General Interest

Category: General Interest

New Faculty in the Economics Department

Who is teaching all of these additional courses?, you ask.   Well, here we go:  The Economics Department is pleased to welcome two visiting professors, M. Taylor Rhodes and Satis Devkota, for the 2013-14 academic year.

Professor M. Taylor Rhodes hails from Charlotte, North Carolina, where he completed his doctorate in economics at UNC Greensboro in the Spring of 2013. Other stops along the way include the University of Virginia and Penn State.  At Lawrence, he is teaching introductory macroeconomics (Fall and Spring), advanced topics in Sports Economics (Winter), and labor economics (Fall).  He has an active research agenda in applied microeconomics, including local economic policies, topics in sports economics, and the introduction of new beer brands in the US beer industry.  He has four years of teaching experience, both in the classroom and online.  In his spare time (?) he is something of a computer jock — listing his hobbies as desktop Linux, open source software and network and cloud computing.  His aspirations for the year include the creation of his own cloud.

Professor Satis Devkota, completed his doctorate at Wayne State University in 2012, focusing on Health Economics and Comparative Health System.  This year he will be teaching development economics (Fall and Spring), two sections of econometrics (Winter), and international trade (Spring). He also has an active research agenda in applied microeconomics focusing on health economics (sustainable policy, comparative effectiveness and health care disparity), education economics (socio-economic determinants of disparity in education and access to schooling), development economics (farmer’s productivity, inequality and poverty) and international trade (exchange rate and trade).  He has more than 12 years of teaching experience at the collegiate level, including a stint teaching MBAs this past year as a visiting professor at the University of South Dakota.

And, of course, the indefatigable Professor Gary Vaughan will be back this year with an expanded role for the innovation & entrepreneurship program.  Once again he will be teaching sections of financial accounting (ECON 170) in the Fall and Spring, as well as playing a role in the entrepreneurship courses (ECON 180 and ECON 211).  In addition, he will be offering a follow-up to his financial accounting course, Topics in Finance (ECON 295) in the Winter term.  Professor Vaughn is the founder and runs Guident Business Solutions in Appleton, and sits on the board of several organizations, including Board of Advisor member to College of Buisness and Legal Studies at Concordia University and the Self Employment in the Arts (SEA) Organization.

Welcome to Professors Rhodes and Devkota and welcome back to Professor Vaughn.  We hope to have a welcome Econ Tea in the next week or two.

Two Economists Walk Into a Bar…

When the indefatigable Saturday Morning Breakfast Cereal weighs in on economists, hilarity ensues.

ECON
Let me count the ways…

Economists are further ridiculed here and also here.  Oh, and here, too!

We are somewhat more heroic in this piece, I’d say!  (For an explanation of the value of a painting vs. the value of grandma, see here.  And then see here).

 

Thanks to Mr. T. for the tip.

Ronald Coase, 1910-2013

This past weekend Nobel Laureate Ronald Coase died.   He is one of the most influential social science scholars ever, having shaped questions of organizational economics, and virtually founding the field of law & economics.  His 1937 paper, “The Nature of the Firm,” addressed the canonical question for organizational economics, and a mere 23 years later in 1960 he altered the trajectory of social science research with “The Problem of Social Cost.”  As Coase put it:

Transaction costs were used in one case to show that if they were not included in the analysis, the firm has no purpose, while in the other I showed, as I thought, that if transaction costs were not introduced into the analysis, for the range of problems considered, the law had no purpose (p. 62).

The Cheap Talk guys give us a short, pithy take on the organizations piece, and  Steven Landsburg distills the essence of the externalities argument here. 

It’s difficult to convey what an influence Coase has had on the profession, but it is certainly much greater than the “median” Nobel Prize winner. Peter Klein weighs in:

His “Problem of Social Cost” (1960) has 21,692 Google Scholar cites, and “The Nature of the Firm” has 24,501. Adam Smith’s Wealth of Nations, summed across editions, has about 30,000. Coase changed the way economists think about the business firm and the way they think about property rights and liability….  Not all economists have agreed with his arguments and conceptual frameworks, but they radically changed the terms of debate in the economics of law, welfare, industry, and more. He is the key figure in the “new institutional economics” (and co-founder, and first president, of the International Society for New Institutional Economics).

