics Tea.

The 300 Challenge, Parts 1 & 2

What is it with Steven Landsburg and apples?

PART 1: Audrey shops at Wegman’s supermarket, where she spends $20 a week to buy 10 apples and 5 bananas. IF she bought the same 10 apples and 5 bananas at Top’s supermarket, she’d pay $30. True or False: Audrey is wise to continue shopping at Wegman’s. (Hint: This is easy).

PART 2: You earn $100. You can use your $100 to buy 100 current apples, 200 future apples, or any combination in between.

Consider a 50% tax on wages versus a 40% tax on all income (that is, wages and interest income) and assume both taxes raise the same amount of revenue.

Which tax do you prefer? Under which tax do you consume more (and save less) today? (Hint: I’m not sure if this is easy or not).

Professor Shober: Appleton not part of the Russ belt

Government department Professor Arnold Shober is in the news, handicapping the fall elections for the Appleton Post-Crescent. Here’s a portion of the transcript in response to a question on whether Wisconsin Democrats are going to be taken to the woodshed this November:

The answer to that question is really how well Russ Feingold does. He’s the top race in the state. We think about governor, but Feingold gets a lot more attention. If he has trouble — and a series of recent polls suggest that he really does — then it will very bad. If he can’t carry reliable Democrats into the polling booth, nobody can.

Polling out last week suggested that, in northeast Wisconsin, Ron Johnson is up 60-40. That means Steve Kagen (in the 8th Congressional District) is certainly out. Penny Bernard Schaber (in the 57th Assembly District) is most certainly out. Tom Nelson’s seat (in the 5th Assembly District) will probably flip, and on and on and on, because that’s a big margin.

Certainly, everyone voting for Russ Feingold is going to be voting for a Democrat. He’s a maverick, but he’s definitely on the left. So if he does poorly, Democrats across Wisconsin are going to be in big trouble. If he can hold it even, it may not be so bad.

Emphasis is mine (Prof. Shober typically doesn’t speak in bold font), and included so I could use the pun in the title.

You can see the latest polling results outside of Professor Shober’s door right here on Briggs 2nd.

Interdependent Utility Functions

Does knowing what your peers make matter to how happy you are? Certainly, the utility functions that I sketch in Econ 300 say no. As Ray Fisman puts it in a recent piece at Slate, “Why do we care what those around us make? It doesn’t affect the real estate or furniture or sushi dinners we can afford.”

On the other hand, of course it matters. And Fisman continues:

[I]n recent years, economics has become both more social and behavioral, borrowing evidence and ideas from elsewhere in the social sciences. Economists now acknowledge that we constantly judge our own accomplishments in comparison to others, and salaries serve as one ready benchmark. People (and perhaps monkeys, too) are also averse to inequality—unequal pay for equal work just isn’t fair (especially if you’re the one who drew the short straw).

Monkeys? Wow.

Fisman talks about an ingenious study by group of economists, including David Card and MacArthur genius grant winner Emmanuel Saez, that investigated how differences in pay affect variables like job satisfaction. If you are interested in how economists think about these things and how they evaluate them empirically, this paper is worth checking out. The abstract is below the fold: Continue reading Interdependent Utility Functions

Economics Resources

As I head into mid-term here (yes, the first 300 exam is a week from today), I note that I am even more behind than usual. Part of this is due to overreaching on my professional commitments. Part is teaching Freshman Studies and wading through The Republic with the rest of the bunch. Part is the preparations for the upcoming Schumptoberfest Creative Instruction weekend (we have some space for those of you who missed before). And, drinking tea and who knows what all else.

So, for those of you looking for content, you might check out the Links section down the right-hand margin. One of those links is the RSS feed for recent economics acquisitions from The Mudd. There are some great items there, including Nouriel Roubini’s new book, as well as some treatments of development in East Asia and Brazil.

You might also check out the link to my recommendations. The list includes some of the blogs I frequent, resources available at The Mudd (including some excellent databases), and a list of some other handy sites. It’s a lot easier to find good stuff if you look in the best places first, that’s for sure.

If there are some other resources you think I should add, please let me know.

Regime Uncertainty: Did the New Deal End the Great Depression?

