David Gerard

Author: David Gerard

Samuelson and Schumpeter at O&M

There is a very interesting post over at the Organizations and Markets blog about the relationship between Josef Schumpeter and Paul Samuelson. Samuelson, who died Sunday at the age of 94, is the Nobel Prize winning economist who shaped and then dominated the introductory textbook market for decades. In one of his more audacious moments, he famously proclaimed, “Let those who will, write the nation’s laws if I can write its textbooks.” He also was the driving force behind formal economics modeling (read: mathematical models).

His dissertation advisor, Josef Schumpeter, was also an amazing and amazingly-influential economist of a different stripe. Even without the formal modeling (and perhaps due to the absence), his work has become central to the recent revival of the economics of innovation and entrepreneurship. You could do worse over the break than to pick up a copy of the recent biography, Prophet of Innovation.

I know I did.

Happy Holidays from Sam and Jeff

From Adam Smith on, we expect rivals to get together to conspire against consumers. But this shopping season, we have Amazon and Walmart engaging in cutthroat price competition.

The effect should be good for consumers in the short run, but bad for retailers generally. As the price war expands, however, it is almost prohibitively difficult to think of all of the general equilibrium effects of this, so it is a shame that we won’t be offering Industrial Organization until next year. Look for this example ad naseum in ECON 300 next term.

The High Cost, er, Price of US Medical Care

Is US health care more expensive because we have higher costs of provision, or is it simply that providers charge higher prices? Blogging wunderkind Ezra Klein at the WaPo gives us some insight into what appear to be exorbitant US prices. He also provides a link to the full pack of charts with the international price comparisons. Yowza.

I can think of reasons why the US might have higher costs and hence higher prices. For example, I’m told that Allegheny County in Pennsylvania has as many medical helicopters at the ready as the entire country of Canada. I will not stake my name on whether that is true or not, but it certainly could be the case that higher average costs lead to higher prices, even with robust competition. There are also arguments of waste, fraud, abuse, exorbitant overhead, what have you that could also contribute.

On the other hand, maybe it’s (just) the prices, stupid.

Daylight Savigs — Watch Your Step

The debate over the utility of daylight savings comes up about twice a year, usually around the time the clocks change. This post at Tree Hugger takes on some of these issues, with a hat tip to yours truly. Watch your step, indeed!

The original intent of daylight savings was to save energy. Daniel Engber at Slate reviews some of the evidence on this front.

If the policy isn’t meeting its objective, why don’t we just repeal it? That’s not a rhetorical question.

The Land of Opportunity?

The folks at Brookings have a consistently-interesting research agenda addressing questions that seem pretty central to economic growth and social welfare. Students have really enjoyed (and been disturbed by) Alesina, Glaeser, and Sacerdote’s Why Doesn’t the US Have a European-Style Welfare State published in Brookings Papers on Economic Activity. Gary Burtless’ work on the sources of American inequality is quite revealing.

And, most recently, Isabel Sawhill and Ron Haskins have identified Five Myths about Our Land of Opportunity. I particularly liked the discussion of Myth #4.

4. If we want to increase opportunities for children, we should give their families more income.

Of course money is a factor in upward mobility, but it isn’t the only one; it may not even be the most important. Our research shows that if you want to avoid poverty and join the middle class in the United States, you need to complete high school (at a minimum), work full time and marry before you have children. If you do all three, your chances of being poor fall from 12 percent to 2 percent, and your chances of joining the middle class or above rise from 56 to 74 percent. (We define middle class as having an income of at least $50,000 a year for a family of three.)

ECON 450 Preview, The Royal Lesson Edition

For those of you wondering what this winter’s ECON 450, Economics of the Firm, is all about, might consider taking a peek over at the Machiavellian personality test. These are exactly the types of issues that we will be tackling in class — how different assumptions about how people actually think and behave shapes markets and organizations.

As you probably know, Machiavelli famously said that the “prudent ruler ought not keep faith when by doing so it would be against his interest…” Recent Nobel Prize winner Oliver Williamson responds by saying, “the more important lesson, for the purposes of studying economic organization, is this: Transactions that are subject to ex post opportunism will benefit if appropriate safeguards can be devised ex ante.”

Well said!. No wonder he gets his own parking spot.

Another important lesson you might want to keep in mind, especially around grading time, is that I received a “high Mach” on the test, revealing my high levels of Machiavellian thinking.

Now if only Wal Mart sold textbooks

Anyone care to take a stab at estimating the consumer surplus generated from the price war blowing up between Amazon, Wal-Mart, and Target?