 The Lawrence Economics Blog’s links to Coase are here, and here is a the University of Chicago notice. If you just type “Coase” into a search engine, you will have plenty to read.   Wow.

An Apples to Apple Comparison?

Those of you who have been around the economics department the last few years have probably had a brush with Winners, Losers, and Microsoft, where Stan Liebowitz and Steven Margolis examine the antitrust case against Microsoft from the late 1990s.

In today’s New York Times, Paul Krugman makes the case that “Apple’s position in mobile devices now bears a strong resemblance to Microsoft’s former position in operating systems.”  That is, Krugman claims that Apple has considerable market power that is substantially augmented by network “externalities.”*  As a result, Krugman claims that though “Apple produces high-quality products…   they are, by most accounts, little if any better than those of rivals, while selling at premium prices.”

University of Toronto’s Joshua Gans provides an interesting response to Krugman, both in terms of the history of the Microsoft-Apple competition, as well as the extent to which Apple products are a contestable market. Indeed, Gans thinks that the extent of Apple’s market power via network effects is constrained:

Krugman in trying to understand the iPhone relies on network effects (people have apps and are locked in) but apps are so cheap it is hard to imagine this is anything remotely the same as that in the past. Krugman also considers Apple high priced but that is very recent. Before the followers came in, Apple’s iPhone was significant precisely because it was so cheap compared to other proposed smart phones. The same is true of the iPad.

Indeed, that gives us the current narrative. Competitors can use price to compete with Apple (which they couldn’t do with the old Microsoft). Apple, therefore, has to keep quality high and consumers satisfied to survive. That is precisely why the share market has such a hard time with it than with say Amazon that arguably relies more on switching costs to keep its customers. The important point is that that is what we want in the tech world. We want competition on the basis of price and quality and we want it to be tough. In many respects, therefore, we have the free from monopoly cost market that we tried to get in the 1990s and should be happy for it.

Continue reading An Apples to Apple Comparison?

High Rollers on Briggs 2nd

HR 217
Spacious!

Those of you on the taller side will be excited to see the upgraded facilities down in the Econ Seminar Room, not only increasing mobility, but also raising the clearance of the tables from 36′ to almost 39′.   As a result, those of you above 5’10 will likely be able to pull up to the table without any significant bumps and bruises.

Apologies to recent alum “Mr. K”, who would have been a major beneficiary had we gotten around to this sooner.  In fact, the median height of last-year’s class may well have been above 6′ tall! 

It remains to be seen whether these capital improvements will lead to the attendant productivity gains.

It will Probably be a Good Year

A Big Year for Astro-Statistician Chad Schafer

Although it’s a little late in the game, Carnegie Mellon statistician Chad Schafer helps to usher in the International Year of Statistics in a recent Pittsburgh Post Gazette article.

And what a year it has been.  Statistician Nate Silver, who has been successfully handicapping presidential elections, recently jumped ship from the New York Times to ABC News ESPN. 

Also, in a fascinating turn, Hal Varian is quoted in the Post Gazette piece saying that statistics will be the “the sexy job in the next 10 years.”

Sexy job.

Statistics.

Huh.

It’s sort of a big deal that Hal Varian says statistics and not economics is the hot job, seeing as how many economics Ph.D.s of my vintage learned our microeconomic theory from Hal Varian’s iconic text (These days, of course, Varian’s text just gets you warmed up for the good stuff).  Varian has remained ahead of the curve, authoring some of the foundational work on the “new economy”  and is now the Chief Economist at Google.  Wow.

Getting back to the International Year, Professor Schafer runs through a bunch of projects from in and around Pittsburgh, from the National Surgical Adjuvant Breast and Bowel Project to the Pittsburgh Port Authority’s routing of buses to the RAND Corporation’s work on education reform.  Not to mention some of the weightier issues. It sounds like those statisticians have almost as much fun as we economists.

In the Long Run, We’re All Dead or Consume Now, It’s Patriotic

British economist John Maynard Keynes is well known for the first half of this statement.  Both President Bush and President Obama have made comments consistent with the second half of the statement.  Presumably, such opinions are related to idea that more immediate economic growth is good, at least when the growth rate is well below its recent history.