There is a continuing debate, as you must know by now, as to whether Keynesian fiscal stimulus is an effective macroeconomic policy tool, especially with the US economy stuck in its current doldrums. There is probably no bigger detractor to this idea than Robert Higgs of the Independent Institute. Many on the Keynesian side say the $750 billion fiscal stimulus wasn’t big enough.

Robert Higgs says phooey.

Higgs argues that the whole Keynesian paradigm is out of whack, that, in fact, more robust governmental involvement in times of a crisis creates pervasive uncertainties for the private sector. This “regime uncertainty,” whether it be from potential tax increases or other regulatory hurdles, shakes investor confidence and stifles capital formation. Who is going to play a game when the rules of the game are subject to potentially radical change?

Those of you who have taken Economics 240 might recall Higgs’ “ratchet effect,” but he is perhaps better know for this regime uncertainty idea. Higgs forwarded some of these arguments in the Journal of Economic History, and has recently bolstered it both in the Independent Review. He doesn’t see this as a unifying macro theory, but more as an element that is generally ignored (or ridiculed) by many macro theorists.

You can also catch Higgs talking about these issues with Russ Roberts on EconTalk.

Caveat Emptor

It might shock, shock many honor-bound Lawrentians that there are college students out there that don’t do their own work. In fact, as many of you are likely aware, there is a robust market for term papers out there that allow you to buy papers from levels from high school to Ph.D. on topics ranging from, well, from Moses Abramovitz to Frederik Ludvig Bang Zeuthen. It appears the going rate is about $10-$15 per page depending on how soon you need it.

This is certainly not a new phenomenon. Years back, Seth Stevenson surveyed the market and gave a few pointers for cheaters and lazeabouts to choose the right site to purchase a paper, and he looks at some of the market characteristics. For example, a custom paper is about twice as expensive as an off-the-rack piece.

But that was nearly 10 years ago, and certainly the market has matured by then. For a more recent treatment, behavioral economist Dan Ariely dipped his toe in to see what he could find, and what he found was well worth reading. Here are a few snippets:

We ordered a typical college term paper from four different essay mills, and as the topic of the paper we chose… (surprise!) Cheating… We submitted the four essays to WriteCheck.com, a website that inspects papers for plagiarism and found that two of the papers were 35-39% copied from existing works.

Someone plunks down $100 for a paper, and still gets dinged for cheating? Now that smarts. Exactly what recourse do you have in that situation? I guess you ask for your money back:

We decided to take action with the two largely plagiarized papers, and contacted the essay mills requesting our money back. Despite the solid proof that we provided, the companies insisted that they did not plagiarize. One company even tried to threaten us by saying that they will get in touch with the dean at Duke to alert them to the fact that we submitted work that is not ours.

I like their moxie — deny, deny, deny, threaten.

The comments to Ariely’s post are also interesting.

Beer Distributors Apply Political Economy Herbicide

It is a good couple of weeks for those interested in the economics of (and innovation in) illicit drug markets. First, HBO started up its mega super miniseries, Boardwalk Empire, about how an Atlantic City official built an organized crime empire following the enactment of the 22nd amendment prohibiting the production and sale of alcohol.

Then we find out that there is an online “weed” price clearinghouse.

And, now, via Marginal Revolution, we learn that the beer distributors actively oppose marijuana legalization in California. So quick 100 and political economy question — do beer distributors think marijuana and beer are more like complements or substitutes? To date, there is no word on whether manufacturers of Cheetos have taken a public stance on the isssue.

Interestingly, the teachers union supports legalization because of “the revenue that could be raised for the state.”

Where Do Good Ideas Come From?

I’m not sure, because Steven Johnson’s Where Good Ideas Come From isn’t out for a few weeks, and all I have is this four-minute video. Well, actually, I also have this longer video from over at TED (the new Harvard, I’m told). But as I’ve often said, movie, shmoovie, I’ll wait for the book.

Are “Weed” Prices Sticky?

Competition is on my mind. How do firms compete? By price? Quality? Product differentiation? Threatening potential entrants with physical violence? All good questions.