The price war began last week when Wal-Mart announced that it would offer Walmart.com customers who preordered any of 10 of the coming holiday season’s biggest potential best sellers the chance to buy the books in hardcover editions for just $10. Typically new hardcovers sell for $25 to $35, although some discounting is common.

Amazon.com quickly matched Wal-Mart’s preorder price on the same books, which include “Ford County” by Mr. Grisham, “Under the Dome” by Mr. King and “Going Rogue,” Sarah Palin’s memoir. Wal-Mart then lowered the price to $9, and Amazon followed suit. By late Friday afternoon Wal-Mart had cut another penny off the price.

On Monday, Target entered the fray by offering six of the preorder titles on Target.com for $8.99. By Tuesday Wal-Mart had lowered the price on those titles to $8.98.

Full story here

Interestingly, independent booksellers are claiming that this price competition “is damaging to the book industry and harmful to consumers.”

Well, I don’t know how damaged consumers are by paying half price for hardcover books, but it is certainly won’t be good for independent booksellers.

Public Policy and Drug Producer Profits, Parts 1 and 2

From the Wall Street Journal we have a story tallying up the winners and losers from proposed health care reform. It looks like the drug makers are in for a bonanza, though things might not be so cheery for hospitals and insurers.

Meanwhile, the Department of Justice has decided against prosecuting growers and shops that sell state-sanctioned medical marijuana. Certainly, one of the big costs of being an illicit drug producer is the threat of legal sanctions, which is why organized crime often weighs in. With the liberalization of drug enforcement, will mom & pop producers run the Mexican cartels out of business?

Stay tuned.

More on the Nobel on WLFM

Professor Gerard (that’s me) will be talking about the Economics Nobel Prize winners at 6:30 p.m. tonight on WLFM.net. (That’s 6:30 cst for our readers outside the Lawrence area).

The program is Page 404 and my host is Avi Steiner.

We will be taking the lid off the economics of organization (with guile), taking on topics from the assumption of rationality in economics to grazing rights in Switzerland to who (probably) owns the McDonalds up the street. It should be a fun half hour.

Williamson, Ostrom Share Nobel in Economics

Oliver Williamson and Elinor Ostrom are sharing this year’s Nobel Prize in Economics. Williamson is out of what is known as the Carnegie School of organizational economics, and is the titular head of “transaction cost economics.” If you wanted a theoretical model to help understand why Lawrence contracts out its food service rather than doing it internally, you might pick up a copy of The Economic Institutions of Capitalism. Much, much more on Williamson in the Economics of the Firm course this winter.

Ostrom is one of the founders of the Indiana School, and thinks about collective management of common property resources. She has found that private groups are often able to avoid the dreaded tragedy of the commons and become long-term stewards of common property resources. More on Ostrom in Econ 385, Natural Resource Economics.

Sadly, there was no winner in the Pick the Nobel contest. We will put the pears in the storeroom and award them to next year’s winner. See you then.

Lawrence’s First Annual Pick the Nobel Contest

The Nobel Prize in economics will be awarded next week, and this kicks off the Official Lawrence University Pick the Economics Nobel Winner competition.* You should e-mail your picks to me. One entry per person.

So you might be asking yourself who is even in the running. Well, you can find the latest odds here.

At this point, you might be saying to yourself, “hold the phone, you can bet on stuff like that?” Indeed, you can bet on just about anything now, though in the polite academic ease we call these “prediction markets.” There is very much a burgeoning field of study here, and these markets generally do a better job than polls or pundits at forecasting the future. One point that I find particularly interesting is that these tend to work pretty well even if people are just playing for fun and not real money.

Outside of the wagering angle, it might be interesting to take a look up and down that list and see who you recognize and why. Most of these guys have advanced the field in some way, and understanding their contributions might help you to understand different areas of economics exploration. The odds-on favorite, Eugene Fama, is the man behind the “efficient markets hypothesis,” which arouses passions of all sorts. Can you beat the market? Do prices really convey useful information? What exactly is an “efficient market.” The irony here is that if you believe in efficient markets, you should go ahead and enter Fama in the contest.

Second on the list is Paul Romer, who is a pioneer of endogenous growth theory and the hero of the excellent Knowledge and the Growth of Nations, but he might be better-known to you as the guy who developed Aplia.

There are many others that have made their mark on my thinking. If you take an environmental course, you will learn about Marty Weitzman (prices v. quantities) and Bill Nordhaus (climate change). Paul Milgrom and Oliver Williamson are both central figures in the theory of the firm. The list goes on.