Income and Consumption

 

As Casey Mulligan points out in two recent Economix Blog entries (here and here), such views confuse correlation with causality.  In short, expanded consumption need not lead to increased growth.  Just ask the PIIGS (Portugal, Ireland, Italy, Greece and Spain.)  Sustainable economic growth requires the generation of income and wealth  upon which sustainable consumption must be based.  Such growth requires some degree of postponed consumer gratification which can generate savings that can be use to improve (or increase) physical capital, human capital, or ideas.  In terms of sustainable economic growth, Mulligan rejects Obama Advisor Jared Bernstein’s view (previously stated by others including President Richard Nixon) that “we are all Keynesians now.”

The thing about the Cars movies is that they are geared to a specific audience and that audience does not include 12-year-old girls

pixardeclineexcel
Trending away from 110% approval

The generally “meh” critical response to the recent release, Monsters U, prompted The Atlantic to post a piece on the “sad decline” of the Pixar dynasty.  Using Rotten Tomatoes approval data,  Christopher Orr charts the trend toward mediocrity(though, in this market, mediocrity might be the best you can ask for). At any rate, Pixar generally produces “kids” movies, and the folks at Slate.com took the novel approach of actually asking the kids what they thought. 

Shockingly, it turns out that kids and the critics don’t always see eye-to-eye on movie ratings. The biggest divergence seems to be with A Bug’s Life, a charming tale of a bug’s life featuring the voices of Dave Foley, Kevin Spacey, and Denis Leary (what kid doesn’t love Denis Leary?).  More than 90% of critics rated this one fresh, whilst the kids covered the screen with maters, with an approval rating in the mid-30s.  

Ouch.  

In a similar vein, the critics fell all over themselves praising Finding Nemo, whereas kids were split down the middle in their approval of this mother-killing fish tale.

The critics were not thrilled with Cars (just over 70% approval), but kids loved it even less (just under 50%).   I’m not sure I believe those numbers, actually, given the pervasiveness of Cars stuff (though the little girl quoted in the post title does make a compelling point). I do believe the second set of numbers, however, regarding Cars 2.  The critics panned this hyper-violent Bond-esquey schlock (40%), whereas more than 70% of kids gave it a fresh rating (12-year old girls notwithstanding).  My boy walked out of the theater laughing about “all the guns”.   Huh.

When you add it all up, the approval trend is going quite the opposite for Pixar’s appeal to kids compared to its appeal to critics, which probably has a lot to do with its “sad demise”.

Enterprise Proposals by Students in Entrepreneurship and Finance

Come one, come all to hear budding entrepreneurs present their proposals to a group of “sharks”, as in the venture capitalists who review business proposals on the ABC program Shark Tank.

The presentations will take place Tuesday, May 28th and Thursday, May 30th from 2:30 – 4:00 in Cinema.  See details below.

Tuesday, May 28th

 

Time             Enterprise                                Entrepreneurs

2:30pm            ReactSTART                                       Pat Vincent & Luke Barthelmess

3:00pm            Café Crossfit                                      Tanner DeBettencourt & Alex Brewer

3:30pm            4.0: The Place to Be At                   Aimen Khan, Minh Nguyen, James Maverick &  Nathan Nichols-Weliky-Fearing

Thursday, May 30th                                     

 Time                  Enterprise                                          Entrepreneurs

2:30pm            Kefir Mania                                        Max Randolph, Tony Darling & Carl Byers

3:00pm            Ivory Conscience Gaming            Babajide Ademola, Yuto Sawaki &  Will Evans

3:30pm            Care for Caregivers                         Jake Zimmerman & Kabindra Dhakal

 

No, Really, It’s Hard to Predict Stock Prices

The Economist and Vox each have nice pieces up on what economists do and do not agree upon.   To take the second part first, the piece from Vox shows that there is a pretty large degree of consensus on this issues.

What this shows is that out of about 80 questions, economists completely agree on just over 30 (about 40%) and agree between 90 and 99% of the time on about three of four questions.   There are very few things that economists don’t generally agree upon, and those appear to be issues where “little” research has been done by anyone.  Where research has been done, economists seem to agree on pretty much everything.