But if we just stick to price competition, how much price variation is there across markets? And why? Monday at the Econ TeaBA, we heard from a savvy young entrepreneurial type who claimed to be able to exploit exchange rate differences by selling used American stuff to Canadian customers. Wow!

Of course, that whole enterprise sounded pretty idiosyncratic, so it is not entirely surprising that the law of one price didn’t seem to apply. But what about in markets where the product quality is fairly homogeneous and there are limited barriers to entry. Say, for instance, marijuana.

As most of you know, the US and most of the rest of the world restricts production and sale of most drugs, including marijuana, or “weed,” as it is sometimes called (among other terms). But my understanding is that even the threat of legal sanctions, fines, and even prison do not eliminate don’t stop a robust trade. Indeed, in his “Dear Undercover Economist” column, Tim Harford takes on this unusual question:

Dear Economist,

I have been a client of weed dealers in North America since the mid-1980s and no matter who the vendor, the price has remained $10 a gramme. I don’t think anything in 25 years has stayed fixed in price like weed has.

Dealers might have some power to increase prices, as it’s illegal, and there are some significant barriers to entry, such as getting arrested. But if I don’t like the prices, it’s pretty easy to grow some on my own, because it “grows like a weed”, even if it might not be as good as the dealer’s Cannabis sativa.

So how did we end up at $10 a gramme?

Sebastian

Dude, that is a puzzle, indeed. My first response is supply (a.k.a., “more weed”) would keep the real price from falling, but that doesn’t affect what economists call the “price stickiness” question. That is, why $10?

Check out Harford’s response here.

On the other hand, I have to wonder who Sebastian’s source is, as this past week, I was alerted to a site that tracks prices of various quality marijuana, www.priceofweed.com. The site stratifies prices based on self-reported quality, and also logs the amount of the purchase (lots of bulk discounts, of course). average price of a high-quality ounce of weed is listed as north of $400 here in America’s dairyland. The site legend of US prices suggests that Wisconsin marijuana is the pricey side. The site also contains information about “social acceptance” and “law enforcement.” So, one might expect some relationship between price, levels of enforcement, amount and quality.

A site that launched a thousand econometrics projects. Excellent.

Schumptoberfest Sign Up Continues

I have logged several folks for the Schumptoberfest weekend weekend, October 22 to 24, at Björklunden. If you are interested and would like IS credit, please sign up with me by Friday. I have some IS forms tacked on the board outside my office. it is best that you sign up by Friday.

Again, the requirements are:

Complete the assigned readings.

Travel to Björklunden over reading period (Friday evening until Sunday afternoon) and participate in our workshop.

Write a short response paper (3-5 pages) to the ideas and discussions from the weekend.

We would like to engage students who have a good understanding of micro theory and are interested in innovation and entrepreneurship. The readings dovetail nicely with my Economics 400 (IO) and 450 (theory of the firm) courses.

I am in the process of completing the reading list and will provide both PDFs and reading guides for the materials within the next week.

Schumptoberfest IS Coming

As an addition to the burgeoning I&E program, the inaugural Schumptoberfest™ is coming to Björklunden over reading period weekend, October 22-24. If interested, you need to sign up with Professor Gerard.

What is Schumptoberfest ? In short, it is a celebration of the ideas of economist Joseph Schumpeter, the subject of our first I&E Reading Group earlier this year. Through reading and discussion, we will develop a better understanding of innovation and entrepreneurship generally, and particularly the importance of economic organization fomenting or retarding entrepreneurial activities. Of course, we also hope to develop a rapport among the students and faculty interested in these topics.

To encourage and reward participation, we are offering a two-credit independent study. The expectations for the IS are as follows:

Complete the required readings.
Travel to Björklunden over reading period (Friday evening until Sunday afternoon) and participate in our workshop.
Produce a short response paper (3-5 pages) to material and ideas discussed over the weekend.*

The target audience for Schumptoberfest is students who have a firm grasp of micro theory and have an interest in the scholarship on innovation and entrepreneurship. The course should be an exceptionally good fit for students who have taken or are planning to take Industrial Organization and The Economics of the Firm.

Those interested need to sign up with Professor Gerard as soon as possible. Those interested in receiving the two independent study credits need to sign up with him by Friday, September 24. We expect 10-15 students and 3-5 faculty members to participate.