So, email your picks to me. The prize will be awarded at the next Economics Club meeting.

*First prize will be a large sack of pears. Multiple winners will be sorted out by who chose the candidate first. My pick is Ben Bernanke, but I would be happy to cede my pears to anyone else who selects the Fed chair.

America’s Most Influential Economist?

Who do you suppose is America’s most influential economist? Paul Krugman? Greg Mankiw? Paul Samuelson? Steve Levitt?

The answer may well be Larry Summers, the chair of the National Economic Council for President Obama. This week’s New Yorker carries a (lengthy) profile that is good reading, especially for its peek at what the White House does (or thinks it does) to manage the US economy.

Who ever said economists were boring? He has had a stellar academic career. He served in several capacities in the Clinton Administration, ultimately replacing Robert Rubin as Treasury Secretary. He was also tapped as the president of Harvard, where he was ousted in spectacular fashion. And now he’s back in Washington amidst the biggest economic calamity since 1980 or 1930, depending on who you listen to.


If you can’t get enough, Felix Salmon provides some very thought-provoking commentary on the article.

Campus Lectures on Agricultural Policy, Thursday Oct 1

Jill Richardson, author of Recipe for America and activist for organic farming, will be on campus Thursday, October 1 to give several talks. Her public address, “The Global Food Crisis,,” is at 7 p.m. in the Wriston Art Center auditorium. She will also be talking with students from 11:10-12:20 in Science 102.

According to the poster I saw, one of her messages is that the world is not short of food, but that the inequitable distribution of food is fundamentally a political problem. This should be a familiar message to economics students, as ag policies are classroom favorites for demonstrating the perversities of government price controls and subsidies. Her solution advocates industry disintegration and decentralization, which should make for some very tasty discussion, so to speak.

For those interested in further reading, Pasour and Rucker provide a (very) critical history in Plowshares and Pork Barrels: The Political Economy of Agriculture.

ACM Off-Campus Study Programs — Everywhere You Want to Be

Scott Ozaroski (Oh-zuh-ros-key ), the Director of Recruiting for the ACM programs, will be visiting Lawrence Wednesday, September 30 to talk about ACM off-campus study programs. He will be having a lunch table and an informational meeting from 11:00-1:00 on the first floor of the Warch Campus Center. At 4:30 he will host an informational meeting for all ACM programs in the Cinema, also at the Warch Campus Center.

Here’s the poster.

For those of you taking Intro Micro, he will visit at the end of class on Wednesday as well.

The Economists’ Voice

We are fortunate to have on-campus access to The Economists’ Voice . These are short, generally readable pieces by some well-known economists.

This week we get an analysis of the cash for clunkers huzzah. It is a nice example of a benefit-cost analysis that monetizes non-market amenities. Those with interest in environmental economics, take notice (you’ll be seeing this again).

Is CARS a Clunker?

Burton A. Abrams, University of Delaware

George R. Parsons, University of Delaware

Summary: Burton Abrams and George Parsons of the University of Delaware evaluate the efficiency of the recently introduced ‘Cash for Clunkers’ program and conclude that the cost exceeds the benefit by approximately $2000 per vehicle.

Did they say $2000 per vehicle? Couldn’t be!

Take a look at the archives. It’s ripe with good reading.

Aspiring Environmental Economists?

If you are going to be a junior and you are interested in environmental economics and policy, this might be right up your alley. It seems to be well paid and well funded.


Title: 2010 Academic Year EPA Greater Research Opportunities (GRO) Fellowships for Undergraduate Environmental Study

Open Date: 09/15/2009 – Close Date: 12/10/2009

Summary: The U.S. Environmental Protection Agency (EPA), National Center for

Environmental Research (NCER), invites applications for the Greater Research

Opportunities (GRO) Fellowships for undergraduate environmentally related

study for bachelor’s level students. The deadline for receipt of applications

is December 10, 2009. Subject to availability of funding, the Agency plans to

award approximately 30 new fellowships by July 30, 2010. The fellowship

provides up to $19,250 per year of academic support and $8,000 for internship

support for a combined total of up to $46,500 over the life of the fellowship.

The GRO program enhances and supports quality environmental education for

undergraduates, and thereby encourages them to continue their education beyond

the baccalaureate level, and pursue careers in environmentally related fields.

The actual amount awarded per year will vary depending on the amount of

tuition and fees and the number of months the stipend is required. This

fellowship is intended to help defray costs associated with environmentally

oriented study leading to a bachelor’s degree.