Next, we find out some of the central issues where not only do we do agree, we adamantly disagree with the conventional public view.  For example, we all seem to agree that it’s hard to predict stock prices!  (Who knew?!?).  I think we are disabused of the notion early on when we sit down with our pet scheme and lose our shirts. My “investments” tutorials typically go something like this — “put your money in an index fund.”

We also agree that price instruments are better than fuel economy standards (I’ve been saying that for years), that supply & demand factors drive oil prices, and “buy local” policies don’t save jobs, among other things.  It’s interesting to me that when it comes to net benefits of the stimulus, our views dovetail with the public views (i.e., who knows).  

We previously posted about this important topic right here.

That’s Why We Have the Q Requirement

The New York Times reports on a fascinating new exercise regimen: The Scientific 7-Minute Workout.

How can you get all that done in just seven minutes?  Well, first, the routine consists of twelve intense 30-second exercises (12 exercises x 30 seconds/exercise = six minutes).  Then we have to add a 10-second rest period between each exercise (11 rest periods x 10 seconds / period = 1 minute, 50 seconds).

Let’s see, so the 7-minute workout consists of six minutes of exercise and 1:50 worth of breaks…  Don’t mess with science, I guess. 

Summers v. Hubbard

The Sunday New York Times has a contrast of Larry Summers and Glenn Hubbard on our collective economic future.

Summers is a past president of Harvard and economic-adviser extraordinaire to President Obama.   Hubbard is the dean of the NYU Business School, and star of this ‘stinging’ sendup of Ben Bernanke.

Neither lacks confidence, that’s for sure.

Will the US Economy Continue to Grow at 20th Century Rates? Robert Gordon and Eric Brynjolffson Square Off in a Lively Debate

This week Lawrence will be hosting a TEDx conference on re-imagining liberal education.  Thanks to Professors Galambos and Gerard, and a few other colleagues from other departments, this live discussion will be video streamed for all of us to watch.

Earlier this month, another TED conference took place.  This one featured economist Robert Gordon (Northwestern) and Eric Brynjolffson (MIT).  Some of you will be familiar with the arguments.  Those who took Capital and Growth last year read Gordon’s paper on the headwinds that will drive economic growth back to the level experienced prior to the first industrial revolution in the 18th century in England.   Gordon believes that our most productive innovations are behind us and innovation will be insufficient to enable us to sustain the 2% per capita real growth of the 20th century.

Some of you may recall the discussion we had in one of our reading groups of Brynjolffson and McAfee’s book, Race Against the Machine. In his TED talk, Brynjolffson explains why innovation is far from over and that we have the potential to continue the rate of growth of economic prosperity that we experienced in the 20th century.  Of course, the challenge, as he puts it is: “can we race with the machine?”

View both talks as well as a follow-up debate between these two economists here.

In Which The Atlantic Monthly Sees the Light

The cover of the May Atlantic Monthly states flatly that  “We Will Never Run Out of Oil.”

In its typically exhaustive style, The Atlantic takes a few thousand words to come to this conclusion.

This, of course, is what pretty much any off-the-shelf economist has been saying for years, though we didn’t need a series of enormous technologically driven supply shocks to lead us down the path to that conclusion.  Here’s Tim Haab on why Peak Oil doesn’t matter if markets are at all functional.  Here’s a peek at oil futures.

Oh, and by the way, Peak Oil?

Inflation Is Your Friend!

This view point has been recently propounded by Japanese Prime Minister Shinzo Abe and his protege (puppet?) Haruhiko Kuroda,  selected to be in charge of the Bank of Japan.  Japan is tired of two decades of stagnation and falling or at least not rising prices.  Mr. Abe has pushed for a 2% inflation target and Mr. Kuroda will provide $77 billion worth of monthly bond purchases to achieve that goal.  If that’s not enough, will more be forthcoming?  Is a little good and more better?

Inflation as a cure for economic ills is not new.  In fact, check out this 1933 video on the how inflation is good for everything and everyone.  Clearly, proponents of Neo-classical macro beg to differ.  Those in Econ 320 will have a chance to sort out the winners and losers.  Indeed there will be losers, as we know that there is no free lunch.  Who will the winners be?