*Professor Gerard will provide the readings and reading guides over the course of the next few weeks. We will set the parameters of the writing assignment during the retreat.

Schumptoberfest design by K. Richter

Talk Like a Pirate Day

It’s Talk Like a Pirate Day over at The Mudd, and elsewhere.

Perhaps you should celebrate by reading Peter Leeson’s The Invisible Hook, an economic analysis of piratical organization. Or perhaps the JPE piece it was based on. Or even one of its many favorable reviews.

Here’s the gist:

The idea of the invisible hook is that pirates, though they’re criminals, are still driven by their self-interest. So they were driven to build systems of government and social structures that allowed them to better pursue their criminal ends.

I read this over the summer and found it interesting that the classic pirates created reasonably democratic governance structures with built-in checks and balances, whereas most organized crime we think of today — including modern-day pirates, I’d guess — is more conventionally hierarchical.

First Fall Economics Tea, Monday at 4:30

Is there something funny about this picture?

We will hold the Economics TeaBAs this term on Mondays at 4:30 p.m. in Briggs 217.

The EconTBA is a great opportunity for you to take a break from your studies to come and chat with your favorite economics professors and students. Last year we had a vibrant guest list, ranging from professors in other departments to visiting speakers to emeritus faculty. And even if you don’t like us, there are always the “free” tea and cookies for you to enjoy.

This was formerly called “Economics Tea,” but we decided it was too risky to lock in to one beverage, given potential for changes in prices and income. Hence, Economics TeaBA.

See you Mondays.

Toxie, We Hardly Knew Ye

Some of you may remember that last year we brought you a link to Toxie Cam , where folks at NPR purchased a so-called “toxic asset” to help them understand the mortgage crisis and the financial crisis more generally. To wit,

We bought Toxie for $1,000 earlier this year. Every month, we get a check. It’s a small piece of the payments people are making on their mortgages. And every month, more houses get foreclosed on and sold off by the bank. When enough houses get sold off by the bank, Toxie will be dead.

Hilarity ensued, of course, when they dedicated a live streaming web feed to a stack of paper, a la the live feed of the BP platform gusher. They went on:

She’s not dead yet — but things are looking grim. Last month, we got $72.41; so far, we’ve received a total of $449. This month, our payment was zero dollars and zero cents. We could still get another payment next month — maybe.

Well, it looks as she’s pretty much dead now, and as the value of the “Toxie” is converging to the paper it’s printed on. So, in a final hurrah, NPR gives us some back story from before Toxie was toxic. This in includes a rather spectacular aerial photo of a neighborhood that was planned but never developed.

The Toxie Cam was part of an NPR series that seems pretty engaging. Certainly not the worst thing you’ll read about the financial crisis.

Out with the Old, In with the New Palgrave

Do you think the liquidity preference is the choice of beverages at our weekly Econ TeaBA? Or perhaps you are under the impression that a LaGrangian multiplier is a French calculator? If so, you might consider checking out The New Palgrave Dictionary of Economics online. The dictionary is a great resource for quick, readable, often authoritative pieces covering everything from Moses Abramovitz to Frederik Ludvig Bang Zeuthen.

But don’t take my word for it, here’s the advertising from the publisher:

This new edition retains the inspiring tradition of bringing together the world’s most influential economists writing in their own voice on their areas of expertise, but in its online incarnation it has married this tradition with the benefits of a dynamic, updated resource serving the information needs of a new generation of economists.

Seriously, this is an excellent resource, and you should utilize it. It’s brought to us by the good folks at The Mudd.

Prof. Brozek Screens Forbidden Planet, Tues at 9:30

Is there a bigger champion of the educational movie on campus than Professor Brozek? I think the answer is decidedly not. In the spirit (sort of) of last year’s international film series, this term he brings us Forbidden Planet to entertain and enlighten us in ways that only sci-fi movies from the 1950s can.

The movie screens Tuesday, September 21 at 9:30 p.m. in Warch Cinema. Everyone in Freshman Studies (and beyond?) is invited.