1. lenders or borrowers

2.  savers or consumers

3.  labor or management

4. bond holders or stock holders

5.  renters or buyers

6.  government officials or Wall Street tycoons

Place your bets now or maybe just guard (cover?) your assets.

Whatever else you do watch the video?  It’s a hoot.

Spring Econ Reading Group

The Spring Economics Reading Group will feature the astonishing Winners, Losers, and Microsoft: Competition and Antitrust in High Technology by Stan Liebowitz and Steven Margolis.  The book is more about competition in high technology than it is about Microsoft itself, and it was written back when people still used VHS players and Apple was a bit player in the computer market (pun possibly intended).

Oh, how times have changed.

This book is tried-and-true.  Last year students gave it rave reviews as the featured reading for the Economics Senior Experience, and we also read it in my Industrial Organization this past term.

If you happened to have already read it, don’t despair, I am compiling an auxiliary set of readings to complement (and update) the Liebowitz and Margolis book.  Indeed, the group discussion might be the ideal setting for you to augment your knowledge of the knowledge economy.

We will meet Thursdays from 11:10 to 12:15, provisionally in Briggs 217.    

 

We’re Live from the Lincoln Tunnel

In response to our series of posts documenting the advertising campaigns launched to attract FDI to eastern Europe, we received this trenchant (and profanity-laden) correspondence from our friend, “New Jersey Tommy”:

[What the heck], eastern Poland? [Spending all of that money] on advertisements. Those mad men are ripping off the literally poor taxpayers of eastern Poland.

Waitaminute. Huge coal and natural gas reserves. NOW we all understand what “investing in eastern Poland” means: it means supplying fossil fuel energy to hungry and thirsty western Europe. Badda bing.

In possibly related news from the March 1 Wall Street Journal reports that “Germany debates fracking as energy costs rise.”

And, as if you didn’t know already, the internets move quickly.

Deregulation and Consumers

This week in Industrial Organization we will talk about the peculiarities of the deregulation movement that got going in the Jimmy Carter administration (?).  One peculiarity is that — like the Spanish Inquisition — no one expected the deregulation movement. Why? Because the benefits of regulation generally flowed to a nice, concentrated group of producers at the expense of diffuse, often clueless consumers.   This is pretty much the point of the Stigler-Peltzman-Becker characterizations of regulation.

A second puzzle is the public suspicion of regulation, and in particular the lack of recognition that consumers have been the overwhelming beneficiaries of the deregulation movement.  On each of these points, I refer my students to the Clifford Winston’s excellent (but somewhat dated) piece from the Journal of Economic Literature.

Derek Thompson has a quite excellent piece in The Atlantic online, “How Airline Ticket Prices Fell 50% in 30 Years (and Why Nobody Noticed).”  Well, some of us noticed, I guess, like those of us who teach IO.

Of course, deregulation has had its share of fiascoes and industry handouts as well, so perhaps that’s more etched in our brains than the radical price differences and innovation that often accompany industry deregulation.

Goulash capitalism?

The Hungarian version of Soviet-style economy was often referred to as “goulash communism“—it was a more permissive, generally more prosperous variant than what existed in several other Warsaw Pact countries. If the unique capitalism that Hungary is creating is to be “goulash capitalism,” it’s going to be a low-fat version. This will give yet another reason for some older folks wistfully to declare that “at least in the good old days, goulash used to be goulash.”

Brings to mind some of the happiest moments of my childhood… thanks, NYT!

(This seems like a good time to point out that goulash is a soup, and a very good one. It has beef, potatoes, paprika, sometimes beans, and other things. It is not some kind of a stew, or, worse yet, ground meat with some sauce.)

Hungary rarely gets on the front page of the New York Times, but the new Hungarian tax on fatty, sugary foods was such a bold step towards a healthier Hungary that even American journalists took notice. While the justification for the tax is the national need for a leaner populace, the real reason is probably the government’s need for a fatter treasury. Those of you taking Comparative Economic Systems are probably crying “soft paternalism!” right now. Or “hard paternalism.” As to the financial consequences: if the tax really cuts down on the consumption of unhealthy foodstuffs, not only will there be little revenue generated form the tax, but the very low Hungarian life expectancy will rise, costing the state more in health care expenditures.  Continue reading Goulash capitalism?