For those of you who had a reasonably normal childhood, here’s the basic storyline:

Forbidden Planet is an adaptation of The Tempest set on the planet Altair IV in the year 2257 – Shakespeare in space suits, essentially. The parallels between the movie and the play are numerous – Dr. Morbius and his daughter, Altaira, are the only human inhabitants of the planet, although they have a faithful servant in Robby the Robot. When a mission from Earth comes to rescue Dr. Morbius, they discover threats (a machine that creates monsters in the crew’s subconscious) as well as romance (Altaira and a young Leslie Nielson as Commander Adams).

Part of the fun of Forbidden Planet – especially in the context of Freshman Studies – is picking out the parallels between the film and the play. It’s also interesting, though, to look at the spots where they diverge – SPOILER ALERT SPOILER ALERT I CAN’T BELIEVE HE SENT ME ALL THESE SPOILERS

If you’d like to read more, check out “Shakespeare in Outer Space: Forbidden Planet as Adaptation of The Tempest,” by Miguel Angel Gonzalez Campos at the University of Malaga.

The target audience is Freshman Studies students, but I don’t think we’re quite that picky. See you there.

Is Gladwell’s Perspective on K-12 an Outlier?

I just finished up Malcolm Gladwell’s Outliers: The Story of Success, with a rather unconventional take on the U.S. public schools. The girl he is discussing, Marita, is from a single-parent, low-income household. He is concluding a chapter on an experimental public school program in New York City, the Knowledge is Power Program (KIPP, for short).

Marita doesn’t need a brand-new school with acres of playing field and gleaming facilities. She doesn’t need a laptop, a smaller class, a teacher with PhD, or a bigger apartment. She doesn’t need a higher IQ or a mind as quick as Chris Langan’s (a genius discussed earlier in the book). All those things would be nice, of course. But they miss the point. Marita just needed a chance.

That is both a conclusion about our schooling, as well as a conclusion about how our society produces talent. Gladwell is the master storyteller, and in Outliers he writes convincingly how a combination of arbitrary advantages mixed with an extraordinary work ethic can compound to produce “outlier” talents ranging from Bill Gates to Canadian professional hockey players.

Indeed, Gladwell is explicitly discounting exceptional talent as a significant factor in determining exceptional success. Instead, he contends that there is some threshold level at which incremental improvements don’t matter. So, there are many people who could have been Bill Gates, but Bill Gates was the only one with that level of ability that happened to fall into a situation that allowed him to become such a dominant captain of industry.

Those interested in a discussion on this point far outside of my research domain might consult the special issue of Behavior Genetics on people with high cognitive ability. In that issue, psychologist David Lubinski addresses Outliers and concludes: “The vast majority of scientists in talent development would say that it takes at least ability, ambition, and opportunity; there is no need to minimize the importance of any of these when it takes all three.”

I am certainly not qualified to discuss the literature on talent development, so I will leave it at that. My feeling is that Gladwell consistently conflates more mundane successes associated with someone like Marita with extraordinary successes of someone like Mario Lemuiex. This makes it both easier and more difficult to attack his argument. On the one hand, I completely buy the argument that most successful people are a product of chance and of hard work — there are few truly self-made men. On the other hand, it’s hard to believe that truly great scientists and mathematicians aren’t blessed with a skill set far beyond the domain of the 95th-percentile student.

Is the Dominance of Economics History?

A couple of friends and colleagues have alerted me to a recent Financial Times piece by Gideon Rachman, urging folks to “sweep economists off their throne.”

The basic insight is that economists often model things with the claim that our models can inform the future. He suggests we are more like historians than physicists, and it’s right time we admitted it already.

With the exception of a few deluded Marxists, historians know that their work cannot be used to predict the future. History can suggest lessons and parallels and provide wisdom – but what it cannot do is provide a sociological equivalent of the laws of physics. Yet this seems to be the aspiration of many economists, who notoriously suffer from “physics envy”.

In our corner, we have The Undercover Economist, Tim Harford, with a robust defense of the good guys, pointing out that there is more to economics than predicting recessions. In fact, it’s not even clear that the profession pretends that this is of much consequence to “what economics is” (see here for elaboration).

Though, even as a staunch supporter, Harford cannot bring himself to defend macroeconomic, conceding that “macroeconomic models have proved fairly useless.”